New business models are capturing growth and stand to reshape the services industry. Two of the most promising of these are SaaS and “Enterprise IT as-a-Service.” Buyers need to understand that each model takes a different approach to delivering services; their risks also are not the same, and each approach has different consequences.
They are the same in one aspect: both models attempt to change the relationship of IT to the business by better aligning the IT environment to the customer or business needs and making the IT infrastructure more agile and responsive to changes in the business environment. So the prize is better alignment to business value, more responsiveness, shorter time to get new functionality, and more efficient use of IT dollars.
But how they deliver that prize is very different.
The SaaS promise is strong on efficiency gains. SaaS is inherently a multitenant-leveraged approach in which common platforms are built, standard functionality is developed and is allowed to be configured to a customer’s needs. The platforms come with flexible, powerful APIs that allow the SaaS offerings to be integrated into enterprise systems. But at its heart, SaaS is a one-size-fits-all, unyielding standard. Efficiency gains in a SaaS approach come from having many customers use the same software and hardware, limiting customization through configuration and APIs.
SaaS apps are typically function-based, so they evolve quickly. When the SaaS owner brings innovations, it does so in one stable environment, not having to update or take into account very diverse environments that traditional software packages must accommodate. Therefore, SaaS delivers rapid changes in functionality that benefit the entire ecosystem. In contrast, the traditional software model evolves much more slowly and imposes constant requirements for upgrades that are both expensive and have knock-on consequences for the systems that integrate with them.
Enterprise IT as-a-Service approach
The Enterprise IT as-a-Service model takes a supply-chain approach, moving each component of the supply chain into an as-a-service model. This allows the whole supply chain to be better aligned. It loosely couples each part of the supply chain, allowing each component to evolve and allowing the supply chain to capture the benefits as each component evolves at its own pace.
Similarity in benefits
Both models deliver similar flexibility and agility benefits, but they achieve them in different ways. The Enterprise IT as-a-Service model allows far more customization than the SaaS model. It assembles components into a customized end-to-end offering, whereas a SaaS vehicle achieves those aims through API configuration.
Both models also achieve similar benefits in cost savings. Both approaches can achieve significant efficiencies. SaaS achieves this through high leverage over an unyielding standard. The Enterprise IT as-a-service approach achieves efficiencies partly through reducing the over-capacity that all functional-driven IT departments maintain inside their ecosystem.
Substantial differences in cost, risk, and technical requirements
The two models differ substantially in cost, risk, and technical depth. The risk and technical depth to adopt a SaaS vehicle can be very substantial, particularly if it’s a system of records. Existing systems of records come with substantial technical depth in terms of the integration of the system, unamortized assets and also ongoing software licenses. In moving from that environment over to SaaS, organizations often face substantial write-downs and a risky implementation.
The risk is different in the Enterprise IT as-a-service model in that it can be managed component by component. Organizations can achieve substantial flexibility by not having to move off existing systems of records or existing software. Those platforms can be migrated down this path, therefore lessening the technical debt and presenting a different risk profile.
Which approach is better?
I believe that both approaches are important to the future of IT. At the moment, large enterprises adopt SaaS mostly as point solutions. Enterprise IT as-a-service poses the opportunity to operate at the enterprise level, not at a point-solution level.
I don’t believe the two approaches are mutually exclusive and expect that organizations will embrace both capabilities over time.