Align SaaS with corporate strategy

In the previous Industry Insight in this series, I looked at how to bring a customer's requirements, satisfaction and benefits in line with solution delivery. In this, the fourth in the series, I'll dig deeper into the issue of alignment of a software solution with a customer's business drivers.

Let's consider the example of a pension fund administrator, which needs IT services to efficiently administer its members. Charging for its outsourced IT services according to the number of members in the scheme is an effective measure of how technology is benefiting the administrator.

The easier it can handle members, the more time the company has to sign up new members as opposed to struggling to manage the business and IT. A more versatile system not only impresses the administrator's clients, it also gives these clients confidence that the administrator has the tools to do the job. In addition, the easier it is to implement flexible administrative functionality, the better the company performs, the more revenue it brings in and the more it pays for its IT.

There has long been a drive among companies to focus on their core competencies and unique selling proposition, as this is what its customers pay for at the end of the day - not whether they run DOS on an XT or Linux on a mainframe.

Traditional worries IT provides its owners, such as software licensing, maintenance fees, technology used, standards, security, sufficient disk space and bandwidth concerns, are also a thing of the past that only concerns the vendor.

Another difference in the risk-based billing model I am proposing is the lack of a centralised architecture to handle the outsourced applications and data. Unlike some companies that offer one of many virtual locations on a central hard drive at the outsourcing company's data centre, the risk-based model permits customers to retain their intellectual property and control over the security of their data.

It does this by running and managing the customer's infrastructure on the customer's site. This is a variant or addition to the traditional consulting definition of SaaS.

Telecoms infrastructure plays a large role in how the client implements the model. Often the telecoms infrastructure is not reliable enough to guarantee 99.9% network availability. There are many networking companies that provide penalty clauses when a reasonable service level is breached; however, these penalties are often difficult to justify when comparing downtime for an operational process in a company.

Nevertheless, on- or off-site, the vendor retains total control of the technology. This allows the company to take advantage of economies of scale and lower cost computing, without worrying about internal customer politics. Whether the application runs on Windows, Linux or a mainframe is irrelevant, as long as the users log on each morning and do their jobs in support of the company's mission.

SaaS is all about service delivery and risk-based billing is all about the billing model or IT vendor revenue model.

The risk-based model permits customers to retain their intellectual property and control over the security of their data.

Richard Firth is CEO and chairman of MIP Holdings

The model also provides a single point of contact. If something is not functioning properly or if an application needs to be modified, the vendor takes care of it. The vendor may well have its own outsourcing arrangements with third parties, but this is invisible to the customer.

The enterprise service bus has become a leading architecture to allow organisations to choose the best of both worlds. Some IT services are delivered in-house because of data or intellectual property concerns, and other services are linked into a service bus to allow integration with systems that are not cost-effective to run internally. Some of these systems that are available today are payment systems, credit bureaus and banking interfaces. The billing for these services is normally transaction-based, and they lend themselves favourably to the risk-based billing model.

The idea for risk-based billing was originated in South Africa as the concept of SaaS in which business applications are delivered as subscription services. The ubiquity of the Internet has enabled companies of every size to take full advantage of the power, simplicity, and flexibility of services-based business computing.

* In the next Industry Insight, I will look at how this approach confers competitive advantage relative to other systems, including ERP.

* Richard Firth is CEO and chairman of MIP Holdings.