Insight to Gartner SaaS Fact Checks

Gartner published Gartner Fact Checks the Five Most-Common SaaS Assumptions this week. Let me share some of my experience driven insights on this subject.

“Assumption 1 — SaaS is less expensive than on-premises software. Gartner Fact Check: True during the first two years but may not be for a five-year TCO.”
In my experience, for on-premise implementations the devil is actually in details. Especially, in large enterprises adding a new enterprise application to the existing complex IT support context may mean steep learning curves, long lead times to procure, install and configure the necessary infrastructure components and hefty opportunity cost, exacerbating the risks and delays in launching the intended value to the organization. So, to compare apples to apples, the TCO for on-premise implementations also need to account for quantification of these risks, say the opportunity cost if the solution is delayed by six months due to the delays in procuring necessary infrastructure components multiplied by the probability of risk.

“Assumption 2 — SaaS is faster to implement than on-premises software. Gartner Fact Check: True for simple-requirement SaaS, which will be faster, but growing complexity and other factors are coming into play.”
While the business process standardization challenges are the same for both of these modes, I see that most of the on-premise infrastructure risks are jettisoned with SaaS, contributing to the shorter implementation times. So, when time is essence, say immediately reaching out to a underserved consumer market, in my opinion SaaS is the clear choice.
In addition, I noticed that most of the SaaS vendors have sound understanding of their product functionality and clearly defined interfaces to the major external systems, further shortening the implementation critical paths.

“Assumption 4 — SaaS does not integrate with on-premises application and/or data sources. Gartner Fact Check: False.”
While some big players, such as SaleForce and Workday, are successfully embracing web services and mashups for real-time and frontend integrations, many SaaS vendors are still paddling with FTP style full load batch interfaces. Integration capability is one area that is often overlooked by many SaaS vendors. Also, in addition to knowing about one/two primary systems that the solution must integrate with, SaaS vendors have imminent need to develop a comprehensive understanding of systems context that the SaaS solution should interoperate with.

“Assumption 5 — SaaS is only for simple, basic requirements. Gartner Fact Check: False.”
I totally agree. If solution is too simple, why go SaaS when it can be easily accommodated with simple forms-based internal solutions.

Also, without reading Garner’s detailed report, not sure whether they accounted for the pricing model differences across SaaS vendors/segments. For example, Talent Management/employee self-service style SaaS vendor pricing may be quite different from CPM style SaaS offerings. Perhaps, the TCO by segment may provide better insight into SaaS vs. on-premise value conundrum.

Overall Gartner findings are good read for customers considering SaaS solutions, and more importantly for SaaS vendors to reflect on their offerings and identify opportunities for further improvements.

Microsoft Azure - Contribute or Cannibalize?

While the discussions between Microsoft and SaleForce fans continues to heat up, I think the announcement of Microsoft’s Azure cloud services is a good sign for customers. Especially, for IT shops and product vendors that are committed to .net technologies this is great news. This also means customers will now have more choices in selecting their Cloud provider. For Microsoft, the success of this offering really hinge on creating and sustaining a profitable business model for Cloud services.
For one, this is a timely move on Microsoft front to capture its share of the growing Cloud services market. With the increasing economic pressures, more and more enterprises are now considering SaaS and Cloud services to enable business agility. Clearly, Azure is a excellent attempt to align Microsoft products to these emerging customer needs (capital vs. operational cost, business agility) and technology trends (connectedness and flexibility).

Second, just like Google and Amazon, Microsoft invested heavily in Windows Live infrastructure for consumer markets. The recent Cloud offering could be a natural extension to these massive infrastructure investments enabling Microsoft to further capitalize on these investments, learnings and expertise.

In addition to the new market opportunities, Azure platform also brings the inherent risk of cannibalizing existing on-premise products to Microsoft. The pull out of SAP SaaS and inhibitions of Oracle to be a SaaS/Cloud provider demonstrates the serious impediments the product companies face to takeup dual role as a Cloud provider (Google, Amazon) and Cloud supplier (Dell, HP). Especially, the competing nature of these two offerings mean winning more business for one product may turn out as losing business for the other. The second risk is monetization part. So far, only few players are able to turn SaaS offering into a profitable business model. With Microsoft Live investments yet to make money, how soon Azure offering will be profitable is anybody’s guess at this point.

More importantly, the network effect of eco system on SaaS providers is clearly evident in great success of few SaaS leaders. One example is partnership between Workday and SalesForce.com. I noticed that strategic partnerships of this kind help to increase customer confidence in the overall eco system and attract more customers towards the eco system. I think Microsoft need to do more than standing next to SAP to insert itself into the Cloud ecosystem. It needs to establish strategic partnerships with leaders and strong players in this niche to establish strong base in SaaS/cloud ecosystem.

Debate on Social Media vs. Knowledge Management

Vekat Rao spurred the debate on Knowledge Management (KM) and Social Media (SM) philosophies with his thought provoking article Social Media vs. Knowledge Management: A Generational War. He reasoned that as much as IT senior leaders think KM and SM are loosely aligned concepts, there are fundamental technical, cultural and philosophical differences between Knowledge Management and Social Media. While KM is centered on predefined charters, expected value and governance, the themes and charters of SM endogenously evolve with group behavior and opinion leaders naturally emerge as a result of the group behavior itself. He points that KM is an unsuccessful attempt to dictate how the world should be, while SM is a real attempt to figure out how it is. Venkat predicts that KM will eventually die and SM will evolve, perhaps by incorporating some best of KM.

While I agree with Venkat’s explanation of SM evolution and its applications in enterprises, I am not in total agreement that KM will eventually die. In my experience so far, I noticed profound applications, driven by underlying business need, for both of these models. For example, the business need to create, approve, authorize and deliver just-in-time corporate compliance, policy & procedure content necessitate the need for traditional KM style Content Management Systems. Think about the content for Corporate Compensation Policies and HR Polices – while content in this case is incarnated by various corporate specialists, SMEs, the business need demands for clear charter and governance structure for incarnating, approving and authorizing the content. In contrast, when the underlying business driver is to drive innovation with group wisdom, SM is a perfect fit. In fact, in some of my earlier enterprise implementations we successfully used both of these models – Knowledge Management style systems to incarnate, maintain and deliver just-in-time context-sensitive role-based policy, compliance and procedure style content, and Social Media to drive innovation with group collaboration and wisdom.

HR Audit as a Risk Mitigation Opportunity

With Dow Jones YTD returns plunging to -25.00% this week, we all witnessed how the debacle of financial institutions is paralyzing the whole economy. Clearly, poor risk management and short-sight of financial institutions are some causes at the roots of this abysmal. As a backbone of organizations human capital strategy, HR has unique opportunity to proactively identify and mitigate these risks with HR Audit. Here are some thoughts.
1. Organization structure and reporting relationships: Inconsistent job functions and reporting relationships are the evidences of poor risk management, oversight and control. A systematic and disciplined review can pin-point the reporting relationships, authorizations, roles and responsibilities that are not conducive to effective risk management. For example, the audit may reveal a missing portfolio level risk assessment function for new investments and induce the need for additional reporting relationships to enforce managerial approvals for transactions involving high risk.
2. Objective and goal management process: Establishing realistic and achievable goals is critical to ensure that the managers are not tempted to signup for the risks that can put the whole organization in danger. The audit is an excellent opportunity to identify and improve situations where the unrealistic goals are contributing to the organization abysmal.
3. Talent alignment to organizational objectives: The goals and pay practices should be established so that everyone is imminently working on things that are most important to the organization as a whole instead of the individual interests that artificially inflate performance numbers. Audit should reveal situations where the goals and pay practices of divisions/departments/interests are not congruent with the true interests of organization to create long term stakeholder wealth.
4. Training: Training should clearly communicate to employees about their roles, responsibilities, expected performance and conduct. The expected performance here needs to be clearly defined in the context of organizational performance and success instead of individual performance. Audit should uncover training gaps in this area to deploy additional training courses to fill these gaps.
5. Hiring practices and Talent Management: Employees that are competent and know what to do in a given situation are critical to drive organizational success. The audit may reveal knowledge and experience gaps, for example missing knowledge of risk assessment, for critical job roles. These finds can then feed into required competency definitions for job functions and related hiring/development processes.

A systematic and disciplined HR audit can uncover serious risk exposures to organizational performance and enable organizational leadership to proactively mitigate these risks at the foundation level with the innovative HR strategies.

Estimated Cost of Bailout: $700 Billion; Return of Investment: TBD

In Enterprise IT world no IT project gets funded without a formal Return of Investment analysis. Even in very beginning phases of project, often called initiation/qualified idea phase, a very high-level business case including ROI & risk assessment is predicament to fund the resources required for further definition. It is not uncommon for large Enterprise Initiatives to get approval for the overall budget soon after the ROI justification, however funding of budget will be done in a phased approach, only upon the successful conclusion and review of deliverables from earlier phases. In contrast, operational costs are recurring cost of business operations and do not necessarily require extensive ROI analysis for funding.
On corollary, most fiscal government policies are enacted into law and generally do not require additional approvals. Chairman Bernanke sometime back clarified that the proposed bailout plan is not a fiscal plan instead it’s a market-focused initiative that buys (and sells) assets using market-focused pricing strategies such as options. While everyone agrees that something need to be done to help the economy, market-focused initiative of this size demand clear quantification of associated costs, risks and value. However, these are the missing pieces in this puzzle currently.

Blogger H.J. Huneycutt wrote “It's a mystery to me as to why the concept of ROI is constantly evoked in the business world, yet almost never used when evaluating government policies. If the government can complete a task more efficiently than the private sector, then by all means it should do so. If it cannot, it should keep away.”

While no detailed ROI assessment in testimony, below are some interesting estimates from bloggers on cost of doing/not doing this.

Calculated Risk: “Price is still the key. Since Treasury doesn't plan on churning the $700 billion, the losses will be a portion of the amount invested - and the losses depend on how much Treasury pays (or overpays!) for the assets. The losses are unknowable at this point, but probably in the zero to $300 billion range”

Brett Arneds in his WSJ Blog: “The Federal government pays just 4.34% interest on long-term, 30-year loans. So the government could borrow this money for 30 years at a cost of just $30 billion in interest per year. Let's take a worst case scenario. Let's imagine Uncle Sam borrows $700 billion to buy these assets and never gets a single penny of it back. Let's imagine this paper ends up completely worthless. So instead he has to tap taxpayers to pay off part of the principal every year for 30 years, until the loan is all redeemed. How much would that cost per year? Try $42 billion. That's the interest and principal repayment.
That's less than one-third of 1% of our annual gross domestic product. That's the true, annual cost of this bailout.”

On cost of doing nothing (Benefits):

Washington Post: "If nothing is done, the potential for these markets to seize up in a big way is definitely there," said Frederic S. Mishkin, an economist at Columbia University who was a Federal Reserve governor until last month. "When you look at the history of these crises, when things spin out of control, the cost to fix it later goes up exponentially."

CNN Money: "Economists say that without a restoration of credit, unemployment would likely shoot up to over 10% from 6.1% today. And GDP could fall at an annual rate of between 2% and 4%"

The recent debacle of AIG, Lehman and other financial institutions providing profound evidence for the urgent need for detailed planning & risk management, it is imperative to have a detailed plan of action in place before expending valuable tax payer money.

Harnessing the Power of Trust with Pay for Performance

Darren Gorton in his blog (Item 5 in September Carnival of Trust Top 10) Trust vs Control: Is control merely a substitute for trust? makes a perfect case to nurture the culture of trust to deter fraud and reduce cost of control.

I further extend his point and argue that creating, developing and nurturing Pay for Performance culture is the first step towards harnessing the power of trust between employees, business partners and stakeholders. Here is why.
1. Organizations that embrace Pay for Performance philosophies communicate often with their employees about organization goals, contribution of individuals to the organization goals and how individual pay is linked to the performance. This transparency is the first seed in developing trust between employer and employees
2. A well-designed pay-for-performance system increases employees’ understanding of what is required of them, their performance and the organization’s outcomes. Merit awards, bonus and promotions are based on evaluations by the person's supervisor, colleagues and people they supervise. So everyone knows that the rewards are based on collective feedback of the team itself, fostering team trust and collaboration.
3. With Pay for Performance culture, the pay increases and bonus are consistent across the various functional units of the company. So, everyone in organization puts their best to drive organizational goals, fostering cross-functional synergies.
4. Organizations that use sound pay-for-performance practices enable transparency of executive pay and it’s linkages to performance to the stakeholders. Empowered with this transparency, stakeholders and business partners now have more reasons to trust the organization leadership pursuit of corporate goals.

With the difficult economy driving the urgent need to bring out the best in people (with trust) and reduce the cost (of controls and fraud), there is no better time than now for organizations to create, develop and nurture the culture of trust and transparency with Pay for Performance practices.

How Global is your Talent Management Platform?

As more and more Talent Management vendors claim globally capable, it is increasingly becoming difficult for organizations to assess the level of globalization & localization enabled by these vendor platforms. Depending on architectural maturity, different Talent Management vendor platforms may have varying degrees of support for multi-language, multi-currencies, local compliance and data security. What really matters is the ability of Talent Management platform to support a combination of all of these to enable business agility and visibility.

For example, consider a global Compensation scenario where a centralized compensation department in headquarters administers the overall job families, levels and codes. However, the salary structures and grades are defined at country level to ensure alignment with the local market trends. However, a line manager managing a global team should have cohesive visibility to overall team performance along with the country specific guidelines for pay awards. On the same token the county level data protection policies mean the HR Administrators in one country should not have access to personal data of employee in other countries. In addition, the country level aggregated metrics may be visible to the authorized senior executives for benchmark purposes.

Figure: Planning Tool for Global Line Managers; Courtesy: Workstream (see disclaimer in side layout)

To support this complex use case the Talent Management platform should
1. Enable line managers with a cohesive Pay for Performance tool to manage global teams. The platform should have capabilities to define and administer team hierarchies.
2. Support capabilities to define salary grades and compensation guidelines by country/division
3. Support for country level segmentation for HR data administration
4. Role based dashboards and analytics enforcing data segmentation and hierarchical business rules
5. Business rules for sharing summary/aggregated information and insight
6. Support for local compliance reporting

It is imperative for organizations to thoroughly evaluate the true global capabilities of vendor platforms prior to selection, to avoid surprises later in implementation.