Saugatuck’s work with hundreds of independent software vendors (ISVs) indicates that for many, the technical aspects of the transition to the Cloud are often fairly well understood – even if the roadmap for success may take some time.

However, what is less understood, and more dangerous to ISVs (and to IT providers of all types transitioning to Cloud-oriented business models), are changes that are required in every area of the ISV business that are typically much deeper and harder to execute, and often entail much more risk to the ISV as a company.

A new 20-page research report published by Saugatuck – Transitioning to Cloud Business: Best Practices for ISVs – lays out the key changes, and related management challenges, as the following:

Executive/Financial changes. Unlike Cloud-based startup software providers, established ISVs have legacy, on-premises software businesses to manage. Retaining customers and cash flow while launching a new Cloud business can mean striking a delicate, and shifting balance in managing resources. This entails a series of significant management challenges beginning from the executive level of the business on down.

Technology changes.  A Cloud ISV will also need to have a plan for managing the transition between legacy on-premises platforms, and their customers, to the evolving Cloud platform. Other key challenges include R&D management for innovation and efficiency, solution development and enhancement, extending solution customization capability and the ease of integration with other Cloud and on-premises solutions. Perhaps the two biggest gotchas to watch out for are security and regulatory compliance.

Operations changes. The Cloud world requires a different kind of business model –- a service vs. a product model of operations. At its foundations, a Cloud solution is a promise to the customer to deliver superior functionality, predictably and responsively. It is not just about being secure, robust and dependable. Cloud solutions are about service excellence in all aspects that touch the customer. That includes service levels and service-level transparency, the availability of operational metrics, and billing capability that provide the customer with data and inquiry capability.

Sales and Marketing changes. Transitioning to a Cloud or hybrid-Cloud business model requires that the entire Sales and Marketing skill set, process, and compensation plan will need change as you move from selling and supporting a software product to a service.

Partnering and Alliance changes. Critical to Cloud profits will be the leverage gained through partnering with more efficient providers of non-core capabilities and extending geographic reach through alliances with already-established distributors. One critical lesson that we have learned in working with ISVs is that no one can manage the Cloud transition entirely alone. Even global market leaders bring in partners to help with their transitions. Focus on your value, partner for the rest.

Organization and Culture changes. While transitioning to Cloud and hybrid-Cloud environments affects every aspect of an ISV’s organization, from management practices to finance to sales to customer support, the Organization and its Culture are dramatically affected. Many on-premises ISVs moving to the Cloud have found it necessary to create a separate organization, involving not just direct sales, but also channel management, customer support, partner management, and R&D and IT that reports up to the CEO, separate from the legacy organization.

Why is it Happening?

Saugatuck research shows that these changes – initial and ongoing – are not merely a move to the Cloud, but rather a transition to entirely new ways of doing business. An emergent business and IT architecture now enables a highly-interwoven, loosely-coupled business and IT environment that Saugatuck calls The Boundary-free Enterprise.

This Boundary-free Enterprise is driven by Cloud, and also by its sister business technologies: Mobility, Social and Advanced Analytics. Central to this future will be loosely coupled approaches linking systems, people and business processes on a dynamic, as-needed basis with hybrid Cloud and on-premises deployment models common for most business and IT environments.

This Saugatuck Strategic Report (SSR) provides guidance to ISVs in transition not just to the Cloud – but to entirely new ways of doing business, new requirements from customers and partners, and new opportunities that enable significant reward, and related potential risk. Thus the report shares not only Saugatuck’s analysis of key market shifts, and the key challenges faced by ISVs in these transitions, but also provides ISVs with critical success factors and best practices from more than seven years of Saugatuck Technology research and business consulting with a diverse range of software providers around the world.

Click here to read the market impact.

This blog was originally published at Saugatuck's Lens360 blog on October 31, 2013. Published with permission.

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