Best Practices for Scaling Up SaaS

Guardian Life Insurance isn't about to take big risks when making IT investments, and CIO Frank Wander will be the first to tell you that he doesn't have a cloud computing strategy, per se.

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Greene says Guardian starts by clearly defining the service it's signing up for. "Make sure you have a defined service, not a product name. And ensuring that baseline functions won't change with updates to the SaaS application is critical," he says. "You want to make sure you're getting your minimum [requirements] around security and functionality [and that] they can't dumb down the product in a future release."

Limitations of liability clauses can be a major sticking point. "[The vendors] want no liability, and we want unlimited liability," says Wander. As with remediation for failure to provide service at agreed-upon levels, providers usually limit liability to a refund of up to the total dollar amount of the contract -- or a prorated service credit. "But if a service is buggy, do you really want more of something that's bad? It's better to get a promise of better service or a certain termination right," says Weiss. Likewise, a data breach can easily cost more than the value of the contract.

Finally, contract pricing can come back to bite you, and vendors don't like to make downward price adjustments for changing user counts, as McKenzie discovered. "We need the ability to scale up and down. SaaS doesn't work that way. That's been our most heinous fight," she says, because vendors wanted to lock Fox Entertainment Group into a volume purchase agreement for three or five years.

Wander had better luck. "We have a five-year contract that locks in terms and conditions but trues up on an annual basis. We've gotten very good terms in many cases," he says. But Guardian is a big account, he admits, adding, "I don't think everyone can achieve that."

There are two other ways to improve your negotiating position, says Weiss. One is to announce up front that you'll be doing competitive bidding, and then take the most favorable contract terms and pricing from each proposal and ask vendors to meet them. Another is to work with a reseller. "They can help out with terms," he says.

Other Challenges

Still, SaaS isn't a fit for every application or large business. Boeing provides SaaS applications to its customers at MyBoeingSuite.com but uses only about a half-dozen SaaS offerings itself -- in part because it's a defense contractor and must adhere to strict data security requirements. "Things that hold lots of intellectual property are way out of scope for SaaS," says Ted Colbert, vice president of IT infrastructure at the aerospace giant.

Integration issues present another potential challenge. For example, Boeing's current HR applications for recruiting, staffing and other functions are built around a data warehouse. "To use SaaS, we would have to build more interfaces than we have today, which would drive our complexity higher," Colbert says.

Also, with 160,000 employees, the ability of SaaS providers to scale is a concern. "We haven't seen that play out yet," he says.

And Boeing's complex business processes would require extensive customization of any SaaS application. "The traditional SaaS offerings don't support the structure we have today," Colbert says, but Boeing will be better positioned for SaaS as it continues to simplify its business processes.

As the number of SaaS applications in use grows, managing integrations and data flows becomes a bigger concern. "One of the things we're careful about is understanding the integration and what that does to the overall profile of our solutions," says Scott at Guardian. As part of its governance process, Guardian has always had life-cycle methodologies for the software it builds internally. Scott's team extended that to accommodate SaaS. "Having this template to follow, which is predictable, has proved itself and is really one of the secrets to our success," he says.

Some business applications in the cloud aren't up to enterprise standards. "There are certain scenarios that aren't there yet," Greene says. In some situations, the risk profile doesn't match the organization's requirements. In others, the business might need to wait until existing IT investments are fully amortized before investing in SaaS.

Even Guardian is still nibbling around the edges when it comes to moving core ERP applications to the cloud, and Gartner says cloud-based ERP implementations aren't nearly as common as cloud-based HR and CRM systems.

SaaS offerings for core ERP applications are still evolving. "One process I haven't seen in maturity out there yet is core financials," says Greene. McKenzie also evaluated financial service offerings but declined them. "The two major products I looked at were not ready for prime time. Honestly, the market is not mature enough," she says.

Overall, IT executives say their experiences with SaaS providers have been generally positive. "We haven't had one real problem, never a breach or had a vendor go away or bad service or SLA breaches or had to sue anybody," McKenzie says. "Our experiences have been exceptionally good -- so good that we're pushing more and more."

These IT executives say SaaS didn't win out in every case. But Guardian chose that option in 20 instances because the business case made sense and the services were mature enough to meet the needs of a large enterprise in areas such as service-level performance and security. And Guardian had the clout to negotiate favorable contract terms for service levels, limitation of liability clauses, pricing and other requirements.

Every system that isn't a competitive differentiator should be delivered as a service, says Wander, warning that "businesses that fail to pare their legacy architecture may find their core business disrupted by smaller, nimbler companies who have built on SaaS and cloud."

This story, "Best Practices for Scaling Up SaaS" was originally published by Computerworld.

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Copyright © 2012 IDG Communications, Inc.

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