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Issue Date: March 2008

The enterprise’s new clothes — new look model woos CIOs

6 March 2008

The current hype and buzz around SaaS (software as a service) suggests that it is a new, unproven approach to software delivery, but Andy Hadfield, COO of leading local SaaS application developer, The Virtual Works, argues that the model has actually been delivering competitive advantage to companies able to change their mindsets for years.
The SaaS delivery model is currently attracting a lot of interest among South African CIOs and has already begun to move into the commercial mainstream in the developed markets of Europe and the United States.
Recent research suggests that American companies of all sizes are switching to SaaS applications, with one survey revealing that 63% of companies with over 1000 employees have already adopted a SaaS solution in one form or another and another study finding that 61% of companies with annual sales over $1 billion planned to adopt one or more SaaS applications during 2007.
This surging interest and confidence in SaaS applications is reflected in the growth of the industry, which, in the United States alone, already consists of over 1200 companies in 78 application and industry categories.
Despite growing interest and several large scale local deployments, many South African firms continue to be reluctant to enjoy the benefits of switching from expensive licensed software applications that they have to install and maintain on their own servers to web-native solutions to which they simply subscribe.
Security concerns
While local organisations are keen to acquire the potential performance and productivity gains offered by the SaaS delivery model, the biggest challenge is still convincing them that it is safe to adopt this approach. Many firms remain reluctant to let their mission-critical technology and data ‘leave the building’. They often struggle to accept that doing so will actually lead to better security and redundancy.
Security and privacy are important concerns and should not be underestimated or taken lightly, whether an application is hosted on internal servers or delivered as a service over the Internet. In fact, the risks and considerations are very much the same in either scenario. It is a case of asking your SaaS solution provider the relevant questions around data centre access security, data encryption, software protection and what redundancy and back up procedures are in place.
Indeed, the SaaS delivery model has been repeatedly proven to lead to better security and redundancy because of the economies of scale available. Hosting multiple tenants at a dedicated data centre enables SaaS solution providers to scale at a lower cost than an individual organisation can and so provide superior facilities and protection.
Comparatively lower costs
The SaaS delivery model and multitenancy offers numerous other advantages as well. Deployments and upgrades can be delivered much quicker because SaaS applications are available anytime, anywhere from a single central location.
Services can be activated within hours because the applications are already operational and easily customised. For example, the Nucleus Research study also found that the typical deployment time for an enterprise-level, SaaS-delivered customer relationship management (CRM) application was between one and three months, compared to 18 months for a conventionally licensed CRM application.
Moreover, the SaaS delivery model enables modifications and upgrades to be made immediately available to the entire community of users. Organisations no longer have to wait until the next release to benefit from the latest innovations or deal with the cost and complexity usually associated with upgrading to a new version.
Another important benefit the SaaS approach offers companies is affordable monthly costs in the form of subscriptions as opposed to lumpy annual license payments. Vendors also, typically, assume all of the related infrastructure, networking, security, data storage and IT skills overheads.
This versatility is proving extremely attractive in today’s rapidly evolving technological environment because it offers the CIO an immediate and dynamic business solution that can be maintained or quickly modified or terminated as the underlying needs of the business or technology platforms shift. SaaS lets a business deploy an ‘interim’ solution without high entry or exit barriers.
Scaling to meet demand
The flexibility and adaptability of SaaS applications is borne out by the diverse range of solutions currently being provided. Whether overcoming the obstacles that typically frustrate employee engagement objectives, rapidly growing digital sales channels or setting new standards in customer service, SaaS applications are the obvious solution to the challenge of reaching the fragmented and disparate sales forces and customer channels of the contemporary marketplace.
As consistent improvements in hardware performance and bandwidth continue to refine the capabilities of SaaS, the model has come of age and outgrown the perception that it is a small business solution that offers tremendous cost-effectiveness, but is unable to reliably scale to meet the demands of large organisations.
On the contrary, intelligent, web-native applications that employ the latest Web 2.0 technologies are fast becoming an indispensable weapon in the arsenal of the modern enterprise. Not only to reach the increasingly fragmented and remote markets and communities of the modern marketplace, but also as a way of liberating organisations from the need to provide each employee with access to a workstation.
Neither is SaaS a new, unproven software delivery model. The recent hype and buzz might suggest otherwise, but scores of applications have been running for years and the largest among them have tens of thousands of subscribers that rely on them daily.
One thing is certain, however, the mystifying reluctance of South African companies to embrace the benefits of switching to SaaS applications is likely to diminish as the big players, like Microsoft, continue to release their SaaS solutions. The only question is how much opportunity and critical competitive advantage will have already been lost?

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