The buzz around SaaS (Software as Service), cloud computing or hosted/on-demand applications has been getting louder than ever in this year. Procurement organizations have been forced to look at everything to reduce cost in the wake of ‘Great Recession’ that has plagued the world economy. For long, business IT systems like ERP have been regarded as the tool to improve business processes and operational efficiency in an organization. Over the years, most of the business IT systems have been implemented as installed or ‘On-premise’ basis wherein the entire hardware and software resides with in organization premises.
However due to unprecedented technology developments like cloud computing , SaaS and recent economic environment changes, a hard look is being now given to the IT system itself where in a lot of costs are associated with implementing and maintaining the system.
Indeed the birth of SaaS ( Software as Service) concept has been largely based upon the notion of reducing TCO on IT investments. Over period of time, organizations have realized the cost implications in renewing and keeping pace with technology transformations. The focus is getting stronger on concentrating core businesses and getting leaner and meaner. So, there was a wave of business process outsourcing where most of transaction driven processes were getting outsourced. Here comes another level of outsourcing where the IT system is also getting outsourced alongwith the business processes.
Procurement is one area, where the concept of hosted applications and outsourcing is really picking up. SAP has come up with its on-demand solution for E-Sourcing which gives flexible single-tenant and multi tenant deployment models. Sourcing is one area which gives quick visibility into ROI and hence E-sourcing applications are most suited for hosted environments.
Adding to this, there is also a platform based solution model where the entire procure to pay process along with the e-procurement application gets outsourced. Such models would offer organizations to outsource their entire operational procurement alongwith software, hardware and business processes. So there could be a scenario where an organization sources and negotiates contracts through hosted application and then passes it on to its outsourcing arm for operational purchasing. This would be an ideal situation, as organizations remain in control of strategic procurement while doing away with operational purchasing costs.
Though the solution looks tempting in terms of cost effectiveness, there are obvious questions which come into play. First and foremeost would be the issue of integrating different systems residing at multiple locations. This is where SaaS or ‘Service oriented architecture’ should come to rescue. With this architecture interfaces can be built integrating diverse applications. However finer things like support for such interfaces would still need to be figured out as there would be multiple vendors in picture.
Second question would be of data integrity. With data out of organization firewall, it might be susceptible to attack or pilferage.
Finally the big question about maintaining an organizations competitive advantage in terms of unique business processes and practices that provides a differentiator to the organization. Customizations would always prove to be difficult, when organizations are following hosted and outsourced solution models. This means they would have to largely follow the standard set of processes offered by the solution.
Would organizations sacrifice their unique advantages as they bargain savings and reduced cost? Also will the success of such models spur other areas like HR, Finance or Sales to become hosted in future?
These are larger questions which only time would tell. Hopefully the answers would be out in open sooner rather than later.