SAAS-powered HR

SaaS and VC (Part 2)

2007-07-26T15:18:00.000-04:00

One other idea about SaaS and VC that was recently voiced (I wish I could remember the contributor) was that a typical SaaS growth rate is so consistent and a relatively low risk that
a) A SaaS start-up that has a very steady growth rate can generally sustain itself on recurring cash stream, founder infusions, and loans, and so does not need VC infusion
b) SaaS risk, growth rate, and the corresponding rate of return does not warrant VC’s interest.

It seems like a logical argument and may certainly hold true in the instances where a SaaS shop can sustain itself with some regulated internal and external cash infusions. For these SaaS companies, cash infusion does not equate to substantial growth and does not justify the loss in ownership.

However, that is not always the case. A SaaS start-up incurs high maintenance costs while it is building out to maintain the high security and uptime that do not increase in line with the customer base. In other words, a SaaS vendor may not have the advantage of economies of scale for some time after launch and may need substantial capital to keep up and running until that is achieved.

On the other hand, there are SaaS companies that are growing much faster than overall SaaS industry rates and those companies would present more that acceptable returns to the investors.

In a recent conversation with a later stage private equity firm, I got the perception that the investment community in general is aware of these factors and is ready and waiting for the SaaS market to mature on its own terms.

VCs and SaaS (Part 1)

2007-05-20T10:59:00.000-04:00

David Linthicum makes a good point (and a very dramatic one) about VCs getting overexcited and jumping on SaaS like a pack of wild dogs (vivid visuals here) without truly discriminating their potential which is bound to result in some disappointments down the road.

It is true that some VCs could be getting antsy hearing much of the similarly spectacular hype-talk. But the truth remains that many still remember the painful lessons of the early 2000. SaaS may sound like a way of life in a tight SaaS evangelist crowd but the general public still largely lacks awareness, and VCs must (hopefully) be aware of it. Finally, exciting as it may be SaaS model requires has some buying into from the companies used to traditionally lower IT overheads, occasionally lower breakeven volumes and lucrative maintenance contracts enjoyed by many of the enterprise players.

As was explained to me by one VC company, SaaS has “huge, recurring IT costs, requires hoards of clients to break even, and maintenance eats up the rest of the margin”. I don’t think it is quite as bad, but to be fair, these are valid concerns that are true to the business model in general. If nothing else, they must be addressed first for any long-term promise.

With respect to the critical points (I think David’s focus shifts somewhat to consumers from VC)… the answer to the question of what criteria should matter on whether to invest or not is “it depends”.

When selling a low cost service to the large market it may take some time to get to the ROI. But that should not be discounted. Surely, there are plenty of companies that still regret not getting into the Pay per Click space.

Similarly, granularity is important, but as long as the company needs and is able to function effectively (and efficiently) using multiple SaaS solutions, specific number of them is not very important. Remember that SaaS is a very broadly defined industry. Your electronic banking, online shopping portals, news subscriptions, calendars, many other things as Saas. So you cannot stop at some magic number.

Certainly the will be disappointments in the future and it is important to (try to) maintain a realistic (and even at times pragmatic) outlook on the industry in general.

Back From the Long Break: Data Security and SaaS

2007-05-15T14:12:00.000-04:00

The question what happens with the data if SaaS vendor flops or has a devastating outage keeps coming up. Here is some feedback on that based on my favorite session from recent SaaSCon conference. For a little under an hour three SaaS PPM clients were grilled by SaaS vendors in the audience on this and similar issues.

Their responses were: store the source code for technology in escrow, back up, and develop scenarios for emergency situations. They admitted that none of them actually has gone through emergency drills. One company also commented that data preservation was not mission critical for their specific setting and it is important distinction to keep in mind.

When working with SaaS, client companies need to develop awareness on how important is the data preservation and/or availability for the specific Web-based service they are using. In some cases periodic lack of availability (and even possible loss of the data in its entirety) will not disrupt operations, and thus may not be worth increased concerns and resulting costs. However, when the data is vital, it is worthwhile to at least minimally go through the steps that these client companies went through. I would argue that when data is critical they should try to go further and run through at least some of possible outage scenarios.

SaaS TCO Breakdown - Getting Down to Numbers

2007-03-06T13:03:00.000-05:00

In what appears to be a first editorial of this sort, Barry Rosenberg and Craig Wright discussed how CIOs and CFOs should work jointly to evaluate economic benefits of SaaS vs alternative software services procurement methods on a more comparable ground. The authors looked at specific fixed and variable costs of developing and maintaining the software application in-house, outsourcing or investing into license to SaaS subscription costs.

The article illustrates the challenges of comparing disjointed cost categories. While in-house development is often characterized by capitalized hardware/software/salaries costs, the subscription model generally fits into a different expense capegory (operating expenses). In-house development costs may also be spread over a longer time period i.e. 5-year rent for facilities cost. In contrast, while some SaaS contracts stipulate several year lock-ins, typical contracts are on a month-to-month basis.

Other considerations include:

Comparative scalability: typically not an issue of concern with SaaS but possibly a can of worms in case of in-house development in terms of hardware/software expenses, and resources utilized.
Sunk costs: even if SaaS costs will be lower overall, it may be difficult to make the right decision if there are already resources invested in the in-house project. Software ages very quickly and continual investment is necessary to keep it in line with the current needs.
Opportunity costs: of using competitive apps or engaging the workforce on the more strategic tasks
Costs of upgrades and maintenance: again, largely immaterial to SaaS
data security/ownership risk: while executives may feel that in-house data maintenance is “more secure,” the comfort zone may have a higher price tag attached compared to the SaaS vendor who enjoys economies of scale and is able to spread the costs across the subscriptions.
Administrative expenses: vendor/contract management, hr for in-house staff
Usage considerations: if the application is part of a company’s “core competencies” in-house development may be more beneficial given greater potential for customization, quicker responsiveness to changes, customization to accommodate specific new initiatives and ability to “branch out” into related functional areas. On the other hand, if the application is not a part of company’s strategic initiatives and is aimed at supporting specific infrastructure i.e. HR, CRM, Sales, SaaS may be a better alternative.
What are some of the additional issues to keep in mind when comparing the two approaches?

Just as I was finishing this post, I came across Andrew Conry-Murray's article where specific cost comparison for similar licensed and SaaS products is done. That brings me back to the point I wanted to make - even though it is a bit more complicated, side-by-side comparisons (or the closest thing to them) are needed when evaluating both approaches and their implications.

SaaS Offline - A Standard Necessity

2007-03-01T17:51:00.000-05:00

Hardly a week goes by without a SaaS vendor reporting support for offline services, in line with Phil Wainewright‘s predictions. Industry monitors are distinguishing offline support as one the key components of SaaS delivery model as well.

No, it is not a step backward to the enterprise model, it is a major move forward into a whole new world.

SaaS industry vendors are recognizing the need for offline support for clients with intermittent Internet connectivity (Manhattan Fruitier discussion) or who are on the move. And they are working to ensure that these clients are able to continue to use their services and do not have to turn to the enterprise model. With the offline limitation removed, the choice is becoming clearer.

While it is a given that a vendor is expected to maintain more than a certain degree of service accessibility, it may not make business sense to assume that of clients.

The ability to take a paradigm that may look alien and embrace it for a client’s benefit, shows tremendous adaptability of vendors across the industry. This is a powerful message to the consumers that further pulls the rug away from under the “pure enterprise” solution.

Robert Jaques mentions this when discussing Google new online office product offering:
“…the analyst firm went on to advise firms that Google Apps is not ready as an enterprise-wide SaaS collaboration option for most enterprises”…"This is a version 1.0 product and lacks key features, such as offline availability.”

This is the world we are in today... Moving forward.

Reality Check – Demand for On Demand

2007-02-20T10:00:00.000-05:00

Byte and switch had a reasonably revealing poll about on demand in the context of online hosting (despite just 19 responses).

Here is the break down.

No surprise about the first one… The second is biased towards the hosting context (where the poll was published) – it would be good to get a better idea about what the 29% that stand for “Other” really stand for. In the third question the same 29% are generally unclear on the cost-saving benefits of SaaS – this is where more work has to be done by SaaS vendors to educate consumers. Finally, the last one is the most intriguing.

About 18% think that the cost is the barrier – is that in the context of the hosting industry? And it is only marginally consistent with the results of the previous poll. 18% site security issues – this is again surprising given not only the context but also the general premise of on-demand. It would be great to corroborate that with other analyses. Being unable to sell it internally 18% of the time is understandable - I could not sell it to my boss either. Finally SaaS vendor would really love to get inside the last one: Other 47%.

Speaking of insightful polls, take a look at Phil’s. Given some recent press, the collective wisdom seems to be right on target.

I am inspired to create a poll of my own, to get to the bottom of my questions. But better yet, given that the blog is still not mainstream :), I’ll be happy share my survey ideas with anyone who has interest.

Expand Your Vocabulary

2007-02-10T11:45:00.000-05:00

Check out Top Ten SaaS Buzzwords from James Maguire

Here are a few more:

SaaS-enabler: a company/technology that can take an enterprise/offline business and replicate the functionality in terms of SaaS services. Essentially convert a non-SaaS application into SaaS offering.

SaaS vs. ASP: ASP (Application Service Provider) is a client-service architecture deployed over HTML. A “pure” ASP does not support a multi-tenant model. Each instance of the application/service may be customized for clients. ASPs may also take a licensed product and host it (as well as operate, maintain, support) for clients.

SaaS vs SOA: SOA (Service-oriented architecture) is a software architecture that supports loosely coupled software services that impart some business functionality. These services can communicate but it is not required. SOA may be interpreted as the underlying platform for SaaS. More on Wikipedia.

We are (practically) taking over the world!!..

2007-01-31T10:00:00.000-05:00

It was exciting to see one research group after another come up with more and more exciting news on the SaaS front for the time to come:

In October, Forrester’s conservative figures of 25% of software sales to go SaaS by 2011, was supplemented by another Forrester research showing “some” interest in SaaS in as many as 34% of enterprise and 45% of SMB survey respondents. BusinessWeek, in January, reported 1/3 of all mid to enterprise sized companies already use some sort of SaaS, another 1/3 will adopt in 2007. Finally survey from Cutters Consortium shows that almost every other company (50%?) is already using SaaS. (Hey, we are already there!!)

Then Phil Wainewright (http://blogs.zdnet.com/SAAS/) burst the bubble indicating that interviewed users had no clue whether the company they are interviewed about is a leader in the on-demand field or even offers an on demand product.

His observation is correct – the industry is growing. The rules are being written – at this point there is still no consensus even on SaaS definition.

Many vendors who were previously offering online access to their product are warming up to the hype now coming out with announcements that they’ve embraced the on-demand model (always had, in fact). A case in point, cell phone companies offered access into their account online for years, so that makes them SaaS vendors. And, according to some definitions, they are correct.. (expect a SaaS announcement from your local bank)

This calls for another review of the definition that will get greater acceptance in the user space.

SaaS-ing Up The Staff – How To Get Their Best

2007-01-15T12:46:00.000-05:00

Sometimes technology can offer a way to look at long-standing ideas from a new perspective. The idea that committed employees are one of the primary keys for a company’s long-term success is not new. Broadly circulated checklists to “energize employees” include motivation, equity, feedback, achievement, and environment. What’s new, is the ability to provide these important THINGS using SaaS technology for Human Resources.

SaaS software solutions for HR include time and attendance, scheduling, project tracking, benefit management and other activities. Employees from multiple business units are able to login and enter the activities and projects they are working on. They can also consult their schedules, and request and review their planned time off.

Whether the company units are geographically disparate and are in different time zones, or all of the employees are in one office, employees get impartiality and equity knowing that their vacations are accrued in line with the company policies and that there are “no favorites.” With the application having same corporate look and feel, decentralized business units are able to feel like a part of the larger organization.

But what impressed me the most is the ability to look back on past events to see that the days are not simply lists of bleak activities that follow one after another. It gives employees perspective and a sense of accomplishment. “I‘ve worked over 320 hours on this project and it took a significant portion of my time – is this activity reflected in my goals for the year? (self-feedback is critical for periodic check for review time).” Alternatively, quick projects fly by and unless you are able to go back to them to look them over, you will have a hard time remembering how the timewas spent.

Being able to track their own activity empowers employees to start learning about time management. They do not have to have their manager breathing down their neck. Instead, they are able to review their activities and make intelligent choices on their time allocations. If several projects have to be completed within a certain time frame – they have the right tools to keep time investment in check. This helps to create the environment of achievement and strive toward constant improvement.

On the management side, SaaS tools help to uncover inefficiencies in the organization, such as too much time spent on some activity or process... Or, inefficient task management by different employees... Or, troubles or issues managing projects. Thus, the employer is able not only to get their best but also give them the best. SaaS cannot replace the roles of managers and supervisors but it can make their lives easier.

Some people utilize notebooks, others keep it in their head, but it is nice to know there are tools out there that will make both unnecessary. Just kidding, keep your head, and use it to do great things!

Happy Holidays!

2006-12-22T11:51:00.000-05:00

All of us at KnowledgeSum would like to wish you happy and healthy Holidays.

May all your wishes come true and resolutions be achieved.

We are happy to be a part of and are looking forward to great things continuing to happen to the SaaS industry in the coming year.

P.S. Check out updated HR blog list below on the right.

SaaS Industry poll

2006-11-08T13:28:00.000-05:00

I would like to do an informal survey on the following topics:

Which (new) industries will never adopt SaaS & why?

Which industries will & why?

When and whether the Internet will become ubiquitous (i.e. you get access while in the shower, one the plane, during the journey to the center of the earth, deep-sea hiking)?

Feel free to comment here or send me an email (rachel at ksum dt net). It may take a little while to get the full feedback and I will refer to these questions in the upcoming posts…

P.S. In progress & to go up within the next few posts: human resource management blogger list. I am open to suggestions.

P.P.S. I have been thinking that SaaS exercises the pull versus push paradigm – the services are pulled by clients on a “pay as you go” basis rather than purchased and used “in bulk”. It seems similar to pay per click versus banner advertising. If it is the case, this paradigm may be yet another factor in seeing a different trend in user attraction and retention.

Taking a steeper road

2006-11-02T10:42:00.000-05:00

Steve Slezak’s, Eric Norlin’s and most recently Phil Wainewright’s discussion shows SaaS adoption in a different light. Indeed a non-SaaS enabled company faces a difficult choice on whether to adopt the new paradigm.

To recap, first and foremost the company has to invest resources to modify or recreate the existing product, and based on Fred Chong’s recent post, it is no small feat.

How long can the development process take? That depends on the product and the capabilities of the development team (and the company has to also decide whether to hire a new development team or split up the existing one), but super-optimistically, to assume 1 year – this still may be too long for client (& the market) to wait.

As suggested by Greg Gianforte, current customers are the first to suffer because the company may not have the time/resources left to keep improving the existing product (or perhaps it may not want to in order to get more buy-in for the new product). They may also become unwilling guinea pigs for the new product- after all one has to start somewhere. Ironically as far as the new "bells and whistles" go, some of the customizations developed for the clients may be lost when building a brand new multi-tenant application.

Some of the other issues are uncertainty as to whether the SaaS-enabled product has better value in a Web-enabled format (depending on specific application or if it is used in areas with poor Internet connectivity).

Having to move away from large upfront revenue receipts, to a more predictable but lower, monthly, recurring revenue streams may also be painful. Companies who still depend on venture feedings may risk securing continued investement completely. I recently discussed SaaS-model with a venture capital firm whose representative questioned its value given that "subscriptions come and go, while licensing fees are for good" – once the company invests enough into licensing, "it may be more willing to stay the course." Alternatively, if the company is public, its shareholders might not welcome possible revenue reduction during the the transition period.

Finally, low risk tolerance may make getting out of the comfort zone difficult. If the current product functions and sells well - why "break" something that works? And, what if "It is still possible all the hype about SaaS will come and go…"

Newcomers are generally unencumbered with these concerns and may have an easier start. And, in many cases, because they will be looking to lay their claim on the marketplace from successful off-line companies, success will not come automatically - they will have to work hard to get it.

The new customizations will have to work in the context of all the other tenants – meaning architecture would have to be scalable and expandable and support possible changes in functionality.
Newcomers are more dependent on subscription revenue than "enterprisers" are, so they would work with clients much closer, trying to cater more to their needs and in the process improve their apps for other clients. Newcomers may also have to operate on the much lower margin for some time.. until they build up their customer base to start enjoying economies of scale.
What's good is that their clients will increasingly get used to faster response times, more customizations, continued development – fueled by these, other clients will come to expect it from vendors. They may start to deliberately delve into SaaS relationships with more different vendors.

So if newcomers stay the course – in the end, they may be looking at a bigger piece of the pie. And Wall Street will follow the lead.

What I see happening more is traditionally "off-line" companies partnering with SaaS platform powerhouses to SaaS-enable their solutions.. I will cover more on the growing number of SaaS-enabling partnerships in the upcoming posts.

The patterns of growth

2006-10-19T14:00:00.000-04:00

It no longer takes an industry pioneer to say that SaaS is an up and coming way of delivering software service. The Internet is not yet ubiquitous and there are still many industries where the “enterprise” way of software delivery is still both a legacy standard and a current business need. However software vendors beginning to realize advantages of SaaS are investing resources to build (or buy) and deliver it.

Judging on the news coverage, many players are trying to SaaS-enable their application. Recent announcements include other launches of SaaS platforms as well, built from the ground up (Salesforce, Netsuite, etc.). SaaS enabled products from companies like Informatica, SAP, and Plexus Online (manufacturing performance) all lead to more industry awareness on the part of the consumer – North American business. Microsoft too looks like it will be jumping on a bandwagon with Windows Live.

A well-covered report by Gartner’s Robert DeSisto indicates that SaaS coverage in the software industry is now 5%, and is expected to grow to 25% by 2011.

For more good news check out the podcasts from the SaaSCon.

Blogosphere offers some of the most active commentaries on the SAAS evolution. Phil Wainewright’s blog features helpful and informative commentaries almost daily. Check out some of the other ones from Eric Norlin, Gianpaolo Carraro, Fred Chong, Charles Zedlewski, Amy Wahl, Tim Minahan, and Dan Ciruli. This list far from complete, look for more in the upcoming posts. Please let us know if you would like to recommend anyone else.

So these are some of the powerful indicators of where the SaaS model is headed. Here is our perspective on why SaaS is here to stay.

When a company licenses their own time and labor management solution, these are some of the challenges it has to deal with:

Licensed software typically needs to be installed on every computer that will be used by employees, managers & decision makers, even if only a thin-client, the software needs to be managed. The software typically cannot be used by anyone who does not have it installed: on the road, in the field, etc
Software license purchases usually require large upfront cash expenditure plus a recurring maintenance fee from the vendor company. As soon the cash exchanges hands, a shift of responsibility from vendor to customer generally takes place that is not optimal for software rollout – being the vendor is usually the expert!
The company needs dedicate support and maintenance personnel – whether to troubleshoot or install updates.
Speaking of updates, a) the company may have to pay for some of them if the latest and the greatest features are required or b) if there is an emergency update, how would the necessary patch be rolled out?
The company typically needs to purchase hardware to host the data – translating into additional hardware, software, and personnel cost.
As company grows, additional licenses may have to be purchased and maintenance cost may increase. When company downsizes – the costs do not necessarily go down.

One of the reasons why SaaS is touted everywhere is that it offers economies of scale unattainable by a single company. Our upcoming postings will expand on this and discuss other topics. Your comments are always welcome.

Automation to the Rescue

2006-10-16T16:04:00.000-04:00

Here are some of the typical situations where HR automation can play a key role in a company’s continued success. In every instance, inability to do fairly simple tasks - when applied en masse - can cripple a company’s performance and damage employee morale.

Picture a factory with 511 workers, 45 managers, and 2 punch clocks. Optimum production is critical to meet tight manufacturing and shipping deadlines. It is October 25th the first day of the flu season. 70 workers and 3 managers do not clock in. 31 of the 42 managers present see that some of their teams are understaffed but without directive to do otherwise they urge the available workers to work harder to make up for their missing teammates but they risk failing on almost half the deadlines.

Do the factory executives know that the factory is at risk today for not meeting its objectives? If they had known, how can the factory leadership reassign the available workforce to get the most out of the day?

Proper use of automation allows factory supervisors to assess the situation as it is unfolding, within minutes of when employees are actually clocking in. Such decisions as to which team members should be reassigned to what projects can maximize output and minimize the downside of such an occurrence.

Now imagine a staffing agency responsible for staffing several nursing homes in different locations. Nurses have different skills sets, years of experience, and location preferences. Many of these nurses require flexible schedules as well. Nursing homes similarly have their own requirements, and sometimes might need a extra help depending on patient load.

As an example, with 100 nurses and 3 nursing homes. What is the optimal way to assign the nurses to make both parties happy every day, and ensure an adequate level of patient care?

Using automation, preferences for nurses and nursing homes could be simply “plugged” into an automatic scheduling system. Now the system can do its magic to find optimal coverage, taking into account nurses’ skills, availability, place preference, and other criteria such as planned time off. If a nurse has to leave early, it is now easier to make changes and alert other nurses to cover a needed shift when necessary.

Ritchie heads a 50-person customer support team, 45-person coverage is mandatory every business day. Summer holidays are around the corner and 6 of his employees came over to ask for a few days off.

With all the other tasks he is responsible for, Ritchie is having a hard time pulling up individual employee profiles to check coverage reports and availability of others to correlate that with the mandatory coverage for each day, to determine if his department will or won’t be understaffed. Sure, he can ask his human resource manager to look it up - but she is busy recruiting new team members and does not have the time. Meanwhile the list of time off seekers grows to 10.

An automated time management system with effective leave tracking allows employees to see how much time off they have left and ask for only what they have available. Managers can see at a glance, coverage for the day with all the scheduled time-offs accounted for. A decision can be made on the spot as to whether to approve time off or not - leaving the HR manager to focus on core tasks of finding more talent.

One possible criticism of automation is that it may seem cold and impersonal - everyone’s information is in the machine, everybody’s actions controlled by a machine. However, when used correctly automation can actually relate to the team on a personal level and provide a feeling of uniformity and fair application of company policy, something most team members like - at least the one’s you want to keep around for a long time.

Factory workers can concentrate on setting realistic objectives and on seeing results at the end of the day. A nurse can rest comfortably knowing that the system will remember that every second Thursday she has to take kids to the pool and thus cannot be scheduled work on those days. And call center team members can keep track of their time off and use their available personal time to the maximum benefit.

Perpetual Mobility made possible by SaaS?

2006-10-11T15:41:00.000-04:00

It is often taken for granted that people are responsible for creating some of the most amazing innovations, like planes, space shuttles, and genetic treatments. Most of these things were created in the context of companies, which provided environments, tools, and processes where people were better able to realize their creative potential.

The Software as a Service (SaaS) delivery model evolved to provide companies with some of the tools to help accomplish their visions using today’s technology. Collaborative software, software for tracking sales leads, and other various applications for improving human productivity in the workplace, including the most notable space today - CRM… all help companies achieve the same (or greater) level of automation without the need for technical resources on site (i.e. during the reign of enterprise software). This may be why SaaS is one of the fastest growing business models on the Internet.

We believe that SAAS will take the business world to a new level. We founded KnowledgeSum because we were fascinated with the idea of using this powerful web-based technology to improve human productivity in the workplace. Some of the areas we see evolving are core business processes, vertical and horizontal communications, and globalization of the workplace. With respect to HR, some of the changes we envision are greater accountability, responsibility, feedback, and productivity for both management and employees.

In this blog we will share our reflections on growing within a SAAS-enabled community and correlate it to our background and experiences in human resource management.