How to Get Satisfaction from SAAS

Understand the software-as-a-service model before you adopt it. - FIRST OF A TWO-PART SERIES

By Bill Roberts Apr 1, 2010

0410cover.gifIn recent years, Steve Rugg, director of HR technology for United Air Lines Inc. in Chicago, has adopted several human capital management applications on the software-as-a-service model from various vendors. One vendor has surpassed Rugg’s expectations, but another is a disappointment.

United adopted two applications that proved disappointing. Rugg says the products are not well-integrated and don’t work together. The support desk never seems to have a straight answer.

"We had a lot of surprises with this vendor," Rugg says. "They had a terrible time trying to integrate the products, businesses and staffs" of their various solutions. "We learned this too late. There were things that should have been red flags."

The popularity of software-as-a-service (SAAS) applications, especially for human capital management (HCM), has grown rapidly, but, as Rugg discovered, there’s effective SAAS and not-so-effective SAAS. In this regard, SAAS is no different from any other application delivery model. Due diligence must precede adoption, and red flags require investigation.

As the economy recovers, many HR organizations will finally be able to acquire software to support talent management and other processes. SAAS is an appealing solution, but one with no shortage of hype. HR executives need to know what they’re getting. This article will discuss key criteria that should be addressed with vendors in advance, such as whether applications can be integrated. In the May issue, a related article will examine how SAAS impacts the adopter.

Pure and Not-So-Pure SAAS

Its popularity has soared recently, but SAAS is about a decade old, with for customer relationship management being the first widely adopted application. "SAAS adoption continues to tick upward across all application segments, company sizes, geographies and industries," says Liz Herbert, senior analyst at Forrester Research Inc. in Cambridge, Mass. "HR remains one of the leading categories."

Under the older on-premises model, customers buy a license; load software on hardware at their sites; implement the product, often with customization; and maintain and secure software and hardware. Upgrades require other licenses and implementation. This all takes considerable assistance from internal information technology (IT) specialists and some help—for a price—from the vendors or consultants. The customer owns the data, the application, the database software, the hardware and the problems.

In the SAAS model, the vendor owns and operates the application and the database software, maintains the hardware—often leased—and handles security and upgrades. The customer owns the data and accesses the application via the Internet with a web browser, usually for a per-user subscription fee. User interfaces are often friendlier than those of older software because they are designed for the familiar look and feel of the web browser.

The SAAS model has become so popular that many vendors of on-premises software, including some enterprise resource planning application developers with payroll and HR applications, now say they offer SAAS. They find it difficult and costly to support the old model and the new model. And, if you dig deep enough, you often find only half SAAS. HalfSAAS might be a suitable solution, but you need to know what you’re getting.

"Because SAAS is hot, everyone wants to jump on the bandwagon," says Ray Wang, a partner with strategy consulting firm Altimeter Group LLC in San Mateo, Calif., whose Customer Bill of Rights: Software-as-a-Service publication is a must-read. "But when [vendors] say they have SAAS, some of them are lying."

Key Differences

Half-SAAS vendors may host the application, but some still require the customer to license a dedicated copy of the software. In contrast, pure SAAS is multi-tenant; many customers share one instance of the software. Some half-SAAS vendors try to do multi-tenancy but struggle because their products are not designed for it. Pure SAAS is built from the ground up for multi-tenant operation that protects each customer’s data.

Some half-SAAS vendors still allow some customization of code. Pure-SAAS vendors strictly prohibit access to the code base for customization, instead offering products properly designed to provide several configuration options.

Many benefits of pure SAAS spring from multi-tenancy and a single code base: The vendor can manage one instance of the application for many customers, achieve cost efficiencies, implement the software quickly with configuration options, and upgrade all customers at once, incorporating best practices as they become evident through use.

The half-SAAS customer might be relieved of the headache of hosting software and maintaining hardware, but it will not derive all of the benefits of pure SAAS.

"If your reason for doing SAAS is to obtain the list of potential benefits that go with SAAS, then you have to make sure that the software is really multi-tenant and built for SAAS and that the vendor has its act together," says Naomi Bloom, a strategic HR technology consultant and managing director of Bloom & Wallace in Fort Myers, Fla.

HR practitioners second that opinion.

Vendors’ definitions of SAAS remain challenging, says Dan Arndt, human resource information system and compensation manager at Imation Corp. in Oakdale, Minn., a data storage company. "Just because they served an application via the Internet, they called themselves SAAS. But the real difference between SAAS and other externally hosted models is multi-tenancy and a single code base." Arndt is implementing pure-SAAS applications for recruiting and other processes from Taleo Corp. in Dublin, Calif.

Spotting Red Flags

Neither pure-SAAS vendors nor half-SAAS vendors are immune to the difficulties that mergers and acquisitions present for integrating technology platforms and business models. Rugg’s experience with the disappointing vendor illustrates this point. "Their original business was on-premises software," he says. "They saw what was coming and had to have a SAAS model."

Rugg believes the vendor had difficulty delivering its learning management system as SAAS because the system was designed for on-site operation. The vendor had also acquired a company with talent management applications, and Rugg decided to adopt the succession planning application because he expected it to work well with the learning system. It didn’t.

Rugg says his team did not ask enough questions about how the products had been integrated and did not ask the vendor to demonstrate the integration using United’s own data. "No vendor is going to be forthcoming about any problems they might be having," he says. "You have to dig."

Wang believes that such challenges will become even more common as the SAAS market consolidates in coming years. "SAAS has allowed a proliferation of best-of-breed solutions, but we still haven’t addressed integration," he says. "There are vendors trying to resolve that, both within SAAS and among the various delivery models."

Some SAAS vendors have proved to be quite capable of integrating acquired pieces. Rugg is having a good experience with applications from Taleo—a company that grew through acquisition. When Taleo acquires applications, it integrates them by re-implementing them on its architecture or phases them out and moves those customers to one of Taleo’s comparable solutions.

The Cost of Customization

Contrary to the model, some vendors that built pure-SAAS products allow customization. For example, a vendor may find itself struggling to win customers, who like the hosting aspect of SAAS but want features not yet in the product; under pressure, the vendor allows them to customize. When a SAAS vendor has allowed some customization, it can negatively impact the vendor’s long-term viability by adding the expense of supporting more than one version of the software. The SAAS model requires the economy of scale the vendor gains when every customer uses exactly the same product.

"A lot of the vendors that were customizing won’t survive," Herbert predicts. Though not widely used, customization "is common enough that potential customers should ask" if vendors use it. The ideal answer: We have never allowed customization.

In place of customization, pure SAAS offers configuration and frequent upgrades. Mature products offer many configuration options. New offerings, or narrow point solutions, may not have as many options, something an adopter must consider.

And Rugg offers this caution: If a vendor says the product is configurable, ask who does the configuration. If the vendor configures, consider this a red flag: That’s customization. In pure SAAS, the customer configures.

Understanding Upgrades

Upgrades for on-site software can terrify HR professionals who associate them with buying a new license followed by costly new implementation.

Years ago, Rob Jackson implemented an enterprise resource planning application and maintained it. "In 10 years, we upgraded exactly one time, and it was painful," says the global manager for HCM at H.B. Fuller Co. in St. Paul, Minn., a specialty chemical company. "The SAAS upgrade is night-and-day different from an upgrade of on-premises software."

H.B. Fuller has adopted SAAS-based HCM software from Workday Inc., based in Pleasanton, Calif. Jackson says upgrades are hassle-free, but he still urges adopters to understand the process, including:

  • How often upgrades occur (a few times a year is common).
  • Whether upgrades are mandatory (usually).
  • Whether the customer can choose when to go live (in some cases).
  • What assistance the vendor offers for adjusting to new features (typically, not much).

SAAS vendors can also adjust products for new regulations. Tanya Corners, PHR, vice president of HR for Claim Jumper Restaurants LLC in Irvine, Calif., adopted a SAAS hiring application from Kronos Inc., based in Chelmsford, Mass., for the chain’s 46 restaurants in eight states. The legalities of hiring change frequently and differ in each state, but "We don’t have to worry about compliance because [Kronos is] quick to update forms," she says.

The pure-SAAS subscription fee is for a set number of years and includes upgrades. It’s an ever-evolving application. An on-premises application, on the other hand, remains what it is. "Because of the upgrades, the SAAS product is actually better in the last year of the contract than it was in the first, and no more expensive," Jackson says.

Final Thoughts

Adopters should examine each SAAS product’s functions and reporting tools, says Heidi Spirgi, president of Minneapolis-based HCM consulting firm Knowledge Infusion LLC. Do the product and configuration options work for business processes, or can processes be adapted to the product? Likewise, does the platform offer the security, workflow and user interface the customer prefers?

As for database reporting tools, with on-premises applications you can use whatever process you want to pull out data, Spirgi says. "In SAAS, you are limited to the capabilities the vendor provides." If those capabilities aren’t to your liking, you need to consider another vendor or a costly on-premises data warehouse with a feed from the vendor’s database.

Due diligence prior to purchase also includes making sure that contractually you control the data and can get a copy at any time. It’s also important to understand the vendor’s data center operations, disaster recovery plans, downtime record and history of security breaches.

Most pure-SAAS vendors lease space and hardware from data centers shared with others but use their own personnel to run software and hardware. For backup, a SAAS vendor needs at least two sites that mirror each other, preferably in different locales so a disaster in one place will not impact the other.

"Some SAAS vendors have better disaster recovery than a customer ever would, especially if the customer is small," says Michael H. Martin, a principal in the human capital business at Mercer LLC in New York. "But the customer needs to review these." He urges decision-makers to visit data centers and take an IT expert who knows what to look for and ask.

Bank officials are more security-conscious than most businesses, but Landmark Bank N.A. in Columbia, Mo., adopted the SAAS model for payroll and human resource information systems from Ultimate Software Group Inc., based in Weston, Fla. The bank’s internal IT department was "fully behind doing it this way," says Carol Karle, a Landmark vice president.

SAAS is a proven application delivery model. But, as with any software, when deciding what to adopt you must understand what you are getting and the impact it will have on your business processes.

"We’re big supporters of SAAS," Spirgi says. "It is the right direction for HR organizations. But there are myths to debunk and things HR organizations don’t understand. Buyers need to be better-educated."

The author is technology contributing editor for HR Magazine and based in Silicon Valley in California.

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