As enterprise applications delivered via the Software as a Service (SaaS) model gain wider acceptance in companies, it's the business units, not IT, that are calling the shots. CIOs are frustrated, but business units seem unwilling to let go.
"Our experience has been that the business unit has been the lead all along with SaaS," said Mark Koenig, vice president of Saugatuck Technology Inc. in Westport, Conn. "Only recently has IT become involved once they realized the extent to which SaaS has penetrated enterprises, and they were faced with integration issues. Often it was the case for IT professionals that they were happy to allow business units to solve their own problems. That meant they could focus on larger enterprise problems. But integration is driving the issue."
Jim Jeffcoat, recruiting director at Rexel Inc., a Dallas-based distributor of electrical and datacom components, was the lead buyer of a product from Taleo Corp., a Dublin, Calif.-based vendor of human resources management software delivered through the SaaS model.
Jeffcoat adopted Taleo's recruitment management module at his $5 billion company to speed up how his company dealt with hiring new employees. He did this with very limited involvement from his company's IT organization.
"I notified individuals in IT as to what I was doing, but the fact is that the product does such a good job being standalone that there really was not a need for IT to become involved, unless I decide to take advantage of Taleo's more robust features," Jeffcoat said. "At that point in time, yeah, IT will have to be more involved."
Jeffcoat said that without IT's involvement, he was able to implement Taleo's product much faster, given that his IT organization has a lot of projects on its plate. He didn't have to get Taleo on a priority list for implementation. He could just do the deal on his own. But Jeffcoat said he will eventually want IT's help with Taleo. There will come a time when he wants the product to interact with his internal performance management and payroll systems. IT will have to do that work.
Rexel's IT department might be ready and willing to quickly integrate Taleo's product when the time comes, but CIOs at some other companies might demand a more rigorous process for procuring SaaS products.
A recent survey by Saugatuck Technology found that 44% of 250 companies buy SaaS products only after a review of a business case by an oversight committee consisting of both business users and IT staff. Another 24% will buy SaaS products only if they meet business goals and conform to guidelines pre-established by the IT department. Only 36% of companies buy SaaS solutions without IT involvement.
Clearly, a system like this screams "bottleneck." SaaS applications are much more prevalent in enterprises than CIOs realize.
"They thought they had five or seven, but they actually had 50 of them," Koenig said.
Indeed, SaaS is becoming a much more prevalent method for delivering enterprise applications, according to Stamford, Conn.-based Gartner Inc. The consulting firm is projecting a compound annual growth rate of 22.1% for the SaaS market through 2011. Gartner says this is more than double the growth rate for the total enterprise software market.
"Adopting a SaaS solution that hasn't undergone technology oversight approval is a mistake that has the potential to be especially difficult to unravel as time goes by," said Kevin Lupowitz, CIO of Liquidnet Holdings Inc., a New York-based equities broker and dealer. "In the immediate term, sensitive data could reside outside the control of the business and its integrity could be compromised."
"Without being involved in the decision-making early on, it puts the IT team in a very difficult position," Lupowitz said. "Oftentimes, they are forced to do a level of integration that is outside of normal conventions to support a business technology solution that they had no part in."
Lupowitz said his company has created a technology oversight committee with both global IT leaders and business leaders. The committee is responsible for establishing consistent review and approval methods for all technology initiatives and implementation plans. He said the committee will also produce a guidebook that will specify corporate technology standards for business units to use when choosing technology solutions.
Shared input a must
Jeffrey Kaplan, managing director of ThinkStrategies Inc., a Wellesley, Mass.-based consultancy, said IT should be involved in SaaS procurement, but it shouldn't take over the process.
"I believe that the SaaS procurement process should be business-driven and IT-guided," Kaplan said. "One of the primary reasons for the failure of traditional, on-premise applications was that the procurement was driven by IT because the legacy applications were dependent on a complex combination of hardware and software operating systems, and often failed to fully address the business needs."
Kaplan said business units in the past have bypassed IT with SaaS procurement because they often see IT as an impediment to achieving their business objectives, rather than an enabler. But IT must have a hand in the process because SaaS products must integrate with existing databases and comply with corporate security requirements, so IT must be in the loop to ensure compatibility and compliance with those requirements.
"IT's involvement in acquiring SaaS solutions is only going to increase as they get involved in integration headaches."
Let us know what you think about the story; email: Shamus McGillicuddy, News Writer