The Realized Benefits of a SaaS Solution

Here we take a closer look at how the customers of NetSuite, a leading SaaS solution provider, perceived the benefits delivered.

NetSuite
NetSuite
January  2016       TAKING  A  CLOSER  LOOK  AT  BENEFITS  REALIZED   FROM  THE  NETSUITE  CLOUD   A  CUSTOMER  PERSPECTIVE   In  Benefits  Actually  Realized  from  the  Cloud  we  discovered  Software  as  a  Service   (SaaS)  has  indeed  lived  up  to  its  promises.  Although  SaaS  deployments  of   Enterprise  Resource  Planning  (ERP)  are  still  nascent,  those  that  have  ventured   into  the  cloud  find  SaaS  has  delivered  as  expected,  in  some  cases  exceeding   expectations.  Cost  savings,  including  total  cost  of  ownership  (TCO),  startup  costs   and  cost  and  effort  of  upgrades  can  be  substantial.  Even  if  the  subscription  cost   equals  the  cost  of  software  and  maintenance  over  time,  there  are  still  savings  to   be  had  by  eliminating  the  purchase  and/or  continued  maintenance  of  hardware.   And  with  subscription  pricing  and  the  elimination  of  hardware,  investments  can   be  funded  out  of  operating  expense,  reducing  the  need  for  capital.   Here  we  take  a  closer  look  at  how  the  customers  of  NetSuite,  a  leading  SaaS   solution  provider,  perceive  the  benefits  delivered.  To  do  that,  we  analyzed   survey  responses  from  NetSuite  customers  in  our  2013  and  2015  Enterprise   Solution  Studies,  and  talked  at  length  with  a  brand  new  NetSuite  customer,   Briggs  Healthcare.   ANTICIPATED  AND  REALIZED  BENEFITS   For  several  years  now  Mint  Jutras  has  been  asking  participants  in  our  Enterprise   Solution  Studies  to  share  perceptions  and  preferences  for  cloud  computing,   including  software  delivered  as  a  service  (SaaS).  Spurred  by  the  growing   participation  of  companies  actually  running  their  businesses  with  SaaS  solutions,   in  2015  we  added  questions  asked  exclusively  of  those  that  fell  into  this   category,  including  NetSuite  customers.     Up  until  this  year  we  asked  all  survey  participants  the  same  question:  “What  do   you  find  appealing  about  SaaS?”  We  gave  them  a  fairly  lengthy  list  of  potential   benefits  of  SaaS  and  allowed  them  to  select  as  many  of  them  as  they  saw  fit.   This  year  we  continued  to  ask  that  same  question  of  those  not  running  SaaS   solutions,  but  changed  it  up  a  bit  for  those  that  actually  do.  For  this  segment,  we   asked  instead,  “What  benefits  have  you  actually  realized  from  SaaS?”     The  “appeal”  question  is  more  about  expectations,  while  the  “benefits  realized”   question  speaks  specifically  to  what  has  been  delivered.  To  better  understand   the  NetSuite  customer  perspective  we  go  back  a  couple  of  years  and  use  the   “appeal”  question  from  2013  as  a  base  line  for  expectations  and  then  look  at   how  they  answered  the  benefits  question  this  year  as  more  a  proof  of  delivery.   Who is NetSuite? NetSuite  is  a  leading   provider  of  cloud-­‐based   business  management   software,  delivered   exclusively  as  software   as  a  service  (SaaS).   Some  quick  facts  about   NetSuite:   ü Founded  in  1998   ü Publicly  traded  on   NYSE:  “N”   ü ~4,200  employees   ü $556.3M  revenue  in   FY14   ü $192.8M  revenue  in   Q3  FY15   ü Used  by  24,000+   organizations   (includes  subsidiaries   and  affiliates)  in   more  than  100   countries     Taking  a  Closer  Look  At  Benefits  Realized  from  the  NetSuite  Cloud   Page  2  of  6       COSTS  FIGURE  HEAVILY  IN  THE  BENEFITS  EQUATION   NetSuite  customers  are  not  unique  in  placing  a  lot  of  emphasis  on  costs  (Figure   1).  Back  in  2013,  in  rating  the  appeal  of  SaaS,  NetSuite  customers  placed  equal   value  on  lowering  total  cost  of  ownership  (TCO)  and  treating  those  costs  as   operating  expenses  (OpEx).     Figure  1:  NetSuite  Customers  Find  Cost  Savings  Appealing   Source: Mint Jutras 2013 and 2015 Enterprise Solution Studies NetSuite Customers Only Included As  recently  as  two  years  ago,  the  NetSuite  installed  base  of  customers  was   dominated  by  small  to  medium  size  businesses  (SMBs),  many  of  which  were  in   heavy  growth-­‐mode.  Even  if  they  were  not  strapped  for  cash,  like  many  SMBs,   they  certainly  preferred  to  use  available  capital  (CapEx)  for  growing  their   workforce,  adding  equipment  or  expanding  into  new  markets  and  territories.  Yes   they  needed  good  supporting  infrastructure  and  back  office  applications  to   manage  that  growth  but  that  type  of  investment  had  an  indirect  impact  on   growth,  at  best.   Over  the  past  two  years,  not  only  have  many  of  those  SMBs  grown  significantly,   but  NetSuite  has  also  come  up  market,  appealing  more  and  more  to  medium  to   large  enterprises.  That  could  be,  at  least  in  part  because  NetSuite  seems  to  have   delivered  lower  TCO  than  expected  and  also  allowed  these  growing  companies   to  invest  capital  directly  in  growth  activities.     This  may  have  come  as  a  pleasant  surprise  to  NetSuite  customers  for  the  simple   reason  that  NetSuite  tends  not  to  be  the  lowest  priced  alternative  when  you   consider  competitive  SaaS  solutions.  But  the  costs  paid  to  an  ERP  solution   provider  are  very  often  a  small  fraction  of  the  overall  cost  of  ownership.  The   total  cost  escalates  out  of  proportion  when  the  value  expected  is  not  delivered   as  promised.  This  could  also  explain  why  fewer  (only  30%  of)  NetSuite  customers   expected…  and  realized  lower  startup  costs.  They  were  seeking,  and  found   savings  in  the  longer  haul.   Data Source In  this  report,    Mint  Jutras   references  data  collected   from  its  2013  and  2015   Enterprise  Solution  Studies,   both  of  which  investigated   goals,  challenges  and   status  and  also   benchmarked  performance   of  enterprise  software   implementations  used  to   actually  run  a  business.   Responses  were  collected   rom  companies  of  all  sizes,   across  a  broad  range  of   industries,  including  26   customers  of  NetSuite  in   2013  and  23  in  2015.     Taking  a  Closer  Look  At  Benefits  Realized  from  the  NetSuite  Cloud   Page  3  of  6       Another  pleasant  surprise  was  in  the  savings  achieved  through  the  reduced  cost   and  effort  of  upgrades.    As  with  any  multi-­‐tenant  SaaS  solution,  NetSuite  does   the  heavy  lifting  during  the  upgrade  process.   At  first  glance  the  final  cost  element  shown  in  Figure  1  is  a  bit  puzzling,   particularly  in  light  of  assuming  NetSuite  customers  are  most  interested  in   lowering  the  total  cost  of  ownership.  Why  do  only  17%  of  NetSuite  customers   realize  the  benefit  of  eliminating  hardware  and  its  associated  maintenance,   particularly  when  two  years  ago  40%  of  them  found  that  appealing  about  SaaS?   Mint  Jutras  suspects  the  answer  to  that  question  lies  in  the  wording  of  the   options  presented.     In  the  “appeal”  question  the  option  is  shown  as  “No  need  to  purchase  hardware,   or  maintain.”  This  implies  cost  avoidance.  In  the  “benefits  realized”  question  the   option  appeared  as  “Elimination  of  hardware  and  associated  cost  of   maintenance.”  This  implies  existing  hardware  could  be  removed.  When  NetSuite   is  sold  to  a  small  company,  it  is  often  the  first  solution  of  its  kind,  typically   replacing  QuickBooks  or  some  other  desktop  solution.  While  the  SMB  avoids  a   hardware  purchase,  there  are  no  existing  servers  or  other  equipment  to  remove.   It  is  when  NetSuite  is  sold  to  a  larger  enterprise  that  the  potential  for  hardware   cost  savings  becomes  very  real.  In  fact  one  such  enterprise,  Briggs  Healthcare,   intends  to  recoup  100%  of  the  total  cost  of  its  NetSuite  implementation  within   three  years  through  IT  savings  alone.   CASE  IN  POINT:  BRIGGS  HEALTHCARE   For  many  years  Briggs  Healthcare  ran  a  JD  Edwards  ERP  solution.  The  IT  staff   consisted  of  22  employees  supporting  more  than  100  different  servers.  Many  of   these  servers  were  needed  to  also  support  an  additional  28  “bolt  on”   applications,  many  of  which  ran  on  different  operating  systems,  databases  and   other  middleware.    Four  years  ago  they  identified  that  they  had  to  do  something   to  address  this  complexity.   Meanwhile,  the  healthcare  industry  was  itself  undergoing  a  transformation.  A   big  part  of  Briggs’  business  had  been  supplying  printed  forms  and  charts  to   doctors  and  other  healthcare  providers.  As  the  healthcare  industry  moved  to   electronic  documents,  Briggs  began  a  strategic  journey  to  revamp  its  overall  core   business  model  but  its  aging  infrastructure  was  struggling  to  keep  up,  often   times  holding  up  the  ability  to  change.  With  the  demand  to  change  the  business   but  also  preserve  bottom  line  profitability,  according  to  Don  Schmidt,  Vice   President  of  Information  Technology,  “There  was  no  more  fat  to  cut  off  the   bone.  There  was  only  bone.  At  that  point  all  you  can  do  is  replace  systems.”   So  that  is  exactly  what  Briggs  set  out  to  do:  Replace  everything  with  a  single   solution,  and  in  doing  so  also  reduce  the  complexity  of  running  the  business.     “There  was  no  more  fat   to  cut  off  the  bone.   There  was  only  bone.  At   that  point  all  you  can  do   is  replace  systems.”   Don  Schmidt,  VP   Information  Technology,   Briggs  Healthcare   Taking  a  Closer  Look  At  Benefits  Realized  from  the  NetSuite  Cloud   Page  4  of  6       But  a  “four  walls”  replacement  infrastructure  would  require  a  large  capital  and   time  investment.    Understanding  the  need  to  replace  current  systems  Briggs’   CEO  asked,  “Shouldn’t  we  be  looking  at  cloud  solutions?”   And  thus  began  a  focused  effort  to  explore  applications  and  services  in  the   cloud.  Briggs  was  already  accustomed  to  having  hardware  located  elsewhere,   hosted  and  managed  off-­‐site,  but  they  wanted  to  take  one  step  further  into  the   cloud.  For  that  they  would  need  a  SaaS  solution.  And  if  the  chosen  solution  was   to  effectively  replace  an  aging  ERP,  along  with  all  the  bolt-­‐on  applications,   without  a  lot  of  customizations,  it  needed  to  be  very  configurable  and  both   broad  and  deep.  They  quickly  narrowed  their  options  down  and  chose  NetSuite.   One  goal  down:  They  had  chosen  a  single  solution.  But  what  about  reducing  the   complexity  of  the  business?  “We’d  like  to  think  we’re  a  simple  business,  but  the   reality  is  we  are  not,”  said  Don  Schmidt.  “So  as  part  of  the  evaluation  process,   we  also  took  this  as  an  opportunity  to  reengineer  and  standardize  our  own   processes  where  applicable.  And  as  our  business  changes,  we  also  need  to  be   prepared  to  leverage  opportunities.  Our  business  is  predominantly  B2B  now.  We   have  a  limited  web  presence,  but  our  B2C  business  is  growing  significantly  year   over  year.  NetSuite’s  Suite  Commerce  will  help  us  in  this  transition.  In  addition,   marketing  campaigns  can  be  run  natively  in  NetSuite,  which  will  help  us  execute   more  programs.”   Part  of  this  reengineering  process  was  also  to  transition  the  ownership  of  system   expertise  away  from  IT  to  the  functional  departments.  Any  effective  ERP  solution   is  a  living,  breathing  solution.  As  business  needs  change,  so  must  the   implementation.  With  outdated  technology,  this  often  meant  changes  to  the   underlying  code  and  it  always  involved  IT.  “The  perception  of  the  business   leaders  was  that  IT  was  slowing  them  down  or  getting  in  the  way  of  progress.   The  solution:  Give  them  a  next  generation  solution  and  provide  them  the  tools   to  be  self-­‐sufficient.  We  [IT]  still  manage  and  drive  change  control  but  we  push   the  decision  to  change  back  to  them.  I  am  essentially  working  myself  out  of  a   job.  But  that’s  OK.”   IMPACT  ON  IT   In  fact  Briggs  Healthcare  has  already  significantly  pared  back  its  full  time,   internal  IT  staff  from  22  to  five  or  six,  but  this  is  not  necessarily  the  norm  within   the  NetSuite  customer  base.    While  30%  of  the  NetSuite  customers  participating   in  our  survey  in  2013  indicated  they  had  limited  IT  resources  (and  no  interest  in   building  staff),  clearly  Briggs  Healthcare  had  the  staff.  Briggs  is  similar  to  the  26%   of  NetSuite  customers  in  2015  that  had  reduced  or  eliminated  IT  staff.  But  Briggs   also  shares  some  similarities  with  the  larger  percentage  (36%)  that  had   leveraged  those  IT  resources  for  something  more  strategic  than  just  keeping  the   lights  on.  Mr.  Schmidt  is  clearly  taking  on  a  very  strategic  role  in  the  Briggs   Healthcare  business.   “We’d  like  to  think  we’re   a  simple  business,  but   we’re  just  not.”   Don  Schmidt,  VP   information  technology,   Briggs  Healthcare   Briggs  Healthcare  is   scheduled  to  go  live  on   NetSuite  the  beginning   of  January  2016.   “As  of  January  4,  2016,   IT  will  no  longer  ‘own’   the  system.  Business   leaders  will.”   Don  Schmidt,  VP   information  technology,   Briggs  Healthcare   Taking  a  Closer  Look  At  Benefits  Realized  from  the  NetSuite  Cloud   Page  5  of  6         UNEXPECTED  BENEFITS   There  is  also  another  IT-­‐related  benefit  that  often  goes  unnoticed  and  the   NetSuite  community  is  no  exception.  Back  in  2013,  only  4%  saw  improved  IT   security  as  part  of  the  appeal  of  SaaS.  And  in  fact,  40%  of  those  NetSuite   customers  expressed  concern  over  security.  Yet,  two  years  later,  27%  reported   improved  IT  security  as  a  benefit  actually  realized  from  the  NetSuite  cloud   (Figure  2)  and  22%  also  cited  more  viable  business  continuity  (not  included  in   the  “appeal”  question  in  2013).     Figure  2:  Some  Unexpected  Gains     Source: Mint Jutras 2013 and 2015 Enterprise Solution Studies NetSuite Customers Only Included This  is  particularly  notable  in  light  of  all  the  recent  extreme  weather  and  natural   and  man-­‐made  disasters  that  dominate  the  news  today.  All  but  the  largest   enterprises  simply  can’t  afford  the  level  of  redundancy  that  a  SaaS  solution   provider  like  NetSuite  must  build  into  its  data  centers.   And  note  as  well  the  value  delivered  through  more  innovation.  This  too  was  an   often  overlooked  and  undervalued  benefit,  with  only  4%  of  the  NetSuite   community  choosing  this  as  part  of  the  appeal  of  SaaS.  In  2015  30%  of  NetSuite   respondents  indicated  this  was  a  benefit  actually  realized.  Like  other  providers   of  multi-­‐tenant  SaaS  solutions,  NetSuite  benefits  from  maintaining  a  single  line   of  code,  shared  by  all  customers.  This  is  further  strengthened  by  a  software   developer  kit  that  allows  customers  to  add  their  own  new  features  and  functions   in  such  a  way  that  these  innovations  are  automatically  carried  forward  with   upgrades,  which  of  course,  are  installed  by  NetSuite  (not  the  customer’s  IT  staff).   CONCLUSION   NetSuite  customers  are  drawn  to  SaaS  solutions  for  their  ability  to  help  lower   total  cost  of  ownership  of  the  solution  actually  used  to  run  the  business.  But   once  in  the  NetSuite  cloud,  they  also  find  some  otherwise  hidden  gems  of  the   SaaS  world.  They  not  only  lower  startup  costs,  reduce  the  cost  and  effort  of   upgrades,  they  also  enjoy  a  faster  rate  of  innovation  than  the  traditional  on-­‐ premise  world.     “NetSuite  has  come  to   the  table  as  an  awesome   partner.  Sometimes  I  get   the  feeling  that  half  of   NetSuite  is  working  for   me.”   Don  Schmidt,  VP   information  technology,   Briggs  Healthcare   Taking  a  Closer  Look  At  Benefits  Realized  from  the  NetSuite  Cloud   Page  6  of  6       NetSuite  customers  are  able  to  avoid  using  capital  to  acquire  hardware,  also   impacting  longer-­‐term  costs  through  the  elimination  of  the  associated   maintenance.  Some  actually  eliminated  hardware  in  place,  also  removing   maintenance  cost  as  well  as  the  potential  cost  of  obsolescence.   The  impact  on  IT  staffs  will  vary  throughout  the  NetSuite  community.  For  those   struggling  to  recruit  and  maintain  talent,  SaaS  will  provide  a  welcome  relief  from   reliance  on  a  scarce  resource.  Others  will  take  the  opportunity  to  leverage  the  IT   skills  they  have  in  ways  more  strategic  to  the  business.  Those  saddled  with   outdated  skills  just  might  use  SaaS  as  an  opportunity  to  clean  house,  so  to  speak.   This  should  not  be  viewed  as  a  threat  to  IT  staffs,  but  as  a  gentle  reminder  that   technology  is  changing  very  quickly  and  IT  staffs  must  keep  pace  in  order  to  stay   relevant.   If  you  are  a  current  NetSuite  customer,  or  are  considering  becoming  one,  you   will  see  many  benefits  to  SaaS.  Don’t  be  satisfied  with  just  those  that  naturally   rise  to  the  surface  –  benefits  like  lower  costs  and  reduced  effort  to  upgrade.  Dig   a  little  deeper  to  find  all  the  potential  benefits.  You  might  just  strike  gold.                                       About  the  author:    Cindy  Jutras  is  a  widely  recognized  expert  in  analyzing  the  impact  of   enterprise  applications  on  business  performance.  Utilizing  over  40  years  of  corporate   experience  and  specific  expertise  in  manufacturing,  supply  chain,  customer  service  and   business  performance  management,  Cindy  has  spent  the  past  10  years  benchmarking  the   performance  of  software  solutions  in  the  context  of  the  business  benefits  of  technology.   In  2011  Cindy  founded  Mint  Jutras  LLC  (www.mintjutras.com),  specializing  in  analyzing   and  communicating  the  business  value  enterprise  applications  bring  to  the  enterprise.