Total Cost of Ownership of On Premises versus SaaS Applications

The good news is that all of our potential clients eventually come to the same conclusion about our SAP® Integrated B2B sellside eCommerce solution.  The words “your solution is perfect” or “it’s just what we need” are almost always uttered during their evaluation process.

So what’s the bad news?

It’s almost 2010 and I can’t believe we’re still fighting the DIY (do it yourself) mentality.  Yes these companies think we’re the perfect solution, but they also delude themselves into thinking that:

  • it can’t be that hard to build the solution themselves
  • and therefore, they ought to be able to do it much cheaper

To their credit, they do confess that:

  • Their solution may not be nearly as feature rich
  • May take a little longer to implement

Now I’ll be the first to admit that it is exhilarating, intellectually stimulating and quite fulfilling to take on, and accomplish, a meaningful challenge.  But you really need to pick your battles.  Ones that you’re equipped to deal with, have a fighting chance of winning and whose downsides won’t badly hurt you.  Of course, the experienced IT Executive has become quite proficient at rationalizing victory in the face of defeat…as this cartoon aptly illustrates.  However, if we’re honest with one another, these failures (rationalized or not) always cost more in the end, both in reputation and in real dollars.  (Plumbers charge extra for emergency visits, and you’ll never get over your wife’s scolding “I told you so” look!)

I just don’t get it.

Aside from the strategic blunder of squandering precious corporate resources in these economically stressed times on a project that shouldn’t be any B2B Manufacturer’s core competency…integrating a shopping cart with SAP®…do CFO’s really think they can buy (and support) an on-premise version of this solution cheaper?  Worse yet, do they really think they can BUILD one from scratch even cheaper than that?

I’ve been surfing around the web to come up with an “official” review of this Total Cost of Ownership (TCO) of Sotware as a Service applications topic.  Daniel Drucker over at Intacct Software (we have no relationship with him or his company) put together a great blog post on the subject earlier this year.  I couldn’t have summarized the TCO model any better.

Daniel breaks up the model into four major categories:

  1. Capital Savings – Hardware and Software
  2. IT Operations Savings – focus your resources on differentiating projects
  3. Departmental / Business Operations Savings – internal efficiency gains through enhanced integration and workflow
  4. “Other” – Reduced risks, faster time to value, easier to adapt etc.

This is a very cogent framework for evaluating the TCO aspects of providing a great B2B web experience to your customers.  Although there are a few things that I would like to add to this model.

  1. Double all development estimates of time and money.  That’s the way it works in the software development world.  Ask a developer for an estimate and then double it if you want a real planning number.  We, on the other hand, give you a fixed price, fixed time contract to get you into production as quickly as your staff can commit to…and no longer than 90 days!  Our business model is predicated on delivering value as quickly as possible to your customers.
  2. Don’t underestimate the value of real time integration into SAP®.  Your customers will be coming to your website to transact business.  They want a personalized, informative, interaction with you and your website.  All of the information they need should be in SAP®.  Pricing, availability, shipping options etc.  Give it to them.  No architecture is simpler than getting it from SAP® in real time and just in time.  This isn’t a “nice to have” feature.
  3. Expect to be held hostage by your developer.  I have never…ever…met a business organization that was happy with the care and feeding that their internal IT organization was providing them.  There are no exceptions to this.  They just aren’t hungry enough and focused enough.  There is a real cost to navigating around this reality when the time comes to extend your custom website’s capabilities.
  4. Don’t underestimate the difficulty of managing this project.  It will be like herding cats at the United Nations.  You’ll have people who speak web technologies, SAP® modules, networks and security, sales, marketing, customer services, finances etc.  Each has their own perspective, dialect, and goals and motivations.  Expect real delays on the project timeline when all parties have to agree on something.  Our Focus Group based implementation methodology combined with our “out-of-the-box” solution cuts through this like a hot knife through butter.

There you have it.  I’ve gotten it off my chest.  Please don’t even think of wasting your time building a custom B2B portal for your customers.  Use our service as the conduit into and out of SAP® and spend your precious time and resources optimizing the way you develop, produce, merchandise and deliver your products to your customers.

Basically, you focus on your business and we’ll focus on ours.  We’ve already demonstrated that that makes a winning combination for our clients.

Sam

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