If Not Now, When? Business Conditions are Ripe for SaaS CPM, Part II

January 20, 2009

For organizations that have considered implementing Corporate Performance Management (CPM), one of the major stumbling blocks involves overcoming internal operational imperatives. Typically both capital spending and IT resources are limited and must be scheduled months in advance. Also, there is additional implementation risk (and the associated career risk) because of the need to demonstrate immediate results.

The promise of a CPM solution is a no-brainer. It facilitates the development of good business strategies, as well as the alignment and measurement of key indicators that drive success. It allows a company to be more agile. The road block has been the cost and risk associated with adoption. (See Part I of this two-part series for more details.)

The solution is to by pass the traditional software license model and purchase a software as a service (SaaS) CPM solution. The short definition of SaaS is a model of software deployment where an application is hosted as a service provided to customers across the Internet. Software as a Service side-steps the traditional licensed software issues by treating costs as an operational expense and minimizing internal IT resources by leveraging the SaaS vendor’s expertise. Software as a Service implementations also provide quick time-to-value and minimize the customer’s implementation risk because the SaaS vendor doesn’t get paid until the system is implemented.

Merging the technologies of SaaS to CPM provides the strategic innovation that allows companies of all sizes to mitigate the common pitfalls of traditional software licenses. This allows companies to drive the planning process forward so companies can become strategically managed.

How It Works

Software-as-a-Service customers pay a hosting fee on a monthly, quarterly or annual basis, as opposed to paying up-front for a traditional software license. The application is delivered over the Web in a “thin client” platform. The SaaS vendor assumes all of the implementation, support training, infrastructure and security risks in exchange for the recurring subscription fee. The subscription fee is typically based on a per user basis. As a customer expands the use of the application to additional users, the cost goes up. The delivery model is based on a service model. It includes not only the software platform but the necessary services and “best practice” consulting to support a customer’s ongoing implementation of the software to all areas of their business.

Because it’s a service, the vendor provides the necessary support to minimize the reliance on the customer’s internal resources. A SaaS vendor cannot risk their revenue stream on internal customer bottlenecks. A SaaS vendor guarantees their revenue stream and expands its revenue stream from a customer by providing exceptional service and helping the customer further implement the software components. Software as a Service allows a company’s applications to grow as it grows; businesses don’t need to purchase thousands of user licenses up-front to decrease the per user cost and they don’t have to anticipate all their needs in the beginning or purchase a “point solution.”

Finally, the SaaS vendor is ultimately more engaged in a client’s success than an on-premises vendor, and therefore the balance of power shifts from the vendor (in the case of typical licensed software) to the customer and their satisfaction and application usage.

Why now?

In a corporate environment and especially during tough economic times, it is hard to sell the future benefits of a software solution. It is especially difficult when studies show that 31.1% of software projects cancel before being completed and 52.7% of software projects cost nearly 190% of the original estimate, this according to industry analyst estimates.

At the same time, the benefits of a CPM solution are well-defined and benchmarked. Track records show that leading organizations that leverage CPM enjoy a distinct advantage over organizations that have not begun the process. These organizations are proactive and can take corrective action before issues turn into real problems. In addition, CPM is viewed as a key tool for assisting in cost-cutting and profit-optimization.

In this economy, where the climate changes daily, companies need continuous planning. Companies require both a sophisticated modeling environment and a solid business planning and strategic planning platform that can be used to set targets for revenue, expenditures and cash generation.

In the past, these kinds of projects came with tremendous cost (hardware, software and infrastructure) and effort (internal resources and external consultants), and with a long lead-time to implement and a delayed return.

Like “soup and sandwich” and “horse and carriage,” SaaS and CPM are meant to be together. The merger of technologies and services provides for a collaborative modeling environment so managers can work on a shared model to create common cost-optimization strategies. In addition, a rapid time-to-value is achieved because SaaS allows companies to start quickly without relying on any internal organizational resources or the need to purchase additional hardware or software.

Okay, So How Much Is This Going to Cost?

In a traditional software license model, a complete CPM application implemented incrementally over time with a lot of in-house support in a relatively small and contained implementation can be completed for $200,000 to $500,000 in a time-frame of four to 10 months.

In contrast, a SaaS solution can be implemented for budgeting and planning for a 25 user system with an annual subscription of $17,500, plus a one-time implementation cost ranging from $5,000 to $40,000 depending on complexity and the amount of work divided between the customer and the SaaS vendor.

If the customer outgrows the SaaS CPM solution, they can always switch to another vendor. A lot of the hard work is in the initial implementation, going from an Excel environment to a CPM solution. Once the alignment has occurred with the initial CPM implementation, conversions to other CPM solutions are easier. This is similar to what we have seen in the payroll industry.

About Ric Ratkowski: Ric oversees product marketing of the Host Analytics CPM Suite. He is actively involved in the design and development of Host’s on demand solutions. Ric has over 25 years experience in Finance and Accounting and has held strategic roles in the design of financial analytic and performance management applications within the top software companies in the industry including Braun Technology and Arbor Software. Additionally, Ric held financial executive level positions at multi-national corporations with first-hand involvement in the financial planning and budgeting process. He has been a key member of the executive team at Host since 2002 and pioneered the SaaS infrastructure at Host. Ric has a Masters in Finance and a Bachelors degree in accounting from St. Louis University and is a CPA. He lives with his family in St. Louis, Missouri.

Posted by Carl · Filed Under Business Intelligence