ServiceLine White Papers

How the SaaS Movement is Transforming Professional Services

- by Jeffrey M. Kaplan, Managing Director of THINKstrategies

Professional Services companies face unprecedented customer, competitive and operational challenges today.

Their customers are facing intensifying competition as a result of globalization and technological advancements. Barriers to entry within their respective industries are disappearing. Companies are no longer competing with just their peers in their own backyard, they must also contend with competitors from around the world. At the same time, the web is making it easier for customers to find new suppliers who can meet their needs from remote locations at a lower cost.

In response, many companies are experiencing a period of retrenchment and are significantly restructuring their operations to reduce day-to-day expenses and increase their profitability. For many companies this has led to downsizing their staffs and relocating many workers to home offices to reduce the cost of corporate space. It has also meant greater reliance on third-party suppliers, offshore resources and additional channel companies.

Traditional technology solutions have failed to fulfill their promises in this rapidly changing climate. Information Technology (IT) and enterprise applications are increasingly complex and costly. At the same time, they have also become more cumbersome to use and less flexible to fit companies’ changing business processes.

The Emergence of SaaS

In 2003, Nicholas Carr questioned the value of traditional IT operating models in his infamous Harvard Business Review article entitled "Why IT Doesn’t Matter." While his commentary raised the wrath of IT professionals, it also captured the attention of many corporate executives and end-users. Carr went on to publish a book based on the same thesis entitled "Does IT Matter?"

In 2005, Carr published another article in the MIT Sloan Management Review entitled "The End of Corporate Computing", in which he wrote:

"...Imagine what future generations will see when they look back at the current time...won't the way corporate computing is practiced today appear fundamentally illogical — and inherently doomed?"

These ideas and trends have driven many companies to consider and adopt a new generation of web-based solutions referred to as Software-as-a-Service (SaaS). As the term implies, SaaS converts traditional 'shrink-wrapped' software products into web-based software services.

Just as popular, web-based, consumer-oriented sites like Amazon and eBay have made it easier for people to buy and sell online, so are today’s SaaS solutions making it easier for companies to perform their daily business functions via the web.

Rather than buy, implement and maintain the software themselves, users can now subscribe to SaaS solutions and take advantage of the application functionality without having to worry about the technology which supports applications.

This is an important shift because enterprise applications are often too expensive and difficult for many companies to implement. They require an upfront investment in a perpetual license, plus additional hardware and staff costs to support the applications. In fact, it is estimated that many companies spend ten times as much on hardware, staff and third-party support costs over the life of a software application as they do for the original license fee.

And, that is if the company successfully implements the enterprise application in the first place. Unfortunately, approximately a third of software projects fail to be completed, and the remainder often requires twice as much time and money than originally expected to be fully deployed.

AMR Research estimates that upwards of 30% of the enterprise application capacity that has been deployed is underutilized because companies have been forced to over-provision the software in anticipation of future demands which are often unrealized.

As a result, enterprise applications seldom achieve the return on investment (ROI) that companies expect and often require a higher total cost of ownership (TCO) than they would like. In response, companies of all sizes are trying to generate greater business value from their software investments.

According to THINKstrategies' research, SaaS is being adopted or considered by 74% of companies — up from 65% in 2005. Our findings have been validated by a recent McKinsey study which found over 60% of the CIOs they surveyed are also considering SaaS.

The SaaS Difference

Unlike a previous generation of application service providers (ASPs) who simply resold existing enterprise applications which were cumbersome and costly, today’s SaaS solutions provide a variety of tangible and measurable business benefits.

Because SaaS doesn’t require the same level of effort or upfront cost to be implemented, it permits a quicker time to value with less risk. Many SaaS solutions can be tested in pilot deployments to see how they fit a company’s business processes. These web-based solutions can also be accessed via the Internet. This permits remote and mobile users, as well as authorized third-parties, to better leverage these applications.

Today’s SaaS solutions not only include multi-user access and real-time collaboration, they also include user tracking and reporting capabilities which enable companies to measure their effectiveness and monitor their compliance. In fact, approximately a third (32.8%) of the participants in a recent THINKstrategies survey are using or considering using SaaS to help them better comply with government or industry regulations.

Some Professional Services firms view SaaS as a threat to their livelihoods because it makes the software deployment process simpler from a technical integration standpoint. Others dismiss the ability of SaaS to be a viable alternative to legacy applications because they believe today’s SaaS solutions lack a comparable set of features or customization capabilities.

The reality is that many of today’s SaaS solutions offer all the essential features and customization capabilities that most companies need, and a new level of functionality which legacy applications cannot match. This new functionality is derived from its web-based platform which permits anytime/anywhere access, real-time collaboration, and greater monitoring for compliance and cost-management purposes. For instance, many SaaS solutions permit organizations to track usage levels to evaluate whether they are getting the utilization rates they desire, and track specific changes to records for audit purposes.

It is for these reasons that companies of all sizes are adopting SaaS, including a growing number of Fortune 500, brand-name corporations. THINKstrategies has surveyed over one hundred companies worldwide over the past two years in conjunction with the Cutter Consortium and has seen a steady increase in the level of interest and adoption of SaaS, as the graphic below shows.

THINKstrategies’ survey research has also found nearly 90% of customers are not only satisfied with their SaaS solutions, but plan to expand their use of SaaS and would recommend SaaS to others. Legacy applications have never been able to achieve similar satisfaction, renewal and referral rates.

What SaaS Means to Professional Services

Professional Services firms must accept that the SaaS movement is real and will continue to grow. They should also recognize that they can benefit greatly from today’s SaaS solutions.

Like their customers, Professional Services companies are facing escalating competition and cost pressures. Market researcher, Frost & Sullivan estimates the IT professional services market is only growing 3.3 percent. Business Process Outsourcing (BPO) services are growing 8.6 percent. Companies in both the IT Professional Services and BPO sectors are facing a proliferation of new competitors from a variety of emerging countries, who are creating new business models and undercutting established pricing models.

Professional Services firms must combat these competitive forces while they attempt to respond to increasingly demanding customers and manage a more dispersed workforce.

Professional Services companies have typically operated in a decentralized fashion so they can be close to their customers. This organizational structure has made it difficult for firms to fully leverage their dispersed personnel and synchronize their work.

These fundamental operating challenges are being compounded by today’s extraordinary macro-trends, forcing professional services companies to undergo the same type of reassessment process that many of their customers are undergoing. This reexamination effort is driving many professional services firms to adopt even more decentralized organizational structures and business processes that legacy applications are not designed to support.

For example, industry leaders like Accenture and Deloitte Consulting are now partnering with Salesforce.com, the leading vendor of on-demand customer relationship management (CRM) and salesforce automation (SFA) solutions, to automate their operations and improve customer capture and retention levels. Others are adopting Web 2.0 collaboration tools such as wikis and blogs to encourage more effective knowledge sharing. These tools also permit them to better track the flow of information inside the organization and among clients.

These companies, like a growing number of other Professional Services firms, are also recognizing that today’s SaaS solutions help them meet escalating compliance requirements by providing an off-site, back-up and recovery capability. (Many SaaS vendors have won Statement on Auditing Standard (SAS) 70 certification from the American Institute of Certified Public Accountants (AICPA) verifying the quality of their internal controls and operations.)

The trends are clear. SaaS is here to stay and the leading Professional Services firms have already begun to restructure their businesses to capitalize on the efficiencies it enables. These early adopters of SaaS leverage web-based services to meet their operational needs and optimize business performance. As SaaS becomes even more widely accepted in the near future, other professional services firms who wish to remain relevant and competitive will be forced to follow their lead. Those who wish to be truly successful, however, will begin their transition today.