Thursday, February 17, 2011

Less Talked-About -- but VERY Compelling -- Benefits of SaaS

In Bersin & Associates’ “Talent Management Systems 2010” study (published in late 2009), we estimated that more than 70 percent of Integrated Talent Management solution implementations were being delivered via SaaS (Software as a Service).

The SaaS model has clearly taken off, and software companies which are committed to this model are seeing great benefits in the financial markets:

• Taleo announced record Q4 revenues of $67.2 Million, up 33% year-over-year
• SuccessFactors announced record Q4 billings of $88.5 Million, up 41% year-over-year
• Cornerstone OnDemand recently filed for an initial public offering after significantly growing revenue in 2010; the IPO is being underwritten by Goldman Sachs, among others
• Ultimate Software -- now delivering mostly using SaaS -- announced recurring revenues (basically from 2 sources: the SaaS subscription model and maintenance from on-premise installs) increased 28% to $170.9 million in 2010, with another $57 million coming from non-recurring revenue
• Both Saba and Plateau tell us that their SaaS business is growing at 4-5X the rate of their licensed software business; and Plateau indicates that SaaS accounts for 90% of new platform bookings.

One of the important things to consider is that SaaS is not necessarily less expensive than installed software, but what SaaS does do is shift costs from a major initial cost outlay plus periodic and potentially significant upgrade costs -- to a more steady (but often higher) annual expense. Over the long-term it is not clear if SaaS is more or less costly, but it is very clear that SaaS provides many other benefits.

As David Mallon pointed out in his “Learning Systems 2011 Report” published just last month, these benefits include:

• Low cost of entry and initial investment (very little capital budget is needed)
• Easy and continuous upgrades with centralized feature updating (your system does not fall behind in features and capabilities)
• Immediate access to latest innovations (can leverage every dollar of vendor R&D spend)
• Reduce overhead with minimal IT infrastructure requirements (you gain the benefits of a modern IT backbone without your own IT team upgrading hardware)
• Limited IT involvement required (you can stop bugging your IT department to help you)
• Predictable spending (you can budget for your HR systems on a continuous basis)
• Freedom of choice if unsatisfied (you can “switch out vendors” much more easily if you do not get the service and/or product investments you need)
• Time to implement (systems implementation time is very fast, even though actual implementation still demands a heavy focus on planning, training, change management, and communications)

Based on my experience talking to many very astute HR/Talent Management Systems customers over the years, I would like to add three “less talked-about but very compelling” benefits of the SaaS delivery model:

1. All end-user interactions with the system, including the all-important ‘frequency of usage’ can be readily monitored. Why is this benefit so compelling? My research shows that the biggest challenge in driving system value is utilization by your employees and managers. SaaS providers can show you precisely who is using the system, what capabilities they are using, and how well the system is being adopted. (More to come in my exploration of the “Total Realized Value” concept -- stay tuned…)

2. Customers can leverage the client community as a true asset, because the vast majority of customers are using the newest release. In a traditional implementation, you can possibly become the “only customer” running a certain release with certain features enabled and perhaps customizations applied. In a SaaS implementation, almost all customers are running exactly the same software, enabling you to share best-practices with potentially every other vendor client.

3. Project sponsors and the project team can get ‘quick wins’ … something critical for maintaining project support and momentum over the duration of all planned HR Technology initiatives. I’d like to point out a perhaps subtle difference between time-to-implement and time-to-value.

While some organizations may view “go-live” as a real win, as we all know that until the system is heavily and appropriately utilized by all your target audiences, the system has not really become a success. In a SaaS implementation, you can roll out a “pilot” of the system very quickly, and from there, build real success in the first year. Licensed software implementations often take many quarters before even a pilot is launched, stretching the patience of many executives.

Consider the implementation time we found for SaaS customers in our September 2010 Talent Management Systems research (200+ respondents). Almost 60% of customers are implementing PM (performance management) systems in less than 9 months; and over 70% are implementing SM (succession management) systems in less than 9 months!

Final thoughts: While both the obvious and more subtle benefits of a SaaS delivery model for HR Systems cannot be over-stated, I would be remiss if I left readers with the conclusion that “SaaS is the answer for everyone.” Let’s not forget that an ‘on-premise’ delivery model for HR Systems should be a serious consideration, and is sometimes the best option, for organizations in highly regulated industries … and/or if talent data is shared with (and influenced by) other core business applications in real time. In at least these 2 situations, control over systems and data is the key driver, and the on-premise model often garners higher marks for that decision criterion.

Steve Goldberg