Big SaaS Done Right

These organizations are floating more and more applications into the cloud. They're scaling up, while keeping a keen eye on the risks and rewards.

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"I get calls from sales organizations that are buying directly from Salesforce.com outside of the IT procurement process," he says. One client he spoke with had 19 individually negotiated Salesforce.com contracts, none of which went through IT. That business was losing its volume purchasing power, and contracts weren't getting the scrutiny they deserved, DeSisto says.

Both McKenzie and Wander say it's also critical to understand the fully loaded costs of hosting applications on-site and to include that in the technology acquisition model when comparing costs to SaaS alternatives. "We always do a five-year total-cost-of-ownership evaluation that includes all costs, such as power, data center resources and staffing," says McKenzie.

But Tom Check, CIO at Visiting Nurse Service of New York, says organizations shouldn't draw any conclusions based on IT costs alone. The $1.5 billion provider of home healthcare services has about a half-dozen SaaS deployments, including HR and CRM.

There's also one application that its nearly 4,000 clinicians in the field use to order medical supplies. In that case, Check says, "the software subscription was higher than what we incurred in the past, but the overall cost of the business process has gone down and the value to the business has increased."

At Guardian, upgrade-and-refresh cycles have traditionally consumed 12% of the shared services budget. The move to SaaS, and an intense focus on expense optimization, has transformed Guardian's IT budget. "What makes SaaS valuable is the continuous upgrading without the burden on our organization," says Scott.

Today, 40% of the budget goes toward running and maintaining existing operations, down from about 60% a few years ago, leaving more money to invest in solving other business problems, says Wander.

Scaling Up the Contract

The contract sets the tone for the relationship with a cloud services provider, says Wander. If you want to be successful, he says, "focus on the contract."

Unfortunately, "cloud computing often is not amenable to in-depth negotiations," says Russell Weiss, a partner at Morrison & Foerster, a law firm that specializes in negotiating service agreements. "Click-wrap agreements" -- the ones users typically opt for when signing up for SaaS offerings online -- are the norm for small and medium-size businesses. "They're full of 'outs.' When you read the fine print, it can be very alarming," he says.

Fox's McKenzie says it's critical to think about contract terms and conditions early in the process by making clear what terms the organization can live with and which ones are nonstarters. "I have a requirements template, request for information and request for proposal templates, and a contract template with all of our criteria," she says. Included are canned paragraphs covering important areas such as information security. "If they can take that, we don't need to involve information security again," McKenzie says.

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