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Software-as-a-Service (SaaS) Spells New Opportunities for IT Management & StaffAuthored by Mike Wessinger, CEO, PointClickCare, and Murry Mercier, Vice President, Director of Information Services, HCR Manor Care

December 2007

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Executive SummaryToday’s IT shop has more choices than ever when it comes to deploying the software applications needed by the organization to run its business. While the traditional, on-premise approach of running applications in one’s own datacenter continues to dominate, the rising costs and staff requirements associated with supporting on-premise applications – and the underlying infrastructure to run them on – provide a compelling argument for an alternate application delivery model such as Software-as-a-Service (SaaS).

As earlier problems such as network bandwidth limitations and difficulties around integrating externally provided applications and on-premise applications are overcome, the SaaS model is being adopted by a growing number of organizations of all sizes. The SaaS model is predicted to double the growth rate for on-premise application software through 2011, with 25% of new business software being delivered via SaaS by 2011.

While literature extols the many benefits of the SaaS model, there is little said about the positive impact that SaaS can have on the IT shop and on the roles and responsibilities of IT staff. Taking a page from the book of Maslow, the paper presents a hierarchical model for business value generation by IT managers and professionals and shows how SaaS enables IT staff to re-align their focus from commodity-like infrastructure support services to more business-focused activities that generate greater value for the business. Whereas the majority of IT resources today – dollars and people – are spent just keeping the existing hardware and software infrastructure operating smoothly, the SaaS application delivery model shifts the burden of infrastructure to the SaaS service provider, allowing valuable in-house IT talent to be reallocated to more strategic tasks.

To illustrate the evolving role of IT in a SaaS environment, an example is presented that shows a typical IT operational model based on on-premise software and how adding SaaS to the software mix can drive a positive transformation to the model that enriches IT roles and delivers greater value to the organization.

While converting an existing on-premise application to the SaaS model doesn’t make much sense because the investment in infrastructure, people and knowledge has already been made, major upgrades, platform changes associated with an existing application, and the replacement of a legacy application are all prime targets for a SaaS approach. The Software & Information Industry Association (SIIA) argues that only non-critical applications should be outsourced, while critical applications should be kept in house. However, this paper looks at the issue of application outsourcing on a lower level – the task level rather than the application level – and proposes instead that the non-strategic tasks of both critical AND non-critical applications should be outsourced, while the strategic tasks are kept in house. SaaS accomplishes this.

SaaS is definitely coming – it’s not a matter of “if” but “when” – and IT management should prepare their organization and begin the process of retooling and helping staff acquire skills needed for higher-value tasks.

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Outline

4 Application Delivery Options Abound

4 Saas Set to Outpace On-Premise Software Deployment

5 Saas Offers Compelling Benefits

6 But What Happens in the IT Shop?

6 Hierarchy of IT Roles and Business Value

8 SaaS Provides IT Job Enrichment Opportunity

10 The People Side of SaaS – Retooling & Redeploying

10 SaaS Drives IT Operational Transformation

11 Adding SaaS to the Application Mix

12 Which Applications Should Be SaaS’d?

13 SaaS … It’s Not a Matter of ‘If’, but ‘When’

14 About the Authors

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Application Delivery Options AboundToday’s IT shop has more choices than ever when it comes to deploying the software applications needed by the organization to run its business. While the traditional, on-premise approach of installing and running applications in one’s own datacenter continues to dominate, other models have proven viable.

Managed Hosting Service

In addition to outright selling/licensing of their applications to organizations for on-premise installation, many software vendors also offer to host these applications in their own datacenters on behalf of their customers, and provide access to them either via a Web browser or through a client/server configuration. In this model, a separate instance of the software, along with dedicated infrastructure and database to support it, is typically allocated to each customer.

Application Service Provider (ASP)

While this approach is similar to the Managed Hosting model, the service provider is typically not the application developer/owner, but rather a third-party organization. In this model as well, a separate instance and dedicated infrastructure are typically allocated to each customer, and the client/server applications are fitted with thin-client front-ends (e.g. Via Citrix) to allow remote access by the customer.

Software as a Service (SaaS)

In the SaaS model of application delivery, the application author retains ownership of the application but grants access to it to organizations on a subscription fee basis that is most often routed in some usage-based or pay-as-you-play metric such as number of users or number of transactions, for example. The most common form of SaaS, and thought to be the most advantageous for provider and customer alike due to the high level of cost sharing, is what is referred to as the “single version, multi-tenant” model – a single instance of the application is used concurrently by many customers.

A growing interest in these alternate models has been fueled by the rising costs and staff requirements associated with buying, deploying, maintaining, upgrading and supporting on-premise applications and the associated infrastructure – servers, operating systems, networks, help desks, etc. However, it is the SaaS model that is emerging as the clear application delivery alternative of choice, with the unmitigated success of SaaS-delivered solutions such as SalesForce.com, NetSuite and WebEx helping to lead the way.

Saas Set to Outpace On-Premise Software DeploymentThe increasing abundance of bandwidth, which allows better remote application performance, is a significant enabler for the growth in SaaS that is taking place. In addition, integration challenges that previously relegated the SaaS model to peripheral and standalone applications have for the most part fallen by the wayside. Mature integration middleware and Service-Oriented Architecture (SOA) have made it easier for software applications to be integrated, regardless of whether they are inside or outside an enterprise firewall; and, as a result, organizations are successfully integrating on-premise data sources and software applications with data and applications hosted by their SaaS providers.1

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The SaaS model is now being adopted by organizations of all sizes, from small to the Global 2000. Venture capitalists have jumped on the SaaS bandwagon, and Microsoft’s endorsement of this model is evident from its promotion of the Microsoft SaaS Platform, which includes the Microsoft SaaS On-Ramp Program to help ISVs (Independent Software Vendors) go to market with SaaS applications quickly and the Microsoft Services Provider Licensing Program, which offers special pricing on Windows Server and SQL Server.

Industry analyst firm Gartner, Inc. predicts that, while only approximately 5% of business software was delivered based on SaaS in 2005, the SaaS model is set to outpace the enterprise application software market, with a compound annual growth rate of 22.1% through 2011, which is more than double the growth rate for total enterprise software.2 By 2011, 25% of new business software will be delivered this way.1

Saas Offers Compelling BenefitsA considerable amount of literature exists that extols the many benefits that Software as a Service has to offer. While it is not the intention of this paper to repeat the efforts of others by delving into any of these in detail, the main benefits include:

Zero capital cost • – no money needs to be spent up front to pay for application or operating system licenses or to buy the hardware-related infrastructure required to run the software;

Zero ongoing maintenance and support • – no cost (beyond the subscription fee) or people are required to provide application patches or upgrades, or to keep the hardware infrastructure running smoothly since all this is handled by the SaaS provider;

Fast, simple deployment • – because all that is needed from an IT perspective is an Internet connection, a Web browser, and a user name and password, new applications can be put into production at a fraction of the time and cost of on-premise software;

Infrastructure cost sharing • – because they support many customers, the SaaS supplier can manage the back-end infrastructure more cost-effectively, producing cost savings that may be passed along to the customer;

No software license issues • – since the service is based on a subscription fee, rather than on the purchase of software licenses, there are no concerns related to license audits and compliance;

Maximum application/system compatibility • – since SaaS applications do not co-exist with an organization’s other applications on the same systems, there are no application compatibility issues;

Maximum supplier leverage • – the customer has greater leverage over a SaaS supplier because payment is ongoing and is based on the provider meeting contracted Service Level Agreements (SLAs).

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But What Happens in the IT Shop?While most of what you read about is the benefits of SaaS, seldom does the literature address what happens in the IT shop and to IT management and staff when SaaS applications are deployed.

When organizations buy licenses for on-premise software, it is usually the IT department that installs, operates, supports and maintains the application. Understandably then, IT staff feel they need to control the end-to-end delivery of the applications as much as possible. As a result, many IT departments tend to be biased towards traditional on-premise software deployment because of the belief that they relinquish control over the application if it is delivered via the SaaS model. In addition, it is often implied that with SaaS you don’t need IT, and as a result, IT personnel may be concerned about losing their jobs.

“I used to manage all this internally on my servers, but now someone else is doing that, so what am I supposed to do!”

“I always believed my value to the organization was in delivering business applications and keeping them running smoothly 24x365; I’m going to fight against SaaS because it looks like I’m being cut out of the picture!”

“All I can think about is what I’ve had to do, not what I should be doing; and now you’re telling me that with SaaS, all that I’ve been focused on for the past years is no longer needed; it’s no wonder I feel threatened.”

Sound familiar?

It is a common misconception that with SaaS, IT has no role. While this may have been true to some extent when dealing with point solutions in the initial days of SaaS, the enterprise-scale SaaS solutions that are now emerging absolutely need IT. What’s more important, however, is that in a SaaS environment, IT managers and professionals have an opportunity to elevate their roles in terms of the value they can bring to the enterprise.

Hierarchy of IT Roles and Business ValueTo understand the evolving role of IT, and the part that the SaaS model can play in helping IT management and staff take on a more business-focused role, consider the accompanying diagram that depicts a hierarchy of IT roles and implied business value.

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Ideally, IT managers and staff should be focused on activities in the upper part of the diagram – activities that are more strategic from an IT perspective and provide greater value to the organization. However, IT won’t be worrying about business process improvement if they can’t get an application to work properly; and they won’t be worried about tuning the application if the environment it’s running in starts to fall apart.

This prioritization of focus parallels Maslow’s Hierarchy of Needs, a theory on human behavior that Abraham Maslow proposed in his 1945 paper: A Theory of Human Motivation. Maslow proposed that higher-level human needs (e.g., love, belonging, self esteem) only come into focus when lower-level needs (e.g., food, shelter, safety) are satisfied; and once an individual has moved up to the next level, needs in the lower level will no longer be prioritized. However, if a lower set of needs is no longer being met, the individual will temporarily re-prioritize those needs by focusing attention on them at the expense of higher-level needs.

In this diagram, the hierarchy of IT tasks parallels Maslow’s hierarchy of human needs. If one level fails, then an IT manager or IT professional will only worry about that level and everything below it. If your organization is like most, the complexity and rapidly changing nature of the IT environment is such that 80 to 95 percent of IT time and resources is likely spent just trying to keep hardware and application infrastructure running smoothly.

Value Hierarchy for IT Roles

©2007 PointClickCare

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Hardware, operating systems and applications continually need upgrading. The computing environment needs to be kept up to date with the latest patches and advancements in security technology to protect it from a growing number and variety of threats. Hardware and software failures need to be fixed. Systems need to be tuned for optimal performance and kept running smoothly to meet 99.999 percent uptime SLAs. All this keeps most IT shops focused on the bottom levels of the hierarchy, leaving little time to even keep up with the backlog of requests from users groups for more functionality or additional applications, let alone time to focus on innovation or on more-strategic initiatives further up the hierarchy.

SaaS Provides IT Job Enrichment OpportunityNow let’s consider what happens to this dynamic when we bring Software as a Service into the picture.

In terms of our IT task and value-generation hierarchy, a SaaS application means that all infrastructure provisioning and application management tasks associated with that particular application – the ‘below-the-line’ items on the diagram – are now handled by the SaaS service provider. For ease of discussion, let’s simply call this line the “SaaS Line”.

The internal IT shop still needs to handle a number of tasks below the SaaS Line when a SaaS application is first deployed – selecting the provider, inspecting their datacenter, establishing a

©2007 PointClickCare

Value Hierarchy for IT Roles

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contract and SLAs, configuring the system, testing, and providing users with access and passwords – as well as conducting some ongoing SaaS application performance and SLA monitoring. For the most part, however, IT no longer has to worry about managing infrastructure and application management tasks on an ongoing basis, allowing the time and resources to be spent on higher-value, above-the-line activities.

For illustration purposes, let’s say a long-term care organization has a SaaS-delivered medical records application. Since they don’t have to worry about managing the ‘commodity-level’ infrastructure that supports that application, IT staff will be able to spend more time ensuring that the application integrates with other software as well as with internal and external services – the pharmacy or the lab, a dietary system, a rehab application and so on. And by having time to put e-learning and other user education and adoption programs in place, they will be able to contribute to ensuring maximum user buy-in and that the functionality of the application is well known and fully leveraged by users for maximum business value. The IT team also be able to work alongside subject matter experts from the business units – a skilled nursing unit, for example – helping them to optimize their operational processes around the application and providing them with the information and analytics they need to improve the performance and decision-making effectiveness of their units, and enabling them to spend more time at the bedside with patients. In the world of on-premise application deployment, a business unit might ask for some very specific analytics, but IT may not be in a position to give it to them or give it to them in a timely manner. With SaaS, and with IT not so ‘stuck in the muck’ managing infrastructure, IT staff will be able to spend more time working on business intelligence activities and finding ways to extract useful and actionable information from data warehouses and data marts that helps business units drive greater value into the organization.

This example illustrates that while IT still has a role to play with SaaS, it is far more strategic. This means they will be dealing with things such as those just described that really drive value into the business. With SaaS, IT is able to shift its focus away from the technology – the “T” part of “IT” – and onto the “I” or information part, and the role of the group can become that of Information Services provider rather than traditional Information Technology provider.

When dealing with on-premise software and commodity-level infrastructure maintenance and support, the best that one can ever accomplish is ‘being invisible’ … The systems never go down and the application is always available. What’s most likely to happen is that next year, at budget time, senior management will say to IT, “Just keep doing what you’ve been doing, but can you do it cheaper?” In addition, application support can never be cheaper or better than when it is done by a SaaS vendor because they can get big economies of scale from dealing with multiple customers, and they have intimate knowledge of the application code. So why would IT want to do a worse job at higher cost, when the best that can ever really be accomplished is not being seen!

If IT is in the value-generation game, on the other hand, and working above the SaaS Line, the business can’t wait to give them more projects and more budget because everything they do has a positive ROI associated with it and their efforts create real value for the business. From a personal point of view, their work becomes more challenging, more varied and more rewarding than the often-repetitive, day-to-day tasks found below the SaaS Line.

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The People Side of SaaS – Retooling & RedeployingWhile some IT managers will undoubtedly choose the option of taking the cost savings benefit associated with SaaS that comes from reducing their head count, it is expected that most will find greater leverage in redeploying freed up head count, either to work on other on-premise infrastructure or on clearing up the department’s application and user-request backlog, or re-assigning staff to take on the new role of focusing on tasks that are further up our ‘IT value pyramid’.

When IT managers and staff see what’s above the SaaS Line, they may respond that although they understand these higher-value tasks, they’ve been so busy with other things that they haven’t done much of it before and may not have the skills. However, in moving from doing infrastructure work to business intelligence work, a lot of the commodity skills are transferable, and technical analysts, database administrators and programmers, for example, can be re-assigned to work on extracting useful data and performing analytics on data warehouses and data marts with little additional training. For some strategic IT tasks, however, new skills may be required, which could mean retraining existing people or replacing them with different people who already have the necessary skills.

SaaS Drives IT Operational TransformationTo illustrate the positive impact that SaaS can have on the roles played by IT staff and the value the IT organization can bring to the business, let’s consider an IT operational model that is not uncommon in large organizations; and let’s assume that initially, the software in use by the organization consists exclusively of traditional, on-premise applications.

Technical Operations

Infrastructure Provisioning Application Management

Datacenter Facilities

Business Systems Group

Business Process Design Change Management Project Management

IT

Subject Matter Experts

Process Expertise Application Super Users User Acceptance Testing

Business Operations

Business Unit

Information Services Operational Model

Application Users Day-to-Day Business

Activities

Technical Operations

Infrastructure Provisioning Application Management

Datacenter Facilities

Business Systems Group

Business Process Design Change Management Project Management

IT

Subject Matter Experts

Process Expertise Application Super Users User Acceptance Testing

Business Operations

Business Unit

Information Services Operational Model

Application Users Day-to-Day Business

Activities

The diagram shows that in addition to traditional technical operations, the operational model includes a Business Systems Groups (BSG) that works directly with each Business Unit (BU). The mandate of the BSG is to provide a bridge between the business operations and the applications

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and technology infrastructure the BUs use to conduct their business. BSG staff are expected to have a deep understanding of the business processes and work closely with the process experts and super users from each BU in what can best be described as a ‘bi-directional relationship’. The BSG helps BU experts understand how to optimize their processes around what technology can provide and how to leverage the most functionality out of their applications and the most value from their data. The BU experts help the BSG gather and understand BU requirements and develop functional specs for application support. In addition, the BU experts provide feedback to the BSG on application performance. Both sides understand the technology and the business, and the overlap of these two groups is where project management and change management happen and where the business integration with the application functionality happens.

When it comes to actual on-premise application deployment, the BSG focuses on policies and procedures, while Technical Operations takes care of all the infrastructure issues – hardware, applications, databases, programming and so on. Thus, the IT staff in the BSG has the opportunity to focus on the higher-value, strategic tasks described earlier, and they do not have to be concerned about infrastructure and application management issues.

Adding SaaS to the Application MixNow let’s see what happens to our operational model when SaaS-delivered applications are added to the application mix.

Technical Operations

Infrastructure Provisioning Application Management

Datacenter Facilities

Business Systems Group

Business Process Design Change Management Project Management

IT

Subject Matter Experts

Process Expertise Application Super Users User Acceptance Testing

Business Operations

Business Unit

Information Services Operational Model

Application Users Day-to-Day Business

Activities

Technical Operations

Infrastructure Provisioning Application Management

Datacenter Facilities

SaaS Provider

Technical Operations

Infrastructure Provisioning Application Management

Datacenter Facilities

Business Systems Group

Business Process Design Change Management Project Management

IT

Subject Matter Experts

Process Expertise Application Super Users User Acceptance Testing

Business Operations

Business Unit

Information Services Operational Model

Application Users Day-to-Day Business

Activities

Technical Operations

Infrastructure Provisioning Application Management

Datacenter Facilities

SaaS Provider

For SaaS applications, the role of Technical Operations is reduced since the application and underlying technology is managed by the SaaS provider. This frees up in-house IT staff to either work on other aspects of the organization’s IT infrastructure, such as networks, security or supporting on-premise applications, or possibly be re-allocated to the BSG, where they can focus on how to utilize the software in the most effective way to drive greater business results, for example, instead of having to worry about how to keep the servers up.

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The IT shop doesn’t have to spend much time worrying about the SaaS provider’s datacenter … If the application doesn’t perform properly, it is up to the SaaS provider to fix it. It’s simply a ‘black box’ – it’s just there and it works, like dial tone. The IT shop also doesn’t have to worry about upgrades and enhancements to the SaaS application … This is done by the SaaS provider on an ongoing basis through a continuous improvement process. The team can focus instead on user training, adoption, best practices and business transformation.

The SaaS operational model allows for some possible head count reduction in the IT shop, while allowing other people from Technical Operations to move into the BSG, where they can work on business intelligence, business metrics and dashboards, for example. With a BSG-type group, an IT manager is just as likely to hire an Accountant, say, to help support the Accounting department … The thing that is irreplaceable with the BSG people is the understanding of the business they have built up. No longer are they technical people with commodity skills that are relatively easy to find or replace; but rather, they are people who really understand what the business needs and how to leverage technology to satisfy those needs.

SaaS is just as much about management attention, and where that attention should be focused, as it is about head count. A Manager of Technical Services doesn’t want to have to worry about an important SaaS application that must be running 24x365, when other aspects of the firm’s IT environment, such as networks and infrastructure to support on-premise applications, already command full attention. And a CIO wants to focus on how his organization is helping to transform the business, rather than having to worry about issues related to commodity infrastructure.

Which Applications Should Be SaaS’d?Right off the bat, it’s probably safe to say that it doesn’t make much sense to convert an existing on-premise application to the SaaS model, since the investment in infrastructure, people and knowledge of how to run and support it has already been made. However, major upgrades or platform changes associated with an existing application, or the replacement of a legacy application for business reasons, generally require substantial investments in new infrastructure. A switch to SaaS, where possible, avoids these investments, makes deployment of the new application much quicker and simplifies the process of running both applications in parallel until a cut-over can be completed.

Beyond existing or legacy applications, however, the position of the authors of this paper regarding a SaaS decision is quite simple – there is a compelling argument for using the SaaS model for any new application that an organization wishes to deploy that is available via the SaaS delivery model.

This view is not shared in all quarters, however. A recent paper on SaaS by the Software & Information Industry Association (SIIA), for example, references Geoffrey Moore’s book Living on the Fault Line, in which the author, when speaking about outsourcing in general, makes the distinction between “core” activities and “context” activities.3

“For core activities, the goal is to differentiate as much as possible on any variable that impacts customers’ purchase decisions and to assign one’s best resources to that challenge. By contrast, every other activity in the corporation is not core, it is context. And the winning approach to context tasks is not to differentiate but rather to execute them effectively and efficiently in as standardized a manner as possible.” Moore also says that, “There is no context task that cannot become someone else’s core task.”4

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From this, the SIIA paper draws the analogy for software applications, proposing that Context type applications – those that aren’t critical to the business or to helping the business differentiate itself with customers and prospects – should be outsourced (i.e. Delivered via the SaaS model), while Core applications should supported on-premise with the organization’s best people.

The SIIA may have missed Moore’s point, or, at the very least, not leveraged Moore’s concept to its fullest and most effective extent. The notion of Core and Context should not be applied at the application level, but further down, at the level of the underlying activities or tasks associated with a given application – Core tasks and Context tasks. The Context tasks, which in our model refers to the Infrastructure and Application Management tasks (i.e. Below the SaaS Line), should be outsourced to those who are best able and equipped to handle them – the SaaS service provider, for whom the Context tasks become their primary focus. The Core tasks, those higher up on our value hierarchy model (i.e. Above the SaaS Line), should also be handled by those best able – the organization’s own business-savvy people. In other words, the non-strategic parts of both critical AND non-critical applications should be outsourced, while the strategic parts are kept in house. SaaS accomplishes this.

SaaS … It’s Not a Matter of ‘If ’, but ‘When’SaaS is here now; and at some point in the very near future, everyone is going to want to deal with SaaS. The arguments in its favor are just too compelling to ignore. It may not start with a core enterprise application; it could be some peripheral application; but it’s going to come to your IT organization one way or another. Knowing that it’s going to happen, it’s best that IT management begin to prepare their organization and begin the process of retooling and acquiring the skills needed to handle the tasks above the SaaS Line because that’s the future of IT, which may very well be re-branded across the industry as Information Services.

1 Gartner Research: SaaS Delivery Challenges On-Premise Software, September, 2006, Robert Desisto et al

2 Gartner Dataquest: SaaS Demand Set to Outpace Enterprise Application Software Market, August 2007, Sharon Mertz

3 SIIA: Software-as-a-Service: A Comprehensive Look at the TCO of Software Applications, September 2006

4 Geoffrey A. Moore, Living on the Fault Line, Revised Edition, HarperCollins, 2002

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About the Authors

Murry Mercier, Vice President, Director of Information Services

HCR ManorCare

mmercier@hcr-manorcare.com

Murry received his BS in Accounting from Ohio State University and has subsequently spent his entire career in healthcare, first in Ernst & Young’s healthcare practice where he spent seven years as an IT consultant. This was followed by 12 years as CIO at a national long-term/post-acute-care organization where his responsibilities included defining, implementing and managing hardware and software infrastructure. Murry has spent the past four years in a similar capacity at HCR Manor Care.

About Manor Care

HCR Manor Care is a leading provider of short-term, post-acute services and long-term care. The company’s nearly 60,000 employees provide high-quality care for patients and residents through a network of more than 500 skilled nursing and rehabilitation centers, assisted living facilities, outpatient rehabilitation clinics, and hospice and home care agencies. The company operates primarily under the respected Heartland, ManorCare Health Services and Arden Courts names.

Mike Wessinger, Founder & CEO

PointClickCare

mike.w@PointClickCare.com

Mike has worked in the Long-Term Care Information Technology industry for 15 years. He created PointClickCare in 1995, which pioneered Software-as-a-Service in the long-term care industry. As CEO, he maintains the company’s leading position and competitive advantage within the industry. PointClickCare has been recognized by Profit Magazine as one of Canada’s Fastest Growing Companies and has been listed for two consecutive years on Deloitte’s prestigious Technology Fast 500 list for excellence, innovation and the fastest-growing technology companies in North America. Mike holds a Bachelors degree in Commerce and Economics from the University of Western Ontario.

About PointClickCare

PointClickCare, the leading provider of long-term care Software-as-a-Service, has been delivering online electronic medical records (EMR) and business office software to healthcare providers of all sizes since 2000. PointClickCare software is used by more than 2,700 long-term care centers in Canada and the United States. PointClickCare is headquartered in Mississauga, Ontario. For complete information, visit www.PointClickCare.com.

6790 Century Ave, Suite 100, Mississauga, ON L5N 2V8800-277-5889 . info@pointclickcare.com