You have outsourced Applications and Infrastructure. Will SaaS work for you?

Brian Walker, Managing Director, IT Consulting
Stan Lepeak, Managing Director, Global Research

If you are engaged in an outsourcing initiative and wondering if SaaS¹ (software as a service) sourcing model will work for you, here are five questions you should ask as you to begin the evaluation:

  1. Does scope current cross multiple providers? Define a manageable and logical scope for private SaaS efforts. When identifying a target functional area, buyers should identify areas with the most straightforward and well-understood other-area integration requirements. If multiple providers are involved, SaaS may require a restructure of these relationships to free up stranded costs.
  2. What is the cost of applications and underlying infrastructure? Although the data from a current infrastructure provider can show server utilization, it’s not always easy to tell which application is running on which physical box and the cost of each. Gather this information to determine the current cost structure.
  3. Where are the savings opportunities?  At what cost to service? For example, if one application is running at three percent utilization and another at 12 percent, the opportunity for virtualization is clear. In addition to utilization efficiencies, consider ways to get better service from the contract. Can the service level agreements be more tightly defined? Can performance rewards better align services with desired outcomes?
  4. What is the cost to achieve? While in some cases a buyer may choose to open up and restructure or rebid existing outsourcing contracts into a single private SaaS engagement, the preferred approach will more likely involve incremental consolidation over time, coupled with outsourcing additional work to the private SaaS provider. Re-contracting and transition efforts, especially in an outright termination scenario, have potentially significant risks and overhead that buyers must factor in and work to minimize. How fast to proceed depends in part on the maturity of the current contract and the savings potential.
  5. How will you define success? Finally, to realize the full potential of the new sourcing arrangement, take care to do it right. Buyers must align the efforts with an overarching IT strategy that defines the objectives and priorities for re-contracting. They must consider the standards for integrating multiple SaaS environments – both public and private – while meeting security and operational requirements. And, as with any outsourcing arrangement, they must carefully evaluate the cultural fit of the potential service provider.

For more on the topic of SaaS and how to identify and eliminate excess costs, read “Private SaaS: A Model for Restructuring IT Outsourcing to Eliminate Stranded Costs.” For a primer on cloud computing please review the EquaTerra article: Cutting Through the Fog: What You Should Know about Cloud Computing and How to Get Started.

¹ Software as a Services (SaaS): On demand applications provided through an Internet browser, eliminating the need to install, run and maintain programs on internal systems.

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