The Way Business Is Moving published by
Issue Date: May 2008

Five reasons companies choose SaaS

1 May 2008
Richard Firth, CEO and chairman of MIP Holdings

Shadow IT has become a major factor in most organisations. It represents a failure on the part of IT to provide all of the services to meet its clients' needs, and the problem is universal and pervasive. Some reports indicate that shadow IT represents more than three quarters of the total IT activity in organisations.
Shadow IT manifests, for example, in the persistent use of standalone Excel spreadsheets when the business has invested millions in state-of-the-art business intelligence systems (often signifying that the users are not buying into this new way of working). It is apparent in rogue server purchasing, which occurs outside of the standard IT budget, and is normally done to satisfy the requirement for an application, such as one for enterprise performance management. And it is increasingly manifesting in software as a service (SaaS), which gives managers the ability to control their destiny rather than wait in an interminable queue for IT to deliver their application.
Here are five reasons SaaS is taking place in your organisation as part of shadow IT:
1. Traditional client-server enterprise software has many holes in it. One of them is 'shelfware' in terms of which software licences are paid for but never used. This is one of the dirty little secrets of the IT sector. Oracle found, for instance, on acquisition of Siebel that two thirds of Siebel licences were never used. New research indicates that a quarter of ERP licences paid for are not being used by US companies. Secondly, companies are spending up to 10 times as much on implementation of software once they have bought it. This waste of software bought but not used is a powerful driver for managers to look for a new way of working.
2. SaaS does not require a capital investment, so it can bypass the budgeting and tender processes and be paid for out of operational rather than capital budgets. The software can be paid for on a per-month, per-user or value-derived basis. Its payment can also be linked to strategic drivers in the business - the more the business grows, the more a customer pays.
3. Users pay only for the software they want, rather than having to buy vast amounts of functionality they do not need. It is a little like Microsoft Word, where the average person makes use of less than 10% of the application, yet pays for all of it. Consider, instead, a classic example of SaaS such as Google Docs, which lets you invoke the functionality you want, when you want it, and then put it away. And you do not have the inconvenience of dozens of megabytes of software occupying space on your hard drive.
4. Users do not have to worry about infrastructure support or deploying and managing the software. All of this is taken care of for them, somewhere out there. All they know is that the software works, and it works without their intervention, and without extra cost.
5. Over a three-year period, it is less costly than standard, licensed software, and it is rapidly deployable, often with little training. These are attractive considerations for business managers, who do not want to concern themselves with long implementation and training cycles.
These are profound reasons why IT is being bypassed. IT management needs to do two things regarding this phenomenon. The first is to accept it is happening, and not to forbid management from embracing SaaS. The second is to bring it closer to the IT function, and to ensure that it forms part of the overall IT architecture and application portfolio.
That way, SaaS can stay within the business-IT mainstream, as it should, and users can be accommodated within overall IT strategy.
Richard Firth, CEO and chairman of MIP Holdings
Richard Firth, CEO and chairman of MIP Holdings
For more information contact Richard Firth, MIP, +27 (0)11 575 1800,

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