The gradual uptake of outsourced technology and cloud computing is driven in part by cost and flexibility. Lately though, the argument in favor of service providers is increasingly one of maturity and core competency: Who, after all, is better suited and more efficient in filling a particular IT, software or process need? Rob Sullivan, senior partner and co-founder at management and technology consulting firm Navint, talked with Information Management about the cycles of change brought to bear by adoption of software and infrastructure services in the cloud.
Information-Management.com: What are your client engagements like today?
Navint's Rob Sullivan: We’re doing a lot of work both in the on-premise solution space, as well in software as a service or cloud helping people evaluate which way to go and why. It almost takes me back to the days of time share computing in the big iron days when we’d go out and we’d buy some time to be able to do our computing faster. Then PCs and then client/server come around. Before you know it, everybody’s doing everything fast in computing. And now we’re back to saying, 'Hey, somebody’s developed a neat idea and they can deploy it really, really fast. You don’t have to own it. You don’t have to do anything from an implementation perspective.’ Some of that pitch might be a fallacy but it’s an interesting twist.
This gradual wave of outsourcing seems to be more widespread and universal though.
That’s true and in the last five years, certain areas have matured faster than others. Clients are thinking about very specific solutions and asking about SaaS as well as on-premise. In general, first and foremost I look at the maturity level of the function that’s going out and the appropriateness of that function going out from a security perspective. Then you focus on the cost side.
Besides sales, what’s hot with them right now?
For a lot of them there’s no reason to own an HR app anymore. PeopleSoft is effectively out of business and you can go into the cloud to find anything you want in HRM or an HPM solution, whether it’s payroll or it’s employee data management or the entire suite. We refer to it as the employee lifecycle, you can pretty much find it all in the cloud.
What about finance?
Financials are starting to get there, although CFOs are hedging. I’m a CFO from way back when and I know those folks are reticent to put a lot of their books in the cloud. But you’re starting to see, for a certain size company that doesn’t want to be on QuickBooks and doesn’t want to go to Microsoft, they’ll look at something like NetSuite, which is pretty mature for a company in the range of $500M-$1B. That’s the emergence of the SaaS finance suite application that’s right for a lot of people. If I’m a division of a company [or] I’m moving into emerging markets like Vietnam, Laos or Hungary, they’re not going to drop an SAP instance in there because it’s a million bucks just to walk in the door. They can put in a SaaS-type solution for finance and integrate back up to SAP as their emerging markets grow and it makes sense financially to move it over. As you grow, the complexity can grow with it.
Have clients been unhappy with less customization after they go to SaaS?
First, we do on-premise and SaaS, sometimes with the same client so I don’t really have a bias; we want to make sure it’s the right fit. The reason to do SaaS or a cloud computing solution is you don’t have to buy more servers and you don’t need more infrastructure. Your implementation is radically simpler because, to a large extent, the SaaS provider has the thing up and running and you’re just basically coming in and jumping on to one of their tranches. But you don’t have a whole lot of play in what you do. You have some customization at the customer layer or configuration or personalization but you don’t have a whole lot of capability to do a whole lot in the app. When you buy something, everybody says ‘I want to change it this way. I want it to do this and that,’ and you spent 65 percent of your total cost in customization. With a SaaS solution, you don’t really have that capability, so all the personalization can be good and bad. That’s where the maturity level of the app, the security and the need for specialization is going to determine if it’s best to go that way.
Do clients look at core competency in terms of who’s better suited to perform a process also?
Absolutely. Some of these services have come up to speed very quickly. You learn by experience and working with a best practices based finance outsourcing model gives you a hundred reasons why you should jump and go out for an outsourced HR suite. I’m working right now with a document management and billing SaaS solution that’s been doing their job for 25 years. They know the space incredibly well and they’re way better at doing this than you are. And, by the way, they can be way cheaper and we can all make some money. There’s clearly a value play there and win-win for everybody involved.
Some of the risks, like who’s responsible legally for any kind of failure not in the SLA, still seems really up in the air.
Sure, say you’re a law firm or insurance company running all of your eBilling and matter management with a SaaS provider. If something happens and you can’t run cases or look at claims, you look straight back at the SaaS provider. They go straight to their insurance carrier. I haven’t seen that yet, but, in this litigious society, someone’s absolutely going to look for someone else holding the bag.
Are your clients comfortable with all these unknowns?
It varies. We typically come in virgin and clean to an organization and we don’t have a software bias or a technology bias to start with. So they’ll say, ‘Okay, I need to swap out my financials, my HR system, my core manufacturing operation or some operational system.’ What’s going to drive me to look at SaaS? Cost is going to a huge influence, particularly when I’m going in new. I can buy the implementation and the servers and infrastructure or I can lease it from somebody else. If I buy it, it’s a one-time cost. If I lease it, it’s operating; it might go on for 10 years. In 10 years, the $100,000 a year I’m spending over 10 years is a heck of a lot less than the $100,000 today.
Like you said, brute-force economics, but only if the maturity and security make sense, right?
Absolutely, for example, a lot of my companies and clients are information service providers who buy data and amalgamate data from multiples sources, make something useful of it and then sell the heck out of it. Security is essential and there’s no way that company is going to outsource the warehousing or the management of that information. They will look at cost. They’ll look at simplicity. They’ll clearly look at the ability of someone else to do the security, the maintenance, the upkeep and things of that nature.
Is it always maturity or do SaaS providers have a role in innovation or evolving products for the better?
In some cases we do look for innovation between the maturity of your organization and [that of] your SaaS provider. If I buy something, how likely is the innovation to come forward into my application from me versus my SaaS provider? Usually they can do it quicker because they can focus on one suite of software that they’re managing for multiple people, rather than maintenance on multiple applications. SaaS providers are often more innovative just because of their nature.
So you’re saying the attraction and satisfaction with SaaS can evolve over time?
The tip of the spear that brings us into an organization is some sort of problem or need for change. The reason can run from, ‘I feel like I’m not efficient,’ or ‘My infrastructure is costing me too much,’ or ‘I’m having server issues and my infrastructure is old and I need to swap it out.’ The lifecycle of technology used to be 15 years, then 10 years and five, now it’s three years. Remember though, some outsource solutions have been around for a hundred years. On the payroll side for example, some of these folks weren’t cloud, but now it’s cool and unique so they call it that and they are very high cost. If I go from an old payroll processor to a SaaS processor I can probably drop 25 to 30 percent of my cost for the exact same service or better. So you see some of the legacy dinosaurs that are behemoths, people are nipping at their heels and, before you know it, they’re going to be chomping off their leg.
What’s your last word for choosing a solution provider?
You absolutely have to do your due diligence on your provider. I mentioned that some have been around a long time. Some of the newer ones that are less than five years old and growing, a lot of these have been started up by executives and senior folks from the legacy organizations. They couldn’t change where they were because they were too big so they popped out and built something better. You mentioned service-level agreements and they are absolutely critical, but it’s also accountability. You need something with some teeth in it that will bite back to make sure that they’re going to solve their problems very quickly. What is it going to cost us if we have four hours of downtime and what is it going to cost them?