Avoiding Di-SaaS-ter

On November 15, 2010, in HRExaminer, by John Sumser

Avoiding Disaster

Successful SaaS customers understand that they are long term renters and not mortgage holders.

Avoiding Di-SaaS-ter

If you are in the market for HR Technology, it’s an odds on bet that you’re looking at  Software-as-a-Service (SaaS). Most vendors are making some form of claim that their offerings involve SaaS. The definitions vary widely. In a way, SaaS is a return to time sharing. In the early days of computing, dataprocessing was so expensive that much of it was acquired on a partial lease basis.

You bought what you needed.

As the cost of hardware plummeted, organizations sought more control. They bought their own machines. They bought licenses for software. They made lots of incremental changes to those licenses. Tailoring the tool was understood as an inherent part of implementing it.

That was ridiculously expensive. Ridiculously expensive.

And, it hardly ever worked. It turns out that customization forces you to live with outmoded processes until you can afford to fix them. You own the software but have to feed an army of independent contractors. Enterprise software with lots of customization turned out to be a build your own prison kit. You designed it, paid for it, and lived with the consequences.

SaaS is usually presented as a low cost alternative to self-incarceration. With no capital investment and a month to month lease, it’s easy to get in and out of. The best news, according to many sources, is that the software can be rapidly modified.All clients are always at the latest revision.

That’s either a wonderful world or Alice’s Wonderland.

All manner of HR software is now delivered as SaaS: Performance Management, Talent Acquisition, Recruiting, Training, Talent Management, Applicant Tracking Systems, Incentive Management, Compensation Analysis, Payroll. The question is not whether you’ll have SaaS tools but when. It’s not a straightforward change.

Here are the five most difficult realities:

  1. SaaS software can not be customized to your precise specifications. The cost-savings comes with a loss of control.
  2. The idea that a month to month lease is easy to get out of is silly. The largest cost of most SaaS implementations is the internal change process. Getting out requires the willingness to implement a new tool.
  3. Bigger customers get better treatment. Who do you think will get  The vendor’s attention? The account with 100,000 desktops or your measly1,500?
  4. Change at the vendor’s whim is extremely expensive. The idea that rapid change is a good thing is only interesting to someone who doesn’t have to implement those changes in an organization (see #3)
  5. Since SaaS vendors bear the weight of capitalization, performance willalways lag no matter what the contract says.In this economic environment, no one is going to invest in a capital intensive solution. You’re going to get SaaS whether you like it or not.

So, how do you mitigate the looming di-SaaS-ter?

  1. Make sure your vendor is offering a true multi-tenant service. It’s not SaaSif everyone gets a custom version. You want to be notified if and when the vendor makes a modification to the software for a specific customer. The business model will break at that point.
  2. Learn to manage contracts with Program Management techniques. This is the essential subcontract management technique. Navigating an agreement with a SaaS vendor involves a long term, give and take relationship. The contract will fail if taken too literally.
  3. Get a clear understanding of how your needs and concerns will be handled before you sign the lease. You will have to politic the user base to get some of the things you want.
  4. Ask five current customers what it’s like to work with the vendor. Do this every year you have the lease.
  5. Remember that this is a lease. While it may seem useful to feel ownership,that will cause you to make the wrong investments. When an investment is required, expect the landlord to handle it.

SaaS makes all sorts of wonderful things possible. But, it’s early in the life cycle of this new approach. Successful customers understand that they are long term renters and not mortgage holders.

About the author

John Sumser

John Sumser is the founder, principal author and editor-in-chief of the HRExaminer Online Magazine. John explores the people, technology, ideas and careers of senior leaders in Human Resources and Human Capital. John is the also principal of Two Color Hat where he routinely advises Human Resources, Recruiting Departments and Talent Management teams with product analysis, market segmentation, positioning, strategy and branding guidance.

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  • Barrett

    John,
    The main problem is that a lot of the areas you mention are not mission critical and therefore are hard to justify dedicating scarce internal resources. I agree due diligence is needed, but SaaS is here to stay and, I believe, is going to be one of the biggest transformative trends in this space. Look at leadership and development – why implement a clunky LMS when you can get almost everything for free. I have started up an experiment using existing social media platforms and free content to try and get people to leverage these resources for free and to learn from others. I would love your opinion.
    http://bit.ly/aOLMko

  • http://www.hrexaminer.com John Sumser

    That’s an important point. HR software is not mission critical (unless
    you’re in HR). In much the same way, CRM is not mission critical (unless
    you’re in sales management). And, I completely agree that rented software
    services (SaaS) are a permanent part of the landscape. The question is much
    larger than due dilligence

    When you change from owning to leasing, there are a whole range of
    sentiments and behaviors that become inappropriate. If you don’t know about
    them, you’re going to get surprised. The CEO is not going to buy the ‘it’s
    not mission critical’ argument if seats are going unfilled or necessary
    training isn’t happening.

    Working with SaaS vendors requires a different sort of management style with
    different sets of expectations. SaaS doesn’t just change the way your
    enterprise software runs, it changes the way you manage it.

  • http://www.facebook.com/martinsnyder Martin Snyder

    John, as so often the case, you are out in front of the inevitable backlash associated with something heavily hyped. The fact that you experienced the timeshare era provides a real perspective on the outlandish concept of owning your own computer equipment and licensing software to run on it.

    Let me add a few notes to your aria: the biggest unintended consequence with SaaS is the underestimation of software product lifecycle. While an Iphone app may be born, rise, and die in weeks or months, shared apps used by dozens or hundreds of people for business processes may have absurdly unexpectedly long lifecycles. We all know of back rooms where VAX machines and Mini-computers are still running software that is barely changed in 25 years (other than the paint job for year 2000). If you are paying per user, per month, for a system that is difficult to transition away from for an extended member of years, you’re not going to be thrilled with the final ROI. You never know what the solution cost you until you shut it down for the last time.

    Also, people tend to forget the contracts are two-way streets. If you are month to month, and you go say 36 months in a row and build your organization around a certain app, and one day they decide to double the price, it’s going to be painful, because switch costs may be a substantial multiple of the price delta, meaning that your choices are to like it or lump it, especially if your vendor is involved in M&A, which will happen in frothy, innovative spaces with low barriers to startup.

    You did make some points that are debatable. When we provide modifications to our solutions, we continue to fully own any intellectual property generated and we use explicit contract language that the modifications may be available to our entire customer base. We also strive for backward compatibility, but usually the modification represents a sizable advance, so backward compatibility is not very desirable anyway.

    Another is a cost-theory related to baseline load and peak load; it’s usually cheaper to self-fund baseline loads and outsource peak loads. Even electrical generation is becoming more localized. How that plays in SaaS remains to be seen, but if your IT function is obtaining basic computing services from the cloud, it may actually be more cost effective to own your Intellectual Property going forward- reversing the trends driving SaaS.

    When features are heavily a workflow or process oriented, that’s where the trouble usually arises. I think we will be seeing a huge impact on the enterprise software space by the evolution of Microsoft SharePoint. Basically, web publishing, document metadata, and assignments/approvals are virtually all going to be handled with SharePoint, and as that happens, vendor API’s to SharePoint will buffer and intermediate affects of system changes in those areas, which I’ve always been challenging for software firms to handle. This will further the evolution of “invisible” interfaces and further render the question of where your services are coming from (e.g. which datacenter or which virtualized network infrastructure) irrelevant to end-users and not strategic to key decision makers. ECM, because of SharePoint especially, is giving way to EIM (Enterprise Information Management), which represents a huge cultural change away from IT departments driving the bus. That’s probably the best result of SaaS in the end, although it’s also a development that has provided more high quality Intellectual Property to more people, esp. small players, which are great outcomes.

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