Aberdeen Report on SaaS ROI

Written March 22nd, 2009 by
Categories: B2B eCommerce Research, CEO's Blog
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I just read the January 2009 (yes, I’m behind in my reading) Aberdeen Report entitled “Retail on Demand: Software as a Service (SaaS) Takes Off” by Sahir Anand.  Since we work with, and speak to, a lot of manufacturers in the industry, I thought I would calibrate Aberdeen’s findings with b2b2dot0’s experiences.

To give their report a little context, the majority of the 100 survey respondents were from small to midsize organizations (<<$1B in revenue) who are in Retail industries (i.e. products that consumers would buy…furniture, cosmetics, food, clothing etc.).  While these aren’t exactly the “industrial” manufacturers that we mostly speak with, and even though this report is targeted towards B2C projects, I see no reason why our B2B community shouldn’t see themselves in these findings. After all, aren’t we all just trying to be efficient and effective internet based sellers?

To begin with, Aberdeen found that these organizations were being “pressured” into SaaS projects for two major reasons:

  1. “…the overwhelming need to be able to rapidly implement new, improved customer-centric initiatives”
  2. “…the need to be able to provide applications anywhere, even globally”

These pain points clearly resonate with our experiences.  I would only add that our customers are also driven by improving internal Customer Service Representative efficiencies.

Coincidently, in an unintended homage to this Aberdeen report, we recently saw one manufacturer’s proposal team’s presentation to their CEO that was entitled “Customer Centric Web System Proposal”.

I guess they hit both of those nails on the head!

Aberdeen is famous for their “Maturity Class Framework”.  It’s a simple way of aggregating the survey respondents into Best in Class (top 20% of scorers), Industry Average (middle 50%) and Laggards (bottom 30%).  The Best in Class in this study exhibited the following characteristics:

  • Time to ROI from SaaS investment – 7 months
  • SaaS application uptime – 97%
  • IT infrastructure costs – reduced by 17%

The Average respondent in this study turned in the following results:

  • ROI in 9.3 months
  • Uptime – 93%
  • Costs – up 2%

Frankly, I find these results appalling.  I can’t believe that the industry’s Best in Class have such low standards.  I guess with respect to more traditional IT projects, a 7 month ROI is exceptional.  But we’re consistently experiencing ROIs in less than half that time.  Our customers are going into the black on their investments within 3 months of project kickoff.

The other jaw dropping statistic is that 97% uptime.  Are Best in Class retailers really tolerating over 5 hours of outages every week?  We’re obsessed about not ever becoming the reason behind the “Closed” sign on our front door.

Nevertheless, Aberdeen suggests that 84% of Retailers are using, or are planning on using, SaaS applications.

So what does Aberdeen say the Best in Class aspiring Retailer should do to ensure success with their SaaS initiative?

  • Have a robust IT network capable of supporting all anticipated retail SaaS needs.

We take that to simply mean having the ability to establish a secure VPN, web services access to your SAP system and a commitment to continuously improve your SAP implementation.

  • Have support from senior management on retail SaaS initiatives.

Every single one of our projects have been sponsored at the CEO/President level…as they well should be, because of their customer interaction and their internal cross functional impact.

  • Utilize role-based access to SaaS

We’re finding that this role based view of customers is one of the harder hurdles for our client’s to traverse.  It’s related to their mindset transition from “big bang” projects to the Agile rhythm of frequent releases.  Not all clients need catalog services, credit card processing, or even order placement capabilities.  Why wait to roll out the entire service with all of its features to all customers when you could be delivering great value to some customers with only a subset of capabilities quickly?

  • Measure the effectiveness of SaaS against licensed alternatives.

The aforementioned presentation entitled “Customer Centric Web System Proposal” dealt with this head on.  This manufacturer estimated a homegrown solution to cost >$400K in capital, take 12-18 months to implement and an increase in 2-4 staff.  The SAP CRM alternative would be even more capital intensive at >$600K, probably only take a little less time to implement and would still require a staff increase.  These estimates are in line with the actuals that we’re seeing in the marketplace.

All in all,  the bottom line conclusions make an awful lot of sense to me.  Focus on projects that deliver value to your customers.  Find a way to execute them at the lowest risk and cost to you.  Set the bar high with respect to making sure those applications are available and supported as if they were mission critical to your business…because servicing your customers is your mission!

Sam