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August - 2012 - issue > CIO Insights
A SaaS-First Approach to Application Portfolio Management
Mark Settle
Chief Information Officer-BMC Software
Wednesday, August 1, 2012
BMC Software, Inc. (NASDAQ: BMC) provides information technology (IT) management solutions primarily for large enterprises. Its portfolio of IT management software solutions automates the management of IT processes, mainframe, distributed, virtualized and cloud computing environments, as well as applications and databases.

SaaS is growing up. IT executives are recognizing the power of Software as a Service (SaaS) to not only reduce the amount of hardware and software owned and managed on-premise, but also to transform IT to meet business objectives more effectively, manage risk, and integrate applications. The market for SaaS will continue to rise significantly over the next few years. Many IT organizations are now taking a SaaS-first approach to supporting business operations.

SaaS Is Here to Stay

SaaS tools were originally considered to be niche products, largely confined to the CRM (Customer Relationship Management) segment of a company's application portfolio. SaaS products have matured considerably over the past ten years and are now available to support back-office and mid-office operations as well. A variety of SaaS tools support human resources functions, such as recruiting, contingent worker management, performance management, succession planning, payroll and bonus administration, and so on. SaaS capabilities have crept into the IT function in many areas.

Why SaaS?

At BMC Software, our IT organization has implemented at least one new SaaS application per quarter for the past few years. We have realized various benefits through large-scale adoption of SaaS tools. SaaS products are built, hosted, maintained, and operated by the SaaS vendor. This approach can absolve IT of various responsibilities resulting in reduction of the size of our data center and achieving savings in hardware depreciation and maintenance, cooling requirements, power consumption, and operator support.

Additionally, we have been able to repurpose several members of our applications teams into business systems analyst roles since their former responsibilities for software coding and testing are now being performed by the SaaS vendors.

The more significant benefits of SaaS adoption have been an accelerated 'time-to-market' new IT capabilities and an improved return on our software investments. We have implemented many applications in three months or less. This is marked in contrast to the time typically required to implement many licensed software applications. This time would be needed to design an appropriate hardware environment to host the application, procure and install the needed equipment, license the database software and additional utilities required to support the application, customize the application to support our users’ requirements, and perform extensive testing in collaboration with our users prior to the "go-live" date.

The second, less obvious benefit of SaaS products is the true return achieved on a company's software investment. A simplistic analysis of the cost of a licensed application will combine the costs of depreciation and maintenance of the software and hardware that is initially procured. It will also include the professional service fees of any external consultants required to configure the application and the labor costs of the internal staff required to maintain the software and operate the system. This total cost of ownership will be compared to the subscription fees of a competing SaaS solution over a multi-year period, typically three years.

What this type of analysis fails to capture is the benefit being realized on the maintenance fees for licensed software versus the subscription fees for SaaS software. In principle, companies are paying maintenance fees on the licensed software to preserve their ability to leverage the functional enhancements in subsequent product releases. In practice, however, they become mired in customizations that make it difficult, if not impossible, to move to the latest version of the licensed product. In contrast, enhancements in the functionality of SaaS products are typically delivered in an incremental fashion over much shorter intervals. Incremental upgrades are much more likely to be adopted immediately, producing a return on the investment in SaaS subscription fees that is not typically realized on the maintenance fees for licensed software.

The less obvious benefits of SaaS adoption significantly outweigh the hard benefits described in this article. A SaaS-first application strategy will enable any IT organization to reduce hardware and data center expenses, as well as repurpose application developers into analyst roles that produce more inherent business value. Far more significant is the ability to drive adoption of new IT capabilities and ensure that the business benefits of a new application are achieved. Furthermore, SaaS subscription fees allow you to offer your users functional enhancements on a much more frequent basis and avoid maintenance fees for which you are receiving no immediate benefit. These qualitative benefits are rarely captured in simplistic comparisons of SaaS and licensed software costs.

What Will Happen Next?

SaaS products make increasing sense in a business marketplace that prizes agility over customization and in an IT industry that prefers "buy solutions" over "build solutions" in responding to business needs. SaaS capabilities are appearing in unlikely places. A company's data center — once known as "the glass house" — was conventionally considered to be the most highly restricted inner sanctum of the IT empire. No self-respecting data center manager would have ever let a third party come through the firewall and interrogate their devices or access in situ agents. Those phobias are increasingly giving way as technology becomes more complex, the IT talent pool contracts, and the speed of the business accelerates. It's ironic that SaaS capabilities have found their way into IT’s core functions.

Enlightened IT organizations will form SaaS implementation teams that can be reformed as needed to support the implementation of new SaaS capabilities in any functional domain. Most IT groups have merger-and-acquisition "tiger" teams, consisting of a set of people who are routinely pulled away from their normal responsibilities to support the assimilation of newly acquired companies. Similar teams should be established for SaaS implementations. The two biggest technical issues in implementing any SaaS tool are user access and integration. Access procedures need to be orchestrated within the single-sign-on security procedures that have been established for all other business applications. Rather than letting individual application teams discover and resolve these issues on a case-by-case basis, enlightened IT groups will form specialized teams that can leverage past experience to accelerate the implementation of SaaS-enabled business capabilities.
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