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SaaS applications are on the rise. Everyone’s moving to the cloud. But, pray tell, why?
What are the real reasons enterprises are selecting SaaS applications? We have had analyst interviews directly with 200 SaaS buyers in the past couple of years, and their motivations for buying SaaS are not as strategic as we would have expected.
Generally, most buyers have succumbed to marketing that promotes SaaS as faster to deploy, cheaper to run and generally has better functionality than its on-premise counterparts. All of which sounds terribly attractive when faced with a costly legacy on-premise upgrade that could take you up to 18 months to implement. Some enterprises even told us that they had a corporate-wide ‘cloud first policy’ that encourages all departments to consider seriously cloud options for all IT projects.
There is no doubt that SaaS applications can be deployed a lot faster than on-premises solutions, and yes, some have some fantastic user interfaces as well. Two of the biggest benefits of SaaS are predictable costs and the ability to stay current on vendor releases. However, the biggest operations business objective of recent times – cost reduction - isn’t automatically achieved by moving to the cloud. The reason for this is three-fold.
Firstly, buyers are investing in functionality they do not need. Most software providers bundle in as many modules as they can muster into a sale, regardless of which specific functionalities the buyer actually wants and needs to use immediately. It’s nice to have these extras in the bank for when you may want to unlock their magic but, in the meantime, do you really want to pay an astronomical monthly rate simply for having them?
Secondly, deployments are not the end, but the beginning of the SaaS journey. As SaaS applications have continual updates, new functionalities, and even new modules several times a year, SaaS services support becomes an ongoing cycle of consulting and implementation work. This, of course, costs money and effort, which needs to be taken into consideration. And, don’t forget one of the biggest drawbacks of SaaS, potentially you have less control over your data.
Thirdly, cloud policy must be aligned with defined business outcomes. It makes sense for this to be a strategy for IT departments, which are charged with providing cost-effective technology to the business. It should not, however, be a specific focus for any other department in the enterprise. As highlighted in The SaaS Buyers’ Guides: Five crucial steps to ensure you get it right, business line leaders should have defined business outcomes and objectives, and approach technology as an enabler for these. The actual technology used should be irrelevant.
Bottom Line: Deciding to switch to a SaaS model doesn’t mean you can abandon good business practice – you still need to weigh up the options and make the case.
SaaS buyers need to employ the same selection rigor to SaaS selection as they did when they evaluated procuring on-premise applications. This includes an in-depth cost analysis of the implications of deploying and managing SaaS on an ongoing basis, and the ability to read between the lines of the vendor marketing hype that does such a great job of selling the products. And most importantly, do these SaaS solutions help them achieve their defined business goals and outcomes? Buying technology for technology’s sake has never been the answer, and nothing has changed!
As enterprises embark on their SaaS journeys, we’ve compiled a quick no-fuss list of tips for buyers to keep in mind. With all the marketing hype created by tech firms, certain analysts, journalists and pundits, enterprise SaaS buyers, more than ever, need to stay focused on their strategic missions and desired business outcomes. Here are five top tips to consider:
- Focus on your business strategy, not a technology strategy: Business leaders, such as HCM and CRM business managers, constantly grapple with outlining a technology strategy to support their business requirements. Why? Business leaders are just that – they have a mission to improve their business performance, aligned to specific business outcomes. For example, an HCM manager may need to create a particular culture to engage and motivate employees, or a CRM manager may be charged to increase customer satisfaction. Either way, these missions should not be to use a particular type of technology or procurement method.
- Don’t select SaaS because it’s cool and looks good on your CV: Too many buyers today are selecting SaaS solutions without tight alignment to the overall business strategy. Too many marketing executives’ eyes light up when you mention “Salesforce” or HR executives “Workday”.Without this, these deployments will ultimately fail. Buyers may achieve automation of mundane tasks but they will fall short of engineering any real business transformation.
- Don’t care as much about which technology you use: IT is and always will be an enabler to the business objectives and requirements. It’s no more than that. One of the most important advantages of SaaS applications is that buyers are not tied to them for years, or even months. If the solution no longer works, you can drop it and find something else. Yes, there are some cost implications, but technically, it is not nearly as painful and cumbersome as trying to swap out an on-premises application.
- Be careful of believing the hype – whatever the source: The ISVs are, of course, aware that you can switch a SaaS solution relatively easily. They are, therefore, laser-focused on making you stick with their solution. Antics include bundling in solutions and modules you don’t need (but will pay for) and stressing the importance of using one complete solution for integration simplicity.
- Only buy what you need: The ability to integrate easily between cloud and on-premise applications is obviously very important, but SaaS buyers need to focus on exactly which modules they need to fulfill their business mission and only use and pay for those. If an alternative solution or application meets a specific business need, then don’t be afraid to use it. Let system integrators pick up the headache of integrating it all – that’s what they are paid to do.
Bottom Line: You achieve business transformation through organizational and cultural change – not with a software tool or a procurement method.
And yes, we’re looking at you, SERVICE PROVIDERS, to help buyers understand this and keep them focused on their business mission and requirements. Judging by a recent survey at our HfS User Conference (see: The spreading outsourcing disease: barely a third of buyers see real value in their current provider relationships), there is still some way to go before service providers actually act as true partners to clients.
The time for smart partnerships to drive real innovation and new thinking in Artificial Intelligence (AI) and cognitive computing is now. This means we need to see the industry’s deep-pocketed innovators become increasingly open – and eager - to working together to help the services industry make the shift to true digital, intelligent, cognitive capabilities.
Recent HfS research shows adoption of Artificial Intelligence (AI) and cognitive computing to enhance operational analytics and Machine Learning is strongly accelerating, with 72% of senior operations executives citing cognitive as becoming a critical component of the future operations strategy:
Digital and Cognitive are Driving Enterprise Operations
Source: “Intelligent Operations" Study, HfS Research 2016; Sample: Buyers = 371
While the market perception around these topics remains refreshingly blurred, AI is a critical building block as organizations increasingly look to progress from legacy labor-driven service delivery to progress toward notions the As-a-Service Economy and the Digital OneOffice (see link). While AI is capturing the imagination of many PE investors and VCs and is being used to hype up media reporting and conference circuits, the market dynamics are far from clear.
Against this background, the fundamental question being posed is “Who will be in the driving
Salesforce remains one of the most important and established enterprise SaaS products in the market, with a vast ecosystem of service partners from the smallest consulting firms to large global integrators. This makes the choice of service partners increasingly complicated and ever more vital as the competitive landscape for these services grows. This is especially important for enterprise organizations that are looking to SaaS projects as more than just IT initiatives, but as catalysts of wider business innovation and to drive business value throughout their lines of business.
HfS concentrated its recently published HfS Blueprint Report: Salesforce Services 2017, on the large enterprise service providers, the winners being those that are able to add the most value to a large scale adoption of Salesforce. This report outlines trends in service delivery and profiles twelve of the leading service providers in this increasingly dynamic market segment. It identified key selection criteria which included the ability to understand enterprise clients’ business imperatives and provide timely and flexible services. In addition, buyers need to look at providers who invest in Salesforce tools, on achieving specific Salesforce certifications, have relevant experience and the requisite geographical scale. These were the main considerations to ascertain service providers’ capabilities and commitment in the Salesforce services market.
In the Blueprint report, we positioned Persistent Systems in the High Potential category. Compared with the other service providers in the Blueprint, Persistent Systems has a relatively small Salesforce services practice, focused on US enterprise clients. However, its Salesforce services business is in high growth, and the service provider is investing in all the right areas to achieve success. Although Persistent Systems serves clients in several industry sectors, it is primarily focused on Healthcare. This is reflected in its investment in tools, including a healthcare accelerator tool, and the Physician and Patient Relationship Management, which has Fullforce Industry Solution certification. Moreover, healthcare clients commend Persistent Systems for its understanding of their business specifics – one commented that their chief architect’s understanding of their business was “outstanding”. In addition, Persistent Systems achieved high customer satisfaction scores from its client references, who were mostly impressed by the strength of its resources, and their ability to provide both business and technical advice. This is also backed by a flexible and cost-effective offshore delivery model. Moreover, Persistent Systems helps drive innovation within the Salesforce development community, where it helps software vendors, App Innovation Partners, to develop SaaS products using the Salesforce App Cloud.
HfS believes that Persistent Systems (www.persistent.com) is a great fit for enterprises needing strong resources, with offshore delivery capability, particularly in the US healthcare market.
Persistent Systems was rated highly in the Blueprint for the following criteria:
- Quality of account management
- Strong resources
- Incorporate client feedback
- Vision for Salesforce effectiveness
(HfS Soundbite snapshot of service provider capability on Horsesforsources.com is part of the HfS Blueprint™ Digital License agreement)
HfS has published its second analysis of the Salesforce services market. In the HfS Blueprint Report: Salesforce Services 2017, we analysed and positioned twelve Salesforce services providers according to their execution and innovation capabilities.
So, what’s changed since last year?
There has been some consolidation in the Salesforce services market since we published the HfS Blueprint Report: Salesforce Services 2015. For example:
- Accenture acquired Cloud Sherpas in 2015
- IBM acquired Bluewolf in 2016: see IBM Culls the Pack of Salesforce Partners by Buying Bluewolf
- Wipro acquired Appirio in 2016: see Wippirio Could Leave Its Indian Heritage Competitors in the Cold... if It Gets This One Right
- Mindtree acquired Magnet 360 in 2016
- CSC and Hewlett Packard Enterprise (HPE) merged in 2016
- NTT DATA acquired Dell Services in 2016
Acquisitions continue to be an important way to gain consultants and certifications. They can also bring valuable approaches and mind-sets that understand the cultural aspects of enterprises adopting cloud applications, which is essential to succeed in this market.
Service providers in general have continued to invest in developing service capabilities and investing in tools to support clients’ Salesforce deployments. Salesforce’s recent products, including Marketing Cloud, Community Cloud, and Commerce Cloud, change the value proposition from being simply a set of CRM tools to a complete customer engagement platform. As we highlighted in the 2015 note, Salesforce.Com Service Provision Must Have Real Investment To Succeed, Salesforce service providers need to adopt a holistic, business-led approach, and bring all relevant skills to the table, including mobile, security and social capabilities to differentiate in this market. While most of the current market is for Sales Cloud implementations, enterprises often expect the delivery of a complete solution, for example including mobile access to applications.
Growth areas identified in the report include:
- Consulting services: including cloud readiness services and organizational change management services.
- Ongoing management services: including advice on new releases and functionalities.
- Analytics services: whether it is the Salesforce Analytics Cloud or an alternative solution
- International deployments: more than 60% of current Salesforce deployments are in NA.
Leading service providers are investing in developing these capabilities, ahead of the market demand.
So, which service providers stood out?
In general, service providers in the Winner’s Circle have made impressive investments to achieve certifications for technical architects, Fullforce Master, and Fullforce Industry solutions. Salesforce itself views these as differentiating strengths in the Salesforce services market. These service providers also typically adopt a business outcome approach, supported by a strong vision for Salesforce effectiveness for clients. They have developed differentiating tools and services, and received among the highest client reference scores in the research. Accenture, in particular stands out as Salesforce’s biggest partner. As well as having impressive scale and bench strength, it continues to invest in services to further differentiate in the market. All the service providers in the Blueprint Report demonstrated a good understanding of the Salesforce service market and a desire to invest in innovation. Deloitte remains a strong contender for the leadership position, while Appirio, Bluewolf, PwC, Capgemini, Cognizant and NTT Data all impressed with their execution capabilities. All of the Blueprint participants had an impressive investment in innovation, including the relatively smaller practices. For example, Infosys, Tech Mahindra, Persistent Systems and VirtusaPolaris have developed proprietary solutions to support specific industry sectors. Moreover, Infosys and Tech Mahindra demonstrate good use of partners to develop solutions. Persistent Systems positions as a Healthcare specialist, and VirtusaPolaris is developing its analytics services.
What are we expecting next year?
The number of certified technical architect, Fullforce Master and Fullforce Industry solutions remains low in the market as a whole. Although they require a lot of time and effort, they represent an opportunity for all Salesforce services providers to differentiate in this crowded market. So, we expect all the players to drive certification programmes in these areas over the next year.
All of the service providers in the Blueprint Report have enhanced their service capability and proprietary solution development in the past year. Those who have made acquisitions, will solidify acquired entities and work on integrating offerings, and marketing new value propositions to clients. Others will continue to make prospective clients aware of their developing capabilities.
Bottom Line – Providers need to build market awareness to make a success of the Salesforce services market
Buyers need to prioritise technical skills as a selection criteria if they don’t already. As this combined with clear business outcomes are the main ingredients for a successful relationship. The path to success in Salesforce services market is clear: strong technical credentials, outcome based services and market awareness.
Indeed, lack of market awareness of capabilities was the most noted challenge in the service providers we profiled. Salesforce has thousands of service partners. In order to stand out, the service providers must make a considerable effort to increase awareness of their skills with prospective clients and with Salesforce, which often called upon to recommend partners to clients. Choice for buyers is increasing so building awareness and capabilities through certification is the best way not to be left behind. For more detailed recommendations for Salesforce buyers and service providers, see the HfS Research site.
The latest acquisition targets for large system integrators are SaaS services providers. And why not? It’s one of the hottest, fastest growth areas in the IT services market today, and a natural evolution for the traditional IT services providers, whose revenues from supporting legacy on-premise ERP engagements are in gradual decline.
Consolidation in the SaaS services market continues apace with the boldest move yet by an India-headquartered service provider into the SaaS services market to date. Wipro has announced its intention to acquire Appirio, one of the strongest and most respected independent cloud services brands in the world for $500m.
This is a significant deal in a services industry struggling to find fresh paths for future growth, with revenues slowing and the traditional model of outsourcing around SAP and Oracle environments commoditizing. This has especially been the case with the Indian majors, whose leaderships are starting to panic with their hyper-growth days now a thing of the past. In our view, Wipro is stepping up to the plate right where the future growth lies, by adding significant capabilities around Salesforce, Workday and ServiceNow platforms, in addition to bolstering its
The Workday services market is growing rapidly, but remains relatively immature. With many of the service providers still finalizing their specific areas of market focus and are trying to find a clear identity and position in the service ecosystem. At the same time enterprise buyers are learning the intricacies of SaaS deployment and service provider relationship lessons in real time.
Just one year after the industry’s first ever in-depth competitive intelligence report on the Workday Services market, HfS has just published the updated HFS Blueprint Report: Workday Services 2016. We analysed and positioned sixteen Workday service providers according to their execution and innovation capabilities.
Enterprises adopting SaaS applications to run their business processes are often entering the unknown. They don’t know what moving to the cloud actually entails, both technically and organizationally. They don’t understand the migration and integration needs relating to existing systems and data. And they certainly underestimate the support requirements to ensure effective management of the solution that continues to align to dynamic business needs.