If an organization failed to continue innovating with technology and halted conversations about new SaaS applications, how would it affect the company’s future? Would it remain competitive? For most CEOs and C-Suite executives, subscription-based software has become irreplaceable and a fundamental part of their ability to remain connected with employees, customers, partners, vendors, prospective customers, and so on. Without these technologies, the organization would lose its ability to compete in the market. A recent Salesforce.com article highlights the benefits of SaaS applications in enterprise organizations, and provides insight into one important reason executives are spending more of their budgets each year on subscription software and services:
“The popularity of SaaS is steadily increasing because it simplifies deployment and reduces customer acquisition costs. With SaaS, developers can support many customers with a single version of a product. This approach, called multitenancy, allows companies to scale as fast and as much as needed without replacing costly infrastructure or adding IT staff.”
Similarly, once an organization begins investing in SaaS applications or subscription-based software of any kind, it becomes woven into the fabric of how that company conducts business. It’s noted in a recent article published by InformationWeek that, “SaaS has the potential to be highly profitable because it’s ‘sticky’. In other words, it can be difficult for a customer to move off a software service and to another SaaS provider, and even harder to move from SaaS to on-premises licensed software. When a customer signs on for a software service, it’s also signing on for operating systems, middleware, servers, network connections, databases, and the talent that goes along with all that.”
Subscription Software Has Shifted Focus for IT Departments
While SaaS applications and subscription-based software is becoming more ingrained into the way organizations conduct every level of activity across their organization, it also has incredibly positive benefits for the CIO’s team and IT department. An article published on the Microsoft Developer Network entitled, “Software as a Service (SaaS): An Enterprise Perspective” explains the shift of focus for IT departments like this:
“With SaaS, the job of deploying an application and keeping it running from day to day — testing and installing patches, managing upgrades, monitoring performance, ensuring high availability, and so forth — is handled by the provider. By transferring the responsibility for these ‘overhead’ activities to a third party, the IT department can focus more on high-value activities that align with and support the business goals of the enterprise. Instead of being primarily reactive and operations-focused, the chief information officer (CIO) and IT staff can more effectively function as technology strategists to the rest of the company, working with business units to understand their business needs and advise them on how best to use technology to accomplish their objectives. Far from being made obsolete by SaaS, the IT department has an opportunity to contribute to the success of the enterprise more directly than ever before.”
Since the revolution of SaaS began just over 15 years ago, the Subscription Economy has changed the focus for arguably every role across an organization — but it has impacted no other team like it has the IT department. No longer does the CIO and IT team have to deploy software and manage services themselves for all on-premise software. The revolution of SaaS allows this department to focus on optimization and strategy, rather than the tactical nuances.
How Organizations Are Allocating IT Budgets
If SaaS has become irreplaceable to the enterprise organization, then how has it affected budget distribution and planning for C-Suite executives? How are they allocating their budgets differently to account for software and subscription-based growth — or are they?
A recent forecast published by Gartner (April, 2016) addresses these questions:
“There is an undercurrent of economic uncertainty that is driving organizations to tighten their belts, and IT spending is one of the casualties,” said John-David Lovelock, research vice president at Gartner. “Concurrently, the need to invest in IT to support digital business is more urgent than ever. Business leaders know that they need to become digital businesses or face irrelevance in a digital world. To make that happen, leaders are engaging in tough cost optimization efforts in some areas to fund digital business in others.”
As illustrated in the below chart, IT budgets are being cut across many areas of enterprise organizations, such as in the categories of devices and communication services. In fact, IT budgets as a whole are down .5% from last year, and were down 6% in 2015 due in large to fear of an economic downturn. However, so far in 2016 (as of August), software has the highest category growth with 4.2%.
The short answer to the question of SaaS importance to an organization is this: SaaS has become irreplaceable for companies across all industries. In fact, CFOs and CIOs are allocating more budgets than ever to subscription-based services. As we mentioned in a previous post, “The technology industry is being driven by cloud-based Software as a Service (SaaS) offerings, and will soon reach $150 billion in annual revenues, according to recent research from Gartner.”
The Challenge of SaaS Growth
While SaaS applications are irreplaceable to organizations, the rate at which executives are adding to their tech stacks is incredible. The pace certainly hasn’t slowed over the past decade, and won’t be slowing down anytime soon as organizations are relying on the Subscription Economy more than ever before — and for many positive reasons.
But in the face of the positive changes and growth, CFOs, CIOs, and CEOs alike must ensure that their organization is managing and optimizing their subscription-based services in order to have full visibility into utilization, spend, feedback, and more to ensure that the budgets they are allocating are providing the best impact to their bottom lines — especially as budgets are being closely monitored.
How is your organization allocating IT budgets for SaaS spend — but more importantly, managing the outcomes?