We all know the sales pitch for SaaS cloud computing – zero capex, predictable pay-as-you-go opex, robust apps with regular “all aboard” releases, short project cycles and quick time-to-value measured in weeks rather than months or years. And even with concerns about SaaS security, performance and integration with other applications, 2011 SaaS revenue growth was still between 15-25% depending on the region (see these reports by Gartner and the Virtual Internet Blog). And the rate for 2012 shows no signs of abating.
GORILLAS IN THE MIST
Given these numbers, you would expect companies across-the-board to be thinking SaaS when it comes to addressing their business problems. This is certainly true for SMEs (Small and Medium Enterprises), for whom a combination of capex constraints, small IT departments and far less organizational politics tends to favour quicker SaaS adoption. For large companies however, the picture is more varied. In some there is rapid SaaS adoption – though this can often be part of an “IT-avoidance mechanism” by BUs (and even the CFO sometimes ends up being bypassed, as I pointed out in my article CFO – Cloud Financial Officer). In others, attempts by BUs to get SaaS into the enterprise, whether under the radar or above board, can run into what I call “the 800lb legacy gorilla in the room”.
The argument of the 800lb legacy gorilla is very simple – “SAP/Oracle is a strategic choice in which the enterprise has invested so many millions over the past 5 years. This integrated software suite covers all of our needs, from ERP and CRM to timesheet reporting and project portfolio management. If required, any additional modules can be provided for “free”. It is therefore absolutely out of the question to even consider investigating a SaaS solution.”
The 800 lb gorilla usually comes from the IT department which, from a staff and budget perspective, has a vested interest in maintaining the status quo. With some no-brainer additional arguments around financials, security and compliance, it doesn’t take much for the 800 lb gorilla to put together a convincing argument that wins over both the CFO (financials) and procurement (authorized vendor list), leaving the hapless BU head stranded. As for evaluating the business case and actually doing a comparison – well, that doesn’t even enter the picture, since “our strategic vendor solution can meet your requirements”.
KING KONG LIVES – TWO EXAMPLES
Here are two real-world examples from my own list.
A European BU of a multi-national with a long-term strategic investment in one of the on-premises big two recently evaluated alternative solutions in the area of procurement and spend management. The comparison between the incumbent and the SaaS candidate came in at a ratio of at least 2-to-1 on the cost side and at least 5-to-1 on the implementation duration side. And this doesn’t even take into account benefits, since the incumbent solution would not be able to provide anywhere near the required functionality. The 800lb legacy gorilla recently pronounced its verdict. The BU head is currently appealing.
A few years ago when I was managing EMEA pre-sales at a PPM vendor we engaged with a European multi-national that was a big-two client. After a few on-site sessions and demonstrations, it became clear that our solution was a very good fit for their requirements. This turned out to both the good news and the bad news. At a final face-to-face meeting at their HQ at VP-level, we were informed that much as they’d have loved to move forward with a pilot, they had no choice but to use the – inadequate – PPM solution of the incumbent vendor. Score another one for the 800lb gorilla.
ANECDOTAL EVIDENCE OR CAUSE FOR CONCERN?
This is of course anecdotal evidence, and given the political sensitivity of the subject, most 800lb gorilla cases will probably remain anecdotal. But even in the absence of hard numbers, my gut feel and experience tells me that this is nothing exceptional. SaaS cloud vendors targeting large companies with significant on-premises investments in integrated ERP and CRM should therefore expect sooner or later to run into an 800lb legacy gorilla in the room. And if they don’t have a convincing strategy to deal with this, it won’t matter how good their business case is or how well the BU loves the product, the chances are the gorilla will win.
GORILLA TACTICS AND ORGANIZATIONAL CULTURE
It should come as no surprise to learn that you’re more likely to find 800 lb gorillas in centralized, inward-looking, risk-averse organizations in which conformity, policies and procedures trump customer focus, experimentation and getting things done. Gorilla example one above illustrates this well. When the renegade BU operational manager tried to present her case to one of the country board members, there followed a frank exchange during which the latter asked the former “If this were your company, would you go with this [SaaS] vendor?” The BU operational manager replied “Yes, I would” – and then turned the question around and asked the board member, “And you, if it were your company, would you go SaaS too?”, to which the honest reply was “Yes I would– but it’s not my company!” Translation: even if it’s the right thing to do, there’s no way I’m going to lay my ass on the line by recommending something outside of corporate standards, and then have to jump through hoops to try and justify my thinking to multiple stakeholders (IT, controlling, finance, procurement), most of whom have a vested interest in the status quo. So why rock the boat?
In a future article we’ll go into more detail about the types of organizations in which “renegade BUs” and SaaS vendors are most likely to run into the 800 lb gorilla and how they can better prepare themselves for the encounter.