On-Demand Software – Software as a Service (SaaS) Appeal

Like other midsize enterprises shopping for CRM software, Ventana Medical Systems faced two basic choices in 2005: choose a traditional application or opt for the newer software-as-a-service (SaaS) model and have CRM tools delivered directly to end users via the Web. In hindsight, the decision turned out to be something of a no-brainer, says Anthony King, CIO for the medical diagnostics equipment manufacturer. “Software as a service beats the alternative in maintenance, training, user flexibility and several other key areas,” he says.

In the past few years, several key factors combined to make SaaS an increasingly popular choice at companies like Ventana: Web technologies matured, applications grew more standardized, and the appeal of lower up-front capital costs, streamlined maintenance and easier scalability only became stronger. Robert DeSisto, an applications industry analyst at Gartner, predicts that “by 2011, 25 percent of new business software will be delivered as a service.”

Most midsize enterprises turn to SaaS expecting significant cost, deployment speed and maintenance benefits. (And, of course, many midsize companies don’t have the in-house IT staff to manage more applications.) They’re looking to SaaS to improve efficiency for core processes such as CRM, sales compensation management and ERP. But before they rush toward SaaS, these organizations also need to be sure that the functionality of the solution meets their business requirements and that they can integrate with their existing applications without a hassle. In some cases, customization options are limited.

Nevertheless, a growing number of midlevel enterprises have decided SaaS’s benefits far outweigh its drawbacks. “There’s no application in the world that you can’t run in-house if you have the money, resources and expertise,” says Laurie McCabe, an analyst at technology research firm AMI Partners. “The problem is that most medium [-size] businesses don’t have that capability,” she says. “In most cases, SaaS is economically a better way to go.”

Ditching the CRM Antiques

Many midsize businesses first test the SaaS waters with an on-demand CRM application. That’s because many midlevel companies have a dire need to overhaul antiquated customer support processes. Fortunately, SaaS meshes well with CRM technology, allowing companies with small IT budgets to run modern, sophisticated customer analysis applications on a pay-as-you-go basis, with only a minimal up-front investment.

At Ventana, the search for a CRM solution had reached “critical mass” by 2005. Customer contacts, crucial to the company’s continued financial health, were not readily available for field personnel because the data was either on paper or buried in an ERP system. “We basically were manual for the most part—Day-Timers, paper files and such,” says King.

After evaluating several on-demand and traditional CRM products, Ventana settled on SaaS technology from Salesforce.com—a mix of marketing automation, analytics and other applications. “The benefits of having a hosted solution outweighed the benefits of the in-house solution,” King says. “Plus, the time to get it up and running was significantly shortened with a hosted solution.” Initial deployment and training took less than four months, King says.

SaaS technology gives Ventana the same features offered by traditional CRM software—including capture, storage and analysis of customer information—without incurring the extra burden of running its own servers, operating a network to connect branch offices and hiring a large IT staff.

“It’s just significantly easier,” King says. “We have a very good Oracle ERP system, but trying to keep it up to date across the organization and supporting it is a pretty substantial effort.” With SaaS, the service provider does all the work to run, maintain and update the CRM system.

Ventana also values Salesforce.com’s ability to provide multiple language interfaces on demand, facilitating work with offices worldwide and a staff that speaks more than 20 languages. “To change the language, you literally click a button on the screen,” King says. This contrasts sharply with Ventana’s on-premises ERP system, where adding a new language requires IT staffers to painstakingly design and test new modules.

For a government-regulated company like Ventana, SaaS can also save time and money by cutting red tape. “In a regulated industry, you spend most of your time validating and updating software,” King says. “That’s not your true competency; it really doesn’t add value to your business.” On-demand software drops much of the time-consuming validation onto the software provider. “We don’t have to validate the Salesforce.com tool, only the way we’re using it,” King says.

King feels that his SaaS-based CRM technology offers more features than most premises-based counterparts while creating less work for business and IT staffers. “We have much more operational flexibility, more current information about our customers and the ability to make more informed decisions,” he says.

King says the only significant “road bump” he faced was convincing end users to take full advantage of the system’s information management and analysis features. “Basically showing the field folks what’s in it for them,” he notes. “Once they could see that, then there was a lot of buy-in.”

Compensation Strife

Sales compensation management has something in common with CRM at some midsize companies. Even though calculating compensation for sales reps is a key process, especially for firms in growth mode, it may be ignored until it creates a true mess.

At Trex, a decking and railing manufacturer, business users found themselves caught in their own version of “Excel Hell.” Sales reps and managers were tracking compensation via spreadsheets, leading to endless conflicts and disputes. “Excel spreadsheets are typical for a lot of companies our size,” says Mitch Cox, vice president of sales. “You end up doing the calculations manually and, unfortunately, the accuracy is always called into question.”

The activity also burned away time. “You’ve got a bunch of people spending an inordinate amount of time tracking something that, frankly, they shouldn’t have to waste their time tracking,” Cox says.

Looking for a faster, better way to gauge compensation, Cox turned to SaaS provider Centive and its Compel software. But why did a sales VP spearhead a new software initiative? Cox says he was drawn to the software, and the SaaS model, because Trex simply wasn’t in a position to run on-premises compensation software. “Our IT department is a dedicated group of people that’s very small,” he says. “I needed to have this capability provided from the outside to avoid adding to their burden.”

Cox doesn’t feel that he was forced to settle for a second-rate technology. Compel’s dashboard view gives sales representatives a real-time view of their position and ultimate objective during any given quarter. “Managers love it because they’re able to focus their time where it’s needed most,” he says. “They can understand right away who’s winning and who’s losing on a sales rep basis—and there’s no disputing the data.”

On the downside, although the project was envisioned with the need for minimal IT involvement, things didn’t quite turn out that way, though not for reasons having to do with the Compel product.

The deployment took longer than anticipated, because it took Trex’s IT staff longer than planned to create the necessary export file, using data from Trex’s aging J.D. Edwards ERP data engine. During this process, Trex IT also discovered that the data in the J.D. Edwards application did not always reconcile with the data that its finance department used to calculate commissions. The deployment spanned most of 2006’s second quarter; tweaking, training and other follow-up tasks dragged well into the next period.

“Compel integrated easily with our source systems once we reconciled our data and created the necessary data feeds,” Cox says.

Cox says he’s pleased with both Compel and the SaaS model. “There’s been a decent productivity gain, because people aren’t doing that one-off tracking like they were in the past,” he says.

Cox says he’s open to the possibility of using more SaaS-based tools in the future.

Suite Success

As SaaS steadily builds a real-world track record, more midsize enterprises entrust the technology with not one but multiple core business tasks. Olympus NDT, a manufacturer of testing equipment, uses NetSuite, a fully integrated suite of services, for accounting, CRM and e-commerce. Data integration was NetSuite’s biggest drawing card, says Fabrice Cancre, Olympus NDT’s chief operating officer, who oversees the enterprise’s IT operations.“The sales reps, the accountants, the inside salespeople taking the orders, the customer services reps—everybody is entering data into the same database,” he says.

While every ERP package offers data integration, SaaS gave Olympus NDT the ability to obtain ERP benefits without the complex hardware and maintenance infrastructure that usually accompanies on-premises ERP packages. “The entire system is managed by NetSuite,” Cancre says. “We don’t have any need for (ERP) servers, backup systems and the other things that add up to a very big cost for a midsized business.”

Scalability also attracted Olympus NDT to SaaS. The rapidly growing company is expanding both domestically and internationally. “We have six locations in the U.S., and we’re also using the system in Germany, France, England and Japan,” Cancre says. Adding users in new locations requires little more than logging them in to the Web-based system.

While Olympus NDT has handed over all of its customer-facing interactions to NetSuite, it still relies on traditional software, Infor Visual Manufacturing, to support another core business process, production operations. The onsite software tracks parts, coordinates ships and handles various other manufacturing-oriented tasks. “NetSuite is definitely not able to do that,” Cancre says.

On the other hand, NetSuite does exchange key business data with the manufacturing ERP software. “We’ve set up our systems so that we consider our factories as a vendor, at least from the NetSuite point of view,” Cancre says. “NetSuite then trades with the ‘customer.’”

Cancre says midsize enterprises need to view software in the same light as other essential business services. “I mean, we could have our own lawyers too,” he notes. “But we don’t have them—we hire them as we need them.”