AVOIDING BUSINESS RISK: THE HIDDEN BENEFIT OF SOFTWARE AS A SERVICE

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1 AVOIDING BUSINESS RISK: THE HIDDEN BENEFIT OF SOFTWARE AS A SERVICE

2 AVOIDING BUSINESS RISK: THE HIDDEN BENEFIT OF SOFTWARE AS A SERVICE Software as a Service (SaaS) is now the predominant architecture and delivery model for the majority of HR technology and continues to be a very hot sector of the enterprise software industry in general. There are several definitions for SaaS, but we broadly define SaaS as software that is delivered over the Web from a platform that is shared across multiple clients and purchased as an annual subscription, as opposed to licensed software, which is typically purchased upfront, with annual maintenance and installed on the client s premises. In this article, we explore the reasons HR and IT, the primary users, have been purchasing and implementing SaaS, and the overlooked primary benefits of SaaS certainty and the minimisation of business risk. EXPLORING THE MAIN ARGUMENTS IN FAVOUR OF SAAS Several reasons are cited by analysts and HR leaders for their increasing appetite for SaaS rather than traditional licensed, on-premise software. First and foremost is the total cost of ownership. From a software-licensing perspective, this will depend on the shelf life of the software, with the break-even point occurring between three and 10 years. However, the more significant savings tend to come from professional services: while a typical Enterprise Resource Planning (ERP) implementation may take upwards of a year, a typical SaaS implementation would take around two to four months, with little or no work needed for hardware or network infrastructure. This compressed timeframe is largely due to the increased configurability of SaaS solutions, but also to the implementation strategies and methodologies employed by software vendors. IT also makes the case that true SaaS as opposed to what one vendor calls SaaS impostors has an architecture that is superior to legacy systems in many respects. One top analyst has even discovered that one of the largest ERP vendors has lines of COBOL programming buried in its product. Clearly, there is well-designed and poorly designed SaaS software. However, when designed well, the architecture allows for more configurability, data integration between different components of the system and scalability of both functionality and users. Importantly, it also allows for automatic upgrades, albeit often at a time of the vendor s choosing. However, given this, it does beg the question: how do the license vendors maintain any market share at all? The answer is complex and lies in the amounts already invested in legacy software and the ability of 1

3 an organisation to shift strategy, and often the perception that big is beautiful. From a commercial standpoint, the CFO is often attracted to SaaS because it eliminates any upfront capital expenditure on either software or hardware and spreads the cost more evenly over the contract term. Many SaaS vendors will also offer some flexibility with regard to headcount, although it is worth noting that few vendors offer software truly on demand, even if they market it as such. It is also attractive for businesses to be seen using the latest software in technology, and although SaaS has existed for more than a decade, compared with traditional licensed business software, it is still considered cutting-edge. Mercer contends that organisations stay ahead of the competition not just by purchasing great software, but also by ensuring that they have a human capital strategy that is aligned to their business goals and that they have well-designed processes to support that strategy and a robust methodology to implement it. Ultimately, how an organisation implements its talent and reward strategy is as important as what tool it uses to implement it. MERCER S SAAS SOLUTION: HUMAN CAPITAL CONNECT Human Capital Connect (HCC) is Mercer s SaaS solution for compensation planning and talent management. HCC ensures that our customers achieve their desired business outcomes by combining: Flexible, intuitive and engaging web-based technology, including complimentary ipad functionality our solution is designed for large enterprises to manage even the most complex processes Mercer s expertise and true best practices in both human capital consulting and project implementations Embedded intellectual capital based on our experience as one of the world s largest providers of talent and reward consulting More information can be found at 2

4 Finally, analysts will often cite the benefit of having client data shared on a single database and the ability to analyse very large data sets across multiple organisations. There are indeed some current applications, such as monster.com, which uses its scale as the largest job board to extrapolate and publish data on the job market, but this kind of analysis is still in its infancy and in any event, those insights tend to be freely available and don t just benefit the paying customer. THE OVERLOOKED BENEFIT OF SAAS: DE-RISKING YOUR INVESTMENT In uncertain economic times, the top item on the executive agenda for most investment decisions is risk. This consideration then cascades down, formally or not, into managers personal performance goals. Seasoned HR executives have too often been burn victims of licensed software implementations that promised seamless integration, breadth and flexibility of functionality, and the confidence of a big brand name but delivered none of those things. Several organisations have invested seven-figure sums into systems that are so unwieldy that they provide little benefit beyond what could have been achieved on a simple spreadsheet. Naturally, managers and executives look to get the best value from their investments and have to work within their set budgets. However, their top priority is about more than just containing the initial expense; it s about avoiding ugly surprises. There is nothing more embarrassing for the HR or IT sponsor than to have to petition the organisation for an increased budget to cover unforeseen costs. These unforeseen costs are almost inevitable with licensed software, and few organisations have adequate contingency plans. Increased costs occur because the business begs for customisations in order to plug functionality gaps, and then the associated maintenance and upgrade costs spiral. SaaS has the benefit that due to its architecture, it cannot be customised under any circumstances for any single client: there is simply no technical mechanism for doing so. By not being able to customise the software, HR and IT can legitimately tell the business that its widgets can t be built. 3

5 By staying on a common platform, upgrade costs are negligible or nil. There is no server hardware to maintain, so there are no surprise outages or malfunctions to spend time and resources on. As mentioned earlier, due to the annual or monthly subscription nature of SaaS, in addition to a lower overall total cost of ownership, the payments are much more evenly spread over the course of the contract term versus a license purchase, for which organisations make the front-loaded capital investment upon contract signing. From a risk perspective, with a license purchase, even if the customer is dissatisfied, the customer is past the financial point of no return and has no option but to persevere. That s not to say that there are never any further costs after purchasing SaaS software. Often an organisation will need to purchase more licences as more business units come online or headcounts grow. It may also elect to purchase additional modules. A good implementation process would also allow for regular health checks and associated process and content improvements. However, all these items are discretionary and add value to the organisation. It s like the satisfaction of paying to add an extension on to your house versus having to fix a leaking roof. IN SUMMARY: SAAS = PREDICTABILITY For an HR or IT executive, SaaS means predictability. Costly customisations can t and won t happen. Upgrades aren t an ordeal for HR, IT and the business users. Buying and maintaining hardware becomes someone else s concern. There are several strong reasons to invest in a SaaS solution, but the primary one is the predictability of costs. ABOUT THE AUTHOR Brad McCaw is a Principal in Mercer s Human Capital Operations and Technology service segment. Based in London, he can be reached at or 4

6 For further information, please contact your local Mercer office or visit our website at: Argentina Australia Austria Belgium Brazil Canada Chile China Colombia Czech Republic Denmark Finland France Germany Hong Kong India Indonesia Ireland Italy Japan Malaysia Mexico Netherlands New Zealand Norway Peru Philippines Poland Portugal Saudi Arabia Singapore South Korea Spain Sweden Switzerland Taiwan Thailand Turkey United Arab Emirates United Kingdom United States Venezuela Copyright 2011 Mercer LLC. All rights reserved E-HC

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