In the previous Industry Insight in this series, I looked at how to align SaaS with corporate strategy. Now, I will look at how this approach confers competitive advantage relative to other systems, including ERP.
Why would customers choose to have IT services delivered in the way I have been describing? If it were so efficient, surely the larger business application vendors would be doing it already?
The answer to this perplexing question lies in responsibility and accountability for the software these companies put into the market. The established software giants want no part of guaranteeing the efficacy of their products.
Where's the chocolate?
The large ERP vendors are touting the “implement vanilla and don't customise” line to convince their customers that installing their ERP applications out of the box (without modification) is the best solution or “best practice” these days. It certainly makes the ERP implementation task much easier and doesn't allow for huge cost overruns (perhaps only double the initial estimate). And this vanilla software supposedly applies to all companies across the board in every vertical the vendors serve.
The question customers should be asking is “What happens to our competitive advantage when we all rely on exactly the same mission-critical software?” The answer, put simply, is: “What competitive advantage?”
A recent Dilbert cartoon spelt out the “best practices” business conundrum very clearly: In it, the pointy-haired boss is pointing at a whiteboard and saying: “We will be adopting the best practices in our industry. Just like everyone else.”
Dilbert replies: “If everyone is doing it, best practices is the same thing as mediocre.”
To which the boss screams: “Stop making mediocrity sound bad!”
Many universities around the world teach strategy using the book: “Strategic Management Concepts and Cases” by Thompson and Strickland. The following paragraphs are taken from the book:
* Crafting strategy is partly an exercise in entrepreneurship, seeking to do new things or old things in new ways.
* Good strategy making is therefore inseparable from good business entrepreneurship - one cannot fit without the other.
* How quickly companies manage adaptation to market changes, how boldly they chase business opportunities, how much they emphasise out-innovating the competition and how often they champion actions to improve organisational performance, are good barometers of a business's entrepreneurial spirit.
The large ERP vendors are touting the “implement vanilla and don't customise” line.
Richard Firth is CEO and chairman of MIP Holdings.
The SaaS model allows systems to be customised to suit a customer's ever-changing strategic needs. The important component in the billing model is the continual investment the IT service provider must make to keep the application new. A number of technology resources are made permanently available for the continuous customisations or input of key differentiators.
In the risk-based billing model, the software provider gets intimate with each customer's business and understands how to deliver value and improve revenue through KPIs. It is therefore able to create an infrastructure designed specifically for each company's strategy and market, working with the customer to grow the business, and consequently, also the monthly IT fees.
Providing the IT as a service on a risk-based contract (depending on the KPIs mentioned above) means the IT provider is in a partnership with each client. If the client succeeds, the provider makes more money; if not, the provider shares the pain. In simple terms, the IT provider invests in its customers' revenue generation instead of only trying to move product and collect revenue from the client.
Critical factors
Once all the theoretical benefits of risk-based software services have been examined, most companies acknowledge that it all sounds good, but want more specific benefits than this IT model can deliver.
Specifically, they want to be able to weigh the differences to determine if the risk-based services model is yet another IT moneymaking scheme, with the customer as a sidelined spectator, or if it is a real partnership where both sides win.
* In the next Industry Insight, I'll look at critical aspects of the risk-based billing model that makes cloud computing work in the South African context.
* Richard Firth is CEO and chairman of MIP Holdings.
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