Category Archives: SaaS

On Demand V: Preparing for the Transition

Earlier this month, Purchasing.com published yet another article about on-demand entitled “On-demand promises to hook savings” stating that on-demand software and technology is more than just software on someone else’s servers—it’s a delivery method that supporters say improves ROI. However, what caught my attention about this article was that it gave some suggestions on how to prepare for a switch to an on-demand solution, something we haven’t really discussed yet in this series.

The suggestions offered by the article are:

  • Know what you need! Develop a solid statement of expectation or long-term roadmap for the specific problems you’re trying to fix and/or the specific results you need to attain. (Note: Discuss this list with your prospective solution provider(s)!)
  • Talk to other users of on-demand technology. Get their perspective on what on-demand is doing for them. (Note: Any on-demand solution provider I’ve talked to is usually more than happy to provide you with a list of contacts in their customer base that you can call.)

In addition, I would suggest you also:

  • Identify what systems your data currently resides in and what systems you are going to need to export data from and import data to. Make sure the solution you select either interfaces with these systems or supports standard input and output formats that will allow you to import and export the appropriate data as needed.
  • Start with a pilot. The beauty of on-demand is that solution providers can literally set up pilot accounts at a flick-of-a-switch that you can use to try-before-you-buy. In addition, most providers will engage in a pilot project with you to prove their solution at very little cost to you. (The standard seems to be free access to the system for the length of the pilot if you cover reasonable consulting costs and expenses. Some eSourcing providers with analytic solutions will even do preliminary one or two day proof-of-concepts on existing data for free to demonstrate the power of their tool.)

Another good point made in the article is that moving to an on-demand solution is not an overnight process as it’s a change management process. The most successful projects transition small groups of power users at a time. These power users become the internal proponents, experts, and trainers and help bring the rest of the organization over to the new organization.

The article mentions how Cox Enterprises was up and running on Procuri’s (acquired by Ariba, acquired by SAP) on-demand solution in under 3 months and saved 2M in a 10M spend category on their very first on-demand sourcing event. It’s important to note that this is a typical result – initial projects using the latest sourcing technologies built into on-demand platforms typically save users 10 to 30% since they not only enable transparency in your market, but remove inefficiencies from the process. If you check out Iasta’s typical results, they are 17 to 26% in aerospace/defense and automotive, 19 to 27% in consumer packaged goods, 18 to 25% in electronics, and 14 to 27% in food processing and food service, for example. (And some of their results at some of their new Fortune 500 clients have been just as impressive.) Iasta (acquired by Selectica, merged with b-Pack, renamed Determine, and acquired by Corcentric) maintained a complete list of categories it has assisted clients. Procuri also had a page dedicated to Success Stories.

Another impressive point of note is that ServiceMaster now claims to have a 99% compliance rate as a result of switching to an on-demand solution. I guess the only thing left to ask is if you have not tried on-demand, why? With solutions that encapsulate the end-to-end executable sourcing cycle in a single, consistent, easy-to-use desktop application, and the cost of a pilot project less than what a big five consulting company would likely charge you to analyze your processes and installed applications and tell you that you should probably supplement their weaknesses with an on-demand solution, it seems like an obvious choice to me. So, like fellow bloggers David Bush of eSourcingForum [WayBackMachine] and Tim Minahan of Supply Excellence [WayBackMachine], I’m going to keep extolling its virtues. The on-demand story will continue.

You can find the previous parts in the series, which started on eSourcing Forum, here:

The Sourcing Innovation Series: Part XI

Today I’d like to welcome guest contributor John Martin of Building SaaS to Sourcing Innovation with a guest post on The Future of Sourcing … for Services. If you followed the On-Demand series, you might remember that I discussed his article “How True Software-as-a-service Delivers More Value” extensively in the fourth installment of my On Demand series.

Our focus is on purchased services: consulting services, contingent labor, outsourcing services, field services, legal services, etc. What we’ve found, in providing our Services Procurement solution to dozens of Fortune 500 companies, is that companies gain the best results by managing the entire end-to-end lifecycle of purchased services.

The primary characteristic of service categories is that they are all different. However, I’ll mention a few commonalities about managing purchased services, then suggest a few ways we’re seeing our leading-edge customers manage and optimize services spending.

First, here are some generalized characteristics about purchased services:

– Services spending is growing: With the increases in business process outsourcing and focus on core competencies, services spending is increasing twice as fast as that on indirect goods spending, according to CAPS Research. Economically, the prices of services are also inherently inflationary since they are closely tied to labor costs, which increase over time faster than goods costs, on average – the Federal Bank of New York’s analysis shows that services’ inflation rate has stayed consistently 2.6% over that of goods over the last three decades.

Core PCE Goods and Core PCE Services Inflation 1968:1-2002:4

– Services spending is often difficult to manage centrally: For some services categories such as marketing services and legal services, functional executives “own” the supplier relationships and spending. For others such as contingent workers and facilities management services, the sourcing and purchasing activities are dispersed throughout the enterprise.

– There can be many unknowns at sourcing time: Some services such as contingent workers and print services have unique requisitions every time, so up-front pricing is difficult to establish. In other cases, the needs of the enterprise change more quickly than anticipated at sourcing time, which has led many multi-year outsourcing engagements to fail.

– Services spending involves a lot of uniqueness: every contract is unique with terms in the statement of work text, requisitions are often unique, services deliverables are different for every contract, and the quality and acceptance measures differ by category, contract, and deliverable.

– “Value delivered” is often a key concept for purchased services: When a services provider touches your customers directly (such as call-center outsourcing or field installation services) or can positively impact your business results (IT application development services, marketing services), the potential value of those services becomes a multi-dimensional concept (including multiple flavors of “quality”) to continuously measure and improve.

– Finally, services involve many additional risks: When a supplier’s workers come onsite to deliver the services, now there are risks to manage regarding security, safety, confidentiality, etc. For contingent workers, there are HR-related risks such as co-employment and worker classification, as well as tracking the results of prior work performed by the worker.

As a result of these characteristics of purchased services, sourcing becomes an ongoing process rather than an event. For example, in some categories such as contingent workforce and print, the sourcing event creates the marketplace of preferred suppliers, and each requisition is sent out to the suppliers for bid – sourcing at procurement time. For almost all services categories, the delivery phase produces information that allows better sourcing and contract negotiating in the next sourcing phase.

After managing this iterative process for a few years, it’s almost impossible to continue to improve the cost basis of services through sourcing, at least since wage pricing started firming up a couple of years ago.

So we’re seeing companies turn to other ways to improve services sourcing, as hints to the future of sourcing. Extending Eric Strovink’s compliance comments and Tim Minahan’s “frontline sourcing” concept (explained over on Supply Excellence [WayBackMachine]), here are some trends that we see improving services sourcing going forward:

– Link sourcing with procure-to-pay and spend analysis: Some would say that for services, contract execution and compliance are everything. The cost savings and value from contracted deliverables are on paper after sourcing, but are actually captured only through a tightly coupled procure-to-pay program. Then, spend analysis on the detailed requisition, deliverable and invoice activities allows improved re-sourcing the next time, in a cyclical sourcing-improvement process.

– Actively use learning strategies throughout the cycle to improve sourcing: Since services have many unknowns at sourcing time, and much of the services value is determined during the delivery phase, companies are engineering their supplier relationships and processes to maximize learning. For example, multi-sourcing sets up a competition among service providers, and spending can be directed to the better-performing suppliers. Companies are starting to track every touch-point with a supplier, gathering qualitative information through surveys to gain much more insight into value and transaction costs. Service-level metrics are becoming much more detailed and continuously monitored (with direct data feeds from the services supplier) to gain insight into the supplier’s processes and capabilities that underlie their delivered quality and value.

– Manage and shape demand: The demand drivers for many services are fragmented and hard to pin down – definitely not available in a production forecast. Since service prices tend to rise over time, it pays to focus on controlling costs through internal demand management, rather than just increasing pressure on suppliers each year. Demand for services is also malleable, as which tasks performed internally versus by the supplier can be changed if needed. Investigating internal demand drivers and supplier interaction processes can lead to ways to reduce time and costs by shifting activities to/from the supplier, redrawing the process boundaries, and eliminating non-value-add tasks performed by either party.

– Build tighter linkages into suppliers’ systems: In the direct goods world, linking into the suppliers’ inventory, logistics, and production systems is a now-common practice. In services, however, this is much less prevalent. In addition to pulling service-level metrics from the supplier (such as call and incident tracking information for call-center outsourcers), companies are adding system integrations for requisitions, deliverables, and invoices to greatly reduce transaction costs and eliminate the “echo-chamber” interaction costs of haggling over invoices post-delivery. Going forward, there is emerging interest in linking into suppliers’ availability, skill capability, and project tracking systems to better optimize delivery processes, and a desire for better collaboration tools throughout the lifecycle of interactions with the supplier.

– Invest more in supplier discovery and development: Most large companies have too many services supplier relationships, so supplier consolidation is the first effort. However, in order to keep up with the state-of-the-art in purchased services, we see a need to provide better tools for finding and starting up relationships with high-quality emerging services suppliers. Along the same lines, companies will need to more proactively develop niche and high-performing services suppliers in the upcoming years.

Thanks again to John Martin for this insightful post on The Future of Sourcing … Services.

What about BoB? (Best-of-Breed)

One of the articles in the Summer issue of CPO Agenda asks “One tool or a whole toolbox”? Another viewpoint in the never-ending ERP vs. Best-of-Breed debate, it notes that despite the improving functionality of ERP systems, many companies still turn to Best-of-Breed ( Bob ) vendors to meet their procurement and supply chain needs.

The article notes that some ERP-centric organizations, such as committed customer Delta Air Lines which deploys a single company-wide installation of SAP, runs e-Sourcing and spend visibility software from VerticalNet (acquired by BravoSolution, acquired by Jaggaer). The reason, according to Bob Currey, General Manager of Sourcing Information and Supply Management, is that ERP systems are excellent at what they were originally designed for – accounting and transaction processing – but when areas of the business such as the supply function want to extract information from that accounting and transaction data, it can be difficult for them to locate and access the right numbers. In terms of procurement, the information on spend is there alright, but not in a user-friendly format. The ‘canned’ reports don’t meet all our requirements, and custom-developed reports take time and programmer effort. … In any business, programming resources are often at a premium. You can build a business case and wait in line – and then carry on waiting, perhaps indefinitely, for the resources that you need to be made available. Or you can go to a ‘best-of-breed’ vendor, and buy what you need, off the shelf. For us, the time-to-benefit of the VerticalNet solution made a lot of sense.

Of course, as the article points out, from an IT perspective, the ERP solution has obvious merits: better integration, an existing commercial relationship, simpler implementation – and, as the Americans say, “one throat to choke” if something doesn’t work as it should. In contrast, a best-of-breed vendor may offer software that proves troublesome to integrate, might be difficult to deal with, and can lack long-term commercial viability.

So what should you choose?

Both!

After all, even as Simon Pollard, Vice President for Discrete Manufacturing at SAP notes, Although we believe customers much prefer to buy a suite of software built around a single platform, our assumption going forward is that we will cohabit with specialised best-of-breed vendors. We can’t do absolutely everything, and wouldn’t want to.

The reality is that there is no Magic-Bullet One-Size-Fits-All One-Software-Package-Does-All solution for any area of your business — and that we’re probably years, and years, away from getting close. My rationale — the pace of innovation in software is still increasing, indicating that there are still miles and miles to go.

Best-of-breed applications tend to fill niches that the big (ERP) systems will overlook, either because the vendors of the big (ERP) systems will not assign the same importance to them or determine that the cost of offering those solutions does not justify the expected benefits (especially compared to another potential offering). In addition, best-of-breed solutions are often years ahead of their traditional ERP counterparts. And when you consider the double-digit percentage improvements these tools can often have across the board, it just makes sense to augment your traditional enterprise systems with best-of-breed solutions.

Furthermore, now that many of the best-of-breed solutions are delivered on-demand using the software-as-a-service model, you can be up and running almost instantly since on-demand solutions have been found to perform better than traditional installed applications, upgrade easier, and install faster, on average, according to Aberdeen Group’s recent study “The On-Demand Supply Management Benchmark Report: Enterprises Turn to the Web and Find Quicker and Better ROI to Help Achieve Supply Management Goals” (sponsored access was available for a limited time). Furthermore, when enterprises deploying on-demand solutions improve spend under management by 28%, which could lead to additional savings of 1M to 3M above and beyond what you would get without the best-of-breed on-demand tools (see: The On-Demand Supply Management Benchmark Report), the business case becomes overwhelming to at least give it a shot.

On Demand IV: And the SaaS Story Continues

Shortly after I finished writing my three part post on On-Demand over at e-Sourcing Forum (The Good, The Not-So-Bad, And the Coming Pretty …), I stumbled across this great article by IQ Navigator’s (acquired by Adecco Group and merged into Beeline) John F. Martin (of Building SaaS fame) called How True Software-as-a-service Delivers More Value over at Supply & Demand Chain Executive.

In this article, he echoes many of the same points that I have attempted to make in my series of posts, and does so brilliantly. He also clearly emphasizes some of the significant disadvantages of legacy enterprise software in relation to True Software-as-a-Service and gives you some rules for identifying a legacy provider with an ASP model trying to disguise themselves as a software-as-a-service provider.

He emphasizes the following five significant advantages of true SaaS solutions as compared to legacy applications that I believe just cannot be stressed enough:

  • no significant technology investments
    with legacy enterprise application solutions, you have to shell out for significant technology infrastructures to support them; with on-demand, all you need is the PC already on your users’ desks
  • no assembly required
    legacy applications require customers to become technical experts in the software: installation, infrastructure configuration, integration, customization, issue diagnosis, and upgrades; this involves significant training, ramp up time, and paying for a large IT staff indefinitely
  • no lock downs
    once customized legacy software finally goes live, it becomes a “strait jacket” that prevents future innovation and improvements for 3-5 more years (as upgrades are deferred as long as possible due to significant costs to re-implement new versions)
  • speedy issue resolution
    with a legacy enterprise application, the software vendor must often replicate a customer’s unique environment (exact production versions of application, database, operating system, hardware drivers, etc.), which can take weeks, only to determine that the issue can not be diagnosed or fixed because (1) it’s due to a customization (2) it’s the responsibility of another software component provider or (3) the version of the software you are running is too old
  • true process expertise
    true SaaS software vendors are experts in the business processes they automate; they can provide ongoing assistance in using new software capabilities, process innovations, and best-practices

And when you consider that Gartner estimates that more then 70% of the total five year cost of ownership for enterprise software comes after implementation, when you consider on-demand is usually significantly cheaper then enterprise software to begin with, this is a powerful proposition.

He also indicates that you can often tell a legacy application on ASP in disguise by noting one or more of the following indicators:

  • a reluctance to pilot
    pilots represent a significant investment to a legacy application provider who will have to configure a new instance just for you; in contrast, a true SaaS solution provider can enter your name and flick a software switch and the pilot is immediately set to go
  • elephant hunting
    (where the salesperson tries to enlarge the deal as much as possible to maximize revenue before you discover the true benefit/cost ratio of owning the software); in contrast, a true SaaS provider will allow you to buy the bare minimum knowing that you’ll want to buy more when you discover how great the service really is
  • reluctance or refusal to discuss revenue
    or the question “what would happen to your profitability if you had no new customers over the coming 12 months?” this would cause a traditional provider serious grief and lead to significant downsizing; in contrast, an established SaaS provider would be able to maintain status quo
  • infrequent or new functionality in any given year
    in contrast, most true on-demand SaaS providers provide regular updates 3 or 4 times a year
  • hosted versions lag new releases
    in contrast, a true SaaS solution is always up to date
  • insistence on single tenant or multiple instances
    in contrast, a true SaaS provider will want to take advantage of the multi-tenant model to save you both $$$
  • delayed or long implementations
    a provider running a legacy application on ASP may require weeks or months before they can get you up and running; a true SaaS solution can literally turn you on the same day you cut a deal
  • simple customizations require single tenant instances
    in contrast, true SaaS implementations are usually built to contain a moderate amount of configurability from the ground up
  • end of contract unknowns
    with legacy in disguise, you never know if you’ll be able to renew, how much it will cost, if you can get your data out, etc.; in contrast, true on-demand SaaS providers will specify everything for you up front, usually in the contract

Remember, as John F. Martin says, “SaaS allows customers to focus on their core competencies and their business processes rather than becoming experts on software internals, technology infrastructure maintenance, or deployment methodologies.”

Yet another take on SaaS can be found in Robert Bois’ recent AMR (acquired by Gartner) article The Rush to SaaS: Making Sense of the New Wild Wild West, where he presents The SaaS buyer’s guide. In it he presents three questions that the buyer should answer before selecting a solution.

  • What’s in an architecture?
    Mr. Bois points out that from a buyer’s perspective, that single tenancy vs. multi-tenancy should not be as big a concern as the pricing model, SLA, and customer support. Although I will admit that the SLA and customer support issues should be tops, I do not entirely agree with the first point. If price is important, then a multi-tenancy model should save both parties money. Furthermore, as Sudy Bharadwaj of Aberdeen eludes in his take of On-Demand Supply Management at e-Sourcing Forum [WayBackMachine], accepting a single tenancy model may cause you to miss out on the community benefits of a multi-tenancy model.
  • What’s the real TCO?
    This is probably the most important question a buyer should ask. If the TCO of an on-demand solution is high, I’d be willing to wager that there is a good chance that what you are actually being offered is a legacy ASP application in disguise, at which point you should refer to Mr. Martin’s indicators to find out for sure. I like Mr. Bois’ cost table, but should point out it is only accurate for the lifetime of your initial hardware and software purchases. The table seems to indicate that there are no annual subscription/license, hardware, or middleware/db license costs after the first year. This is not necessarily the case. If you want upgrades, you will have to pay a maintenance fee. Middleware providers only support their releases for a fixed time frame, and if you do not upgrade on a reasonable cycle, you will find yourself running an unsupported product, which will cost you a fortune if something fails and you need it fixed. Finally, even the best hardware will not last you more then three years without an upgrade.
  • To customize or not to customize? Mr. Bois makes a really good point here: “many companies believe their business processes are more unique than they really are, and they should weigh the advantages to more custom coded logic against the lower maintenance and upgrade costs of using business process tools and configuration instead of customization“.

Finally, I’d like to again point out Sudy Bharadwaj’s “Six Step Framework for On Demand Supply Management”. (login required) Part of Aberdeen Group’s Enterprise Strategies: Insight and Advice for Enterprise Executives, it overviews the Aberdeen PROFIT Framework for Supply Management as a Service (SMaaS). The PROFIT Framework was designed “to aid supply management evaluators in understanding how to deploy an On Demand solution to drive value“. It provides a series of Process, Regulatory, Operational, Financial, Intelligence, and Technology questions whose answers are designed to help you make the right decision.

The On-Demand Supply Management Benchmark Report

Aberdeen Group recently released “The On-Demand Supply Management Benchmark Report: Enterprises Turn to the Web and Find Quicker and Better ROI to Help Achieve Supply Management Goals“. (A copy of this report was available for a limited time from Iasta, who licensed it for distribution and made it available on the e-Sourcing Forum [WayBackMachine].)

There are a number of significant findings in this report. Since you can download it for free, I will not attempt to cover the findings in depth here, but simply display the following teasers that should get your mouth watering for more!

  • 57% of survey respondents indicated that on-demand performs better than traditional installed behind-the-firewall legacy applications with a further 33% indicating that on-demand performs about the same; that’s 90% of respondents agreeing that on-demand performs as well or better than traditional legacy applications
  • 57% of survey respondents indicated that on-demand systems are easier to upgrade than traditional installed behind-the-firewall legacy applications with a further 34% indicating upgrades required about the same amount of effort; that’s 90% of respondents agreeing that on-demand systems are at least as easy to upgrade as traditional legacy applications
  • 52% of survey respondents indicated that on-demand systems require less implementation time and effort than traditional installed behind-the-firewall legacy applications with a further 39% indicating installs took about the same amount of time and effort; that’s 91% of respondents agreeing that on-demand is at least as fast to implement as legacy systems, if not faster
  • enterprises deploying on-demand solutions improve spend under management by 28% more than enterprises that deploy installed on-site solutions over the course of a year … 28% … considering that the savings potential for each dollar of spend under management is between 5% and 20%, even if the actual savings realized is only 30.3% of planned savings (industry average – best in class do much better), then you are looking at a savings of at least 1.2M for every 1B … 1.2M+ … and considering that decent on-demand suites can be obtained for 250K/year (not counting professional services), you could easily save 1M just by using on-demand! ( If you are best-in class and capture 70% of planned savings and efficient and get 15% on each dollar of spend under management, you save roughly 3M more on every 1B going with an on-demand solution! )

And that statistic sums up nicely everything I’ve always believed about the inherent value of on-demand. For more of my views, check out my 3-part series over on e-Sourcing Forum if you haven’t already (The Good, The Not-So-Bad, And the Coming Pretty …) and Sudy Bharadwaj’s thoughtful commentary, also on e-Sourcing Forum.

Have a great day and enjoy the study!

You might also enjoy “A Six Step Framework for On Demand Supply Management”, released on the same day as well (login required). Part of Aberdeen Group’s Enterprise Strategies: Insight and Advice for Enterprise Executives, it overviews the Aberdeen PROFIT Framework for Supply Management as a Service (SMaaS). The PROFIT Framework was designed “to aid supply management evaluators in understanding how to deploy an On Demand solution to drive value”. It provides a series of Process, Regulatory, Operational, Financial, Intelligence, and Technology questions whose answers are designed to help you make the right decision.