SaaS - Advantages of Product Development

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2 Content Preface From the Editors Desk Perspectives on IT Optimization 01. Shed Light on your RTS : Driving Optimization through 05 Financial Transparency 02. Outsourcing Trends in IT Optimization: 13 A Survey-based Article 03. IT Optimization: Roadmap to Cost Reduction IT Optimization Driven by Information Lifecycle 31 Management (ILM) Program: A Case Study 05. Post-Merger Optimization: Defining a Roadmap to Success 43 IT Optimization Models and Techniques 06. IT Optimization on the Cutting Edge: Opportunities via 49 Joint IP Creation and Divestment of IP Assets 07. Tapping into Saas and Pre-packaged Models to 57 Drive Optimization 08. Virtualization: A Cornerstone of Infrastructure Optimization UoW Model: Optimization through Innovative Pricing Effective IT Optimization by Process Optimization 85

3 it optimization 07 Tapping into SaaS and Pre-packaged Products to Drive Optimization Ashish Murthy R Product Consultant Infosys Technologies Limited Every IT Organization is faced with a decision to opt for either a Custom-developed or Third Party product-based solution. Products provide many advantages in terms of cost optimization, accelerated time-to-market, and best practices. To maximize these benefits, a successful and cost efficient Product Implementation strategy becomes paramount. Pre-packaged Software & Services and Software as a Service (SaaS) models are slowly catching up as an implementation methodology at the enterprise level. This article describes the challenges in these models and strategies that organizations can apply to overcome them. Introduction IT cost cutting is in vogue across the financial services landscape. Due to the high cost of operating monolithic legacy applications, banks are seeking efficient (and relatively cheap) ways to modernize. Packaged Off-the-Shelf Products provide a prime alternative, offering lower costs and similar functionality to custombuilt applications; a win-win in an IT optimization scenario. Unlike organizations from other verticals, Banking & Financial Services (BFS) organizations have been relatively slow to adopt packaged products. This is mainly due to the existence of many highly complex, custom-built applications that are extremely difficult to replace. When market leaders started building these applications years ago, there weren't many packaged products that could compete in terms of functionality and support. As product usage has increased, Independent Software Vendors (ISVs) have incorporated best practices into their products - bridging the gap that existed between packaged and custom software. Product implementations are not only popular for replacing legacy applications. New product lines and lines of business (LOBs) are often supported by products. In an increasingly competitive business environment, enterprises want to gain an accelerated entry into the market. Additionally, organizations are presented with an array of products built on the latest technologies across multiple domains,

4 such as Core Banking, Payments, Trading, Wealth Management, Compliance, Risk Management, Process Optimization, etc. How do Products provide Cost optimization? The most important reason for selecting third party products is the cost advantage. Companies are willing to adapt their business processes to cheaper packaged software solutions (which can reduce costs by as much as 50%), rather than wait for custom applications. Products provide cost advantage because: They enable clients to do away with the multi-year cycles required to develop large custom applications The overall Total Cost of Ownership (TCO) is significantly lower as they require relatively lower manpower and systems to sustain The only major cost is for license fees and product upgrades They provide a ready set of resources who can be productive from day one, eliminating the need for training them on your custom applications They provide many options in terms of pricing to suit different budget sizes They incorporate industry level best practices and regulatory requirements Key Success factors for Product Implementation Product implementation methodologies have changed as most Vendors and System Integrators (SIs) have understood and incorporated best practices into them. The factors that are critical to a successful product implementation are depicted in Figure 1. Product Implementation & Service Delivery Models Product implementations are becoming more complex and elaborate, and new implementation models are becoming popular. Instead of following the tried and tested strategies, technological advances and market pressures have resulted in ISVs and SIs looking to newer, more innovative models. As with any innovative methods, there are many areas that are not clearly understood and could create hurdles. This could, potentially, prevent an organization from extracting the benefits from a product. Hence, it is essential to understand these models in detail - especially the challenges associated with them and the strategies to tackle these challenges. We will discuss and compare two of the new strategies below. Pre-packaged Software & Services A major cause of project delays is the integration and customization of software products within an organizational landscape. This includes business workflow definition, user creation, and data migration, amongst others. Integration involves activities - such as building many interfaces to existing applications and defining data rules. Pre-Packaged software tries to address this problem by providing a customized product that has the business rules, interfaces, and data already created. Many vendors are providing this option for their products. For example, Misys, a leading Product vendor in the Banking & Capital markets (BCM) domain, provides its award winning trading product - Summit FT - in a 'Quick start' option. It comes with standardized configurations, rules definitions, and workflow processes to customers who need the functionality, but have an imperative to go-live quickly to meet their business requirements and budget constraints. 58

5 Product Implementation Success Factors Figure 1 ISV & Product Client & System Integrators Capability & Maturity Pricing Model Capacity & Performance Data Security Product Support & Training Many competing products p ro v i d e v e r y s i m i l a r functionality, but the ISV behind the product is usually the differentiating factor.? In today s fast changing world an ISV with an up to date product suite gives you the competitive advantage.? Vendors who till recently sold per license, with additional charges for customization & upgrades, have to now also offer pricing options such as annuity based, amortized model, subscription model, utility model etc. to attract clients.? The product should be able to support the planned capacity increases within expected level of performance.? Performance & capacity improvement exercises undertaken after a product is implemented are usually extremely costly & time intensive.? Alternative implementation models like SaaS force Vendors to prove their ability to provide Data Security.? An ISVs ability to provide a high level of service, in terms of SLAs, product enhancements & releases and contractual obligations, is essential for success.? An extensive training plan for operations & Technology needs to be provided. Understanding the Product features helps operations to be more productive. The product has to fulfill both the functional & nonfunctional requirements of the client. The product has to fit into not only the business landscape of the organization but also into the technical one. An important factor while considering a product, is an organization s ability to support the product once it is Live. Many products require specialized skills both from an operations as well as technology perspective. A product that is not properly integrated into the organization will not perform to its optimum level. Product integration thus forms one of the most critical factors that determine a successful implementation. It is also the most resource dependent from the Clients perspective. Even though project management tasks are reduced from a product implementation perspective, project planning is still very crucial to keep costs & schedule overruns in check.? M a n y p r o d u c t i m p l e m e n t a t i o n s w i l l involve complex integration activities and large ones will involve multiple vendors ranging from ISV s to SI partners & Consultants. Vendor Management then becomes a critical factor. Evaluation & Fitment Integration Project Planning Vendor Management Oracle's latest release of its flagship Universal Banking product - Oracle Flexcube - comes with a pre-built process pack for business process re-engineering and pre-packaged integration accelerators for seamless integration. Sungard provides its packaged Payments solution - Ambit - in partnership with Sun Microsystems as a pre-tested, 59

6 pre-configured, and benchmarked solution for corporate payments. Software as a Service (SaaS) As organizations look to optimize their operations and cut costs, (SaaS) provides an excellent option. SaaS is a method for application delivery. In SaaS, applications are accessed over the internet, usually via a browser. The actual product is hosted by a service provider (ISV or third party provider). The applications are configured to be setup in a single instance multi-tenancy mode, i.e., a single instance of the application services multiple users, and thus multiple clients. This is the key differentiator between Application Services Providers (ASP) and SaaS models. Hence, we are slowly seeing a movement of offerings from ASP to SaaS model. SaaS comes in two forms: On-Demand & On-Premise. On-Demand SaaS is made possible due to infrastructure provided by third party vendors, usually on a Cloud Computing platform using Virtualization technologies. Software is developed and maintained by the ISV/Provider. Similar to paying for utilities usage, SaaS provides subscription and pay per use pricing models. On-Premise SaaS provides the same services as On-Demand, but is hosted on data centers within the enterprise. Usually, SaaS refers to the more popular On-Demand implementation. Focusing on SaaS Pre-configured follows pretty much the same process as a normal implementation, but with reduced risk and time-to-market. SaaS, on the other hand, is much more challenging as an upcoming methodology, due to its many complexities. Keeping that in mind, we would like to focus the rest of the article on SaaS and its various challenges. When & What Do You Use SaaS for? Customer Relationship Management (CRM) and Human Resource Management have been the pioneering areas where SaaS has established itself as the option of choice. However, many new areas are being explored for possible movement to SaaS: Archival Business Intelligence Enterprise Content management Payments & Settlements Trade Valuation Portfolio & Risk Management Reconciliation Incident Management There is no hard and fast rule about what can run on SaaS and what can't. There are many possibilities and options. Enterprises can consider SaaS when they encounter any of the following triggers. Applications unable to handle business needs Legacy applications that lack the scalability necessary to handle business needs - in terms of functionality, capacity, and performance - need to be upgraded or replaced. SaaS presents an opportunity to do this in a cost and time efficient manner. For example, a Hedge Fund that is seeing its portfolio grow can choose to replace its legacy Cross-Asset Risk Management application with a SaaS delivered product. Similarly, a Treasury that plans to expand into newer products can use a SaaS-based packaged solution for ramping up to these new products. Hardware approaching End of life Organizations should also consider SaaS when upgrading infrastructure. For example, if an organization has a legacy custom developed human resource application that needs a major hardware upgrade, it is 60

7 Comparing the Two Methodologies Figure 2 Key Success Factor Time to Market ISV/Provider Capabilities Pre-Packaged Allows clients an accelerated entry into the market with lower turnaround times Compared to a regular implementation, timelines are relatively smaller ISV maturity & capability will determine the ability of the vendor to provide product customization & business process definitions Saas If customization and integration are not major factors to be considered, then business can be productive from day one Dependency and delay, on account of client s IT being unable to scale, can be removed SaaS provider has to demonstrate ability to provide scalable, secure, competitive, reliable, robust and stable services Adherence to SLAs is extremely critical Pricing Integration Similar to standard product implementations Does not provide any innovative pricing methods Built-in tools and standard interfaces provide out-of-the-box functionality for integration with third-party systems ISVs partner with SIs to build client specific interfaces and provide this as part of the product Customer data can be setup by the vendor or SI partner even before the product ships Provides flexible payment options Monthly, quarterly or yearly subscriptions are preferred when usage is expected to be frequent and heavy For irregular usage a pay-per-use model would be preferred One of the most challenging aspects of SaaS with respect to enterprise implementations Moving an application from the existing ecosystem to a SaaS model provides a huge challenge in terms of integrating it with existing systems from identity management to data transfer Performance & Capacity Capital Expenditure (CAPEX) Performance and capacity are dependent on both the products capabilities and technical configuration that the client IT team designs Client has to invest in IT infrastructure for hosting the product For a SaaS implementation, performance and capacity constraints are solely the responsibility of the ISV/provider Innovations in Cloud Computing & Virtualization space help provide economies of scale for SaaS Clients benefit from the reduced CAPEX since the product is hosted on ISV/Provider data centers Indirectly, operating expenditure also reduces, due to efficient usage of personnel and resources of the clients IT department 61

8 IT Management & Product support Customization Project Planning Training Data Security Vendor Management Product Trials Client IT teams have to support the infrastructure required for the Product In many cases where Products are large and complex, Client/ Vendor/SI teams are required to support and maintain the product, e.g., Trading Applications Vendor provides out of the box customizations for the product Idea is to keep customizations to the minimum and use the best practices as defined by the product Clients used to a high degree of customization can end up spending more time implementing changes to the product once it s live All risks associated with product implementations are with the client/si team Any number of training environments can be setup at Client Data Center (On-premise) All data is secure and within the client s ecosystem All processes will be compliant with client s regulatory & statutory requirements Involves receiving bug fixes & version upgrades Ongoing support is usually on a need basis Client not heavily involved This option does not exists other than in Product Demos Since the need for new servers and personnel is reduced it allows the Client s IT team to convert itself into a strategic & transformation unit by freeing them from day-today product support activities On the flip side, many IT departments see it as high risk, even as a threat SaaS with its single instance and multi-tenancy model, shares the same application across clients, thus severely restricting customization Also, all application upgrades and maintenance is provided by the service provider thus making customization challenging Platform as a Service (PaaS), which exposes the underlying development platform, can be a solution for SaaS customization Many of the inherent risks involved in classic product implementations can be transferred over to the ISV/provider Training environments are provided by the ISV/provider & need to be requested for in advance SaaS raises many questions related to Data Security, especially considering banks have extremely rigid and very extensive policies & regulations on data security, privacy & availability SaaS biggest challenge is to convince a bank s CIO that their data is safe and secure SaaS requires may require policy changes from the Bank SaaS from a Vendor management perspective is complex & continuous Careful discussions on SLAs for turnaround times, escalation procedures, and financial compensations are required This brings product evaluation to the next level, which was not possible in the classic product implementations Instead of relying on the Vendor s recommendations, users can experience first-hand the product by using it for a trial period, thus enabling the business to take informed decisions 62

9 Business Process Model Usually the most time consuming step in any product implementation Product best practices are used to pre-setup the Business Process Model, Workflows, Business Rules, etc Still allows client to configure the BPM as required Clients have to use the ISV/providers business model Customizing the business model is relatively more difficult in this scenario useful to try and explore the cost advantages of replacing it with a SaaS delivered, third-party packaged product. A substantial amount of the expected capital expenditure can be avoided. Reduced IT Budgets When budgets are reduced and the business still requires expanded services, SaaS provides a good opportunity. For example, an organization may need to expand its payments offerings, and with a limited budget it can utilize a SaaS-based payments solution for the new products. Another example could be reduced trade volumes or a smaller portfolio of trades, justifying the move from an expensive in-house application to a SaaS- based product. Improving operational Efficiency Many Operations Support Systems that form a part of the overall enterprise technology landscape can be switched to SaaS. Support operations - such as Fees and Billing, Reconciliation, Validation, Valuation, Margin Exposure, Incident Management, Data Archival, and Enterprise Content Management - can be analyzed for movement to SaaS-based products. For example, Petra Financial's product, Vortex, is available via SaaS platform and is used for validating Payment messages for IBANs, BIC, SWIFT, and Sort codes - thus allowing clients to save on chargebacks and improve straight through processing. Entering new Business areas SaaS can (and should) be considered when an organization needs to make a decision to build/buy a new solution. For example, for a multinational bank that is expanding into emerging economies, SaaS-based solutions should be explored for Archival, CRM, Risk, and Payments requirements. Integration, one of the key elements in SaaS implementations, would be easiest in this scenario. Similarly, SaaS could enable a Treasury to build up its portfolio, at its own pace. Furthermore, products can be added, as usage increases, without requiring a costly upgrade. What are Major Challenges in SaaS? In cases where major upgrades (30% of the initial cost or more) are not needed, the cost benefit of SaaS over on-premise systems is debatable. This is because on-premise applications depreciate as capital expenses, whereas SaaS remain an operational expense and this is a factor that needs to be considered in the long run. It is easier to get started with SaaS. This is because one does not need to install the software and hardware components in data centers, but this is true only when a business doesn't need to integrate SaaS tightly with other systems. In that case, an enterprise will have to spend additional time on integration work to obtain the desired benefits of the product. 63

10 When business critical and key-differentiator applications that provide the competitive advantage to an enterprise are concerned, factors like data security & confidentiality, reliability, and legal hurdles pose a major challenge to SaaS. Applications that have high latency, high performance requirements, and heavy usage will usually have large bandwidth requirements. It could be challenging to provide comparable performance between an Enterprise Intranet-based, on-premise application and an internet-based SaaS application. How should an IT Organization Approach SaaS? As SaaS is an evolving product delivery methodology, we recommend a time-based approach to it. It is essential to attempt an understanding of how SaaS can be useful to the organization. Identifying costs associated with the subscription, training, customization, integration, and feature upgrades will enable organizations to determine whether SaaS is the better choice. A time-based approach to SaaS can be broken up into: Short Term Strategy New requirements to be implemented using SaaS Move non-critical businesses to SaaS Learn and enhance the understanding from these implementations for re-use Medium Term Strategy Analyze applications that are nearing End-of-Life, or will need a hardware upgrade soon to see if they can be moved to SaaS If products are being used that need a version upgrade, see if the ISV provides a SaaS solution for it Indentify existing applications and products that you want moved to SaaS, and that would continue to be hosted on-premise Analyze if it will be helpful to move critical applications to On-Premise SaaS Long Term Strategy Build a strategic IT plan for SaaS implementation Introduce Processes and themes to transition to SaaS Plan for optimization of SaaS deployments Figure 3 shows how an organization can approach a SaaS-based implementation to move an application to a SaaS-based delivery model. Conclusion Packaged products now provide distinct cost benefits over custom applications. New product implementation models - such as SaaS and Pre-Packaged - are growing in popularity as providers and ISVs get actively involved in promoting them. The IT Organization has to carefully evaluate and study a number of factors to decide which of its applications it can move to a SaaS or Pre-packaged model, and the benefits that it would derive from the move. Pre-Packaged products provide enterprises with the ability to quickly and efficiently implement large business critical transformational products into their existing IT landscape. Integration and Customization, the two major implementation activities, are accelerated to leverage the knowledge and best practices of the ISV. SaaS provides Cost optimization, accelerated time-tomarket, IT infrastructure streamlining, and best of class functionality and technology. There are many opportunities in an IT 64

11 Moving an Application to Saas Figure 3 Discover Select applications that satisfy the below criteria Legacy Applications unable to handle business & non-functional requirements Packaged products that need Upgrades Applications nearing End of Life Applications requiring costly Hardware upgrades Non-core or Non- Critical Applications Product requirements for new Business areas or regions Analyze Filter selected applications for fitment within the organization for a SaaS implementation Check for Business Fitment Long Term Goals Customization Costs Check for Technology Fitment Technology Landscape Security & Confidentiality Integration Check for IT Operations Fitment SLA Management Data Security & Backups Vendor Selection & Plan Select Vendor & Prepare Implementation plan List Critical requirements for Cost Functionality Technology & IT Select Vendor Create Fitment matrix Sign Legal agreements & SLAs Plan Customization Business processes workflows Data Security & rights Integration Testing Optimize & Re-use List Best practices and prepare SaaS Implementation best methods Baseline SaaS implementations for Cost Functionality Technology & IT Build Re-use library Selection Methodology SLA & Legal rules Integration methodologies Implement Execute Plan Setup Business Rules Customization Integration Testing User & IT Training Data Management IT Operations setup Tracking & Monitoring Organization to use SaaS. Many believe that SaaS could spell the end of the on-premise data center, which is untrue. Instead it will compliment it. Eventually, enterprises will have a healthy mix of applications that will be hosted both on-premise and on SaaS. 65

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