Considering the SaaS Adoption Question (Again)


Just yesterday I shared the expectations of Saugatuck Technology's Bill McNee that, beginning in 2011, we'll begin to see more large enterprises considering software-as-a-service for systems of record such as human resources and ERP. Many legacy systems are long in the tooth and due for a refresh, and SaaS vendors are improving their capavbilities in areas like integration and workflow, McNee told me in an interview earlier this month.


And SaaS vendors will need to improve, based on results of a recent Gartner survey. Of British and American organizations that evaluated SaaS solutions and chose not to deploy them, 42 percent cited cost and 38 percent integration issues, while 33 percent said SaaS didn't satisfy their technical requirements, according to an internetnews.com item about the survey. Gartner analyst Twiggy Lo said results will be "somewhat disquieting" for vendors.


Users were asked to rate their satisfaction with 16 different aspects of their SaaS installations, with the average working out to 4.74 of a possible 7. While this doesn't seem to represent a ringing endorsement of SaaS, I wonder if similar surveys have been administered for on-premise software? If so, what were those results? I can't help but flash back to a 2007 MIT Sloan Management Review article in which author Cythia Rettig hinted at broad user dissatisfaction with ERP systems, that a typical ERP implementation "introduce(s) so many complex, difficult technical and business issues that just making it to the finish line with one's shirt on (is) considered a win."


Despite their moderate satisfaction levels, 58 percent of respondents to the Gartner survey said they'd maintain their current SaaS levels, while 32 percent planned to add more SaaS. If I am doing my arithmetic correctly, that's 90 percent, which seems like a strong number. Five percent said they'd scale back SaaS levels, and another 5 percent planned to eliminate it. Saugatuck came up with some similar numbers when it surveyed global companies. It found 29 percent of them were already using some SaaS. Two-thirds of them had more than one SaaS application, and half planned to add more SaaS.


Gartner's assessment:

Many customers are underwhelmed by their current experience of it and sense that SaaS is not quite the panacea it often promised to be.

This isn't the first time we've heard about lukewarm satisfaction with SaaS, of course. Almost from the beginning, organizations seem to have harbored unrealistic expectations about SaaS. (And some vendors have encouraged this.) It's obviously a mistake to view any kind of software as an enterprise cure-all. To bring expectations more in line with reality, read Gartner's take on five key questions about SaaS, regarding cost, speed of deployment, payment structure, integration and functionality.


Inertia and existing investment also come into play for enterprises considering SaaS, McNee told me in our interview. He said:

I think part of the issue here is the solutions aren't yet broadly available to address the more complex requirements of large enterprises. But as has been the history of IT, installed systems tend to stay in motion until they are broken. If a large enterprise customer already has PeopleSoft HMRS or SAP ERP installed, and they've invested millions and millions of dollars to customize it, and have all sorts of integration hooks into other systems, there needs to be a darned good reason to try something new. Something has to be really broken and there has to be a very strong economic argument to encourage them to move to a new platform.

Salesforce.com was smart to choose salesforce automation as its SaaS point of entry, McNee added, because "centralized IT historically has not done a great job supporting this internal customer requirement."


McNee thinks broader adoption of SaaS is coming. Addressing the idea that large enterprises won't move to SaaS, he called it "this illusion in the marketplace."