6 Critical Considerations when Thinking SaaS
Lets face it, HR has historically gotten the shaft when it comes to technology. In many organizations HR needs to fight for resources against other initiatives which are more closely aligned with core business functions – sales, marketing, production/manufacturing, etc.
With the lack of organizational respect/understand that many HR departments struggle with alongside the historical costs of ERP, its no wonder why HR often has difficulty securing resources to assist with technology-related initiatives. Whether an organization is tackling the basics such as automating a manual recruitment process (is anyone still handling paper out there?), taking performance appraisals online, implementing learning management capabilities, or moving towards more advanced functionality such as Employee Service Centers with full case management capabilities, fully integrated talent management suites, or advanced analytics with embedded dashboard into role-based portal views, HR often needs to go beyond the capabilities of their internal IT organization.
The answer to many HR organizations struggling with these issues is often utilizing Software as a Service (SaaS) vendors who “rent” their applications to companies. No need to buy servers, install software, maintain code, etc.
Let me start by being very clear - I don’t advocate HR departments engaging vendors without partnering with their internal IT function. Whether you partner with IT or go it alone, I wanted to share a few critical elements which you need to consider when thinking about introducing a SaaS solution into your business.
1. Service Matters – Having an iron-clad Service Level Agreement is the foundation from which you will build your solution. A SLA will govern exactly how/how fast the vendor is to respond to issues, what expectations are with respect to system up-time, etc. Think of this as the prenuptial agreement for your long-term business relationship and having expectations spelled out as clearly as possible will save you a ton of headaches later. SLAs are very much negotiable, and should be reviewed with both your IT and Legal staff.
2. Upgrades? Who Needs Upgrades? - Unfortunately you do. One of the least understood elements of a SaaS is exactly how upgrades are handled. For example, one large SaaS talent management vendor includes all upgrades in your costs and deliver upgrades to all customers at the same time. Another leading vendor delivers upgrades on a fee basis and gives you a choice as to when you upgrade. While both options have their merits, the key here is to make sure you understand exactly what the upgrade path looks like and whether the annual subscription fees include all upgrade costs or not and whether an upgrade requires the use of the vendor’s professional services organization (generally at an incremental cost).
3. Begin with the End in Mind – Just like a car lease, SaaS contracts can run anywhere from 1 to 100 months, with the average tending to be 36 months. At the end of the contract think you need to consider exactly how you proceed – renewal or replacement. In the event of a replacement, how do you get your data, at what cost, in what format, how quickly will be be provided to you, on what media, etc. Most customers don’t think about what happens at the end of the contract when you’re soo focused on getting to the new solution. Taking the time to negotiate this while you have some negotiation leverage is critical. Once you’ve notified a vendor that you’re leaving them, you’ll find that they tend to be a little less responsive to your requests than when you’re considering doing business with them.
4. Change in Control – Let’s face it, no matter who you’re buying software from there is a chance that they’ll be acquired. Whether they are the leader in their space or a small up-and-coming vendor, there is always someone who would like to acquire them. Seven years ago no one would have predicted that Siebel or PeopleSoft would be acquired, yet now they’re both part of Oracle. Who’s to say that your vendor of choice isn’t going to end up on someone’s holiday shopping list? When acquisitions happen by competing vendors, there is a strong likelihood that your vendor’s solution will be sunset (industry jargon for discontinued). In the event that this happens, the migration to another solution is at YOUR expense. It’s a great inconvenience for customers, and an unintended expense. Be sure your contact spells out exactly what your options are in the event of a change in control as well as official decisions to discontinue products that you’ve purchased/rented.
5. Not all SaaS is the same – There are very substantial differences between the technical architecture of a single-tenant SaaS solution and a multi-tenant solution. The differences between the two significantly impact how and when vendor code updates are pushed to your system. For example, a certain leading talent management vendor has a multi-tenant SaaS solution which means all of their customers run on a single set of core code. For you non-propeller heads reading this it means that everyone is running the same software at the same time. When upgrades are necessary, everyone will get them all at the same time. This means that you need to be prepared to upgrade on their schedule, not necessarily yours. Single-tenant gives you more flexibility when it comes to timing of upgrades, but that’s not always a good thing. To best understand the differences between different SaaS models I would recommend that you check out this great blog post from Jason Corsello.
6. Implementations need to be on your schedule, not the vendors – Due to complex accounting rules on how and when firms are able to recognize revenue, most vendors will not be able to count the revenue until their software is deployed. While there are varying schools of thought on how/when to actually record the revenue and when software delivered via SaaS is considered “delivered”, most vendors have an incentive to get you up and running on their solution as fast as possible. This can create conflict during the negotiations and subsequent implementation
SaaS is not the right option for everyone. There are plenty of companies that prefer premise-based solutions and have business requirements which all but eliminate SaaS vendors. For those whom fit the SaaS model, these guidelines should help to to ease concerns and position you for greater success.