One of the most frustrating aspects of today's IT-dependent manufacturing environment is the challenge of deploying and maintaining enterprise applications ranging from enterprise resource planning (ERP) and supply chain management (SCM) to customer relationship management (CRM) software. A significant proportion of new application deployments fail to achieve their original objectives, and even successful deployments can often cost far more to maintain than expected.
Depending on the complexity of the deployment, enterprise applications can take months or even years to implement, and they can consume the majority of the IT staff's time just to keep them up and running. And, most major upgrades typically require additional investments in new servers, storage and other IT infrastructure upgrades.
Manufacturers trying to keep pace with escalating competition can no longer afford the extended lag-time of lengthy application deployment cycles. They can also ill-afford the ongoing infrastructure and staff costs to simply maintain their existing applications.
These frustrations have made the manufacturing industry ripe for a new approach to applications called Software-as-a-Service (SaaS). SaaS is the latest iteration in the evolution of the application hosting business that emerged during the dot.com era. Unlike application hosting which houses traditional packaged software applications on behalf of enterprise customers at a remote data center, SaaS entails a new generation of applications that have been specifically designed to be accessible via the Internet.
Application hosting companies, or "application service providers" (ASPs), promised to save enterprise customers money on hardware, power, real estate and staff costs. While they eliminated many of the application deployment and maintenance issues, the ASPs and hosting companies were unable to substantially restructure the traditional packaged software they offered to make them easier to access and use.
In addition to being more easily accessed via the Web -- eliminating much of the dedicated network costs that past hosting arrangements entailed -- the new generation of SaaS solutions exceeds the hosted applications of the past by being easier to acquire and deploy incrementally, or "on-demand."
Most of the ASP and hosting industry pioneers disappeared because they couldn't convince enough mainstream enterprise customers to replace their home-grown or packaged applications, which undercut business models predicated on transaction or seat volume. ASPs and hosting companies couldn't generate enough revenue to offset the tremendous upfront capital investments needed to build and maintain hosting facilities.
The new generation of independent SaaS providers has been led by Salesforce.com and assortment of players aiming at nearly every segment of the enterprise software market. Fast followers include RightNow in the customer relationship management (CRM), SuccessFactors in the human resource management (HRM), Taleo in the talent management segments, as well as NetSuite and Intacct in ERP and Arena Solutions in the project lifecycle management (PLM) area. Intacct, in fact, recently announced plans that would enable Salesforce.com users to create quotes and perform other accounting functions by tapping application logic and data residing in its software service.
The emergence of the independent SaaS providers has created a major competitive challenge for the established independent software vendors (ISVs). Look no further than Microsoft chairman Bill Gates' blunt warning to his top executives in an internal memo that recently became public for a clear indication of the perceived severity of the SaaS threat.
Unlike many technology trends that have faded fast, SaaS has won a solid base of loyal customers, according to a recent survey conducted by THINKstrategies in conjunction with Cutter Consortium (Arlington, MA). Almost a third of the 118 enterprise IT professionals participating in our survey are already using SaaS and another third are considering SaaS. Over ninety percent of the current SaaS users are satisfied with their on-demand applications. As a result, 86.5% of these current users expect to acquire additional SaaS offerings, and 91.9% would recommend SaaS solutions to other enterprises.
THINKstrategies has found that most companies, including manufacturers, adopt SaaS in an incremental fashion. This approach enables the organization to pilot the SaaS solution in an isolated part of their operation to test its features and identify any flaws. After successfully adopting the SaaS solution in this limited initial deployment, these companies rollout the service across the entire operation quickly, unencumbered by IT infrastructure issues or ongoing maintenance concerns.
The biggest challenge for manufacturing companies considering SaaS alternatives will be sorting through the rapidly expanding array of SaaS providers. In addition to the independent SaaS providers and traditional ISVs adding SaaS to their portfolios, many of the established system vendors and outsourcing companies are also entering the SaaS market.
The key difference between evaluating SaaS and traditional packaged software applications is focusing to a greater extent on the quality of service offered by the SaaS provider. In the past, manufacturers focused on the technical features of traditional packaged applications and relied on their in-house staff or an integrator to deploy and maintain the application. In the case of SaaS, manufacturers will rely on the service provider to deliver the application functionality that meets pre-ordained service levels. Therefore, the SaaS provider's service delivery capabilities and an all-encompassing and enforceable service level agreement is pivotal to selecting the most appropriate SaaS provider.
Jeff Kaplan is the managing director of THINKstrategies, a Wellesley, MA-based strategic consulting firm. Jeff can be reached at jkaplan@thinkstrategies.com.