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Chuck Schaeffer CRM Thought Leader Michael Fauscette In His Own Words

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CRM Thought Leader Podcast Series

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All Things Cloud—CRM, ERP, HCM and the Journey to the Cloud
Michael Fauscette Michael Fauscette, Director of IDC's Software Business Solutions Group, shares research data, statistics and insight that demonstrate the factors that most influence cloud adoption by market segment and business benefit—and how IaaS, PaaS and SaaS are evolving to deliver new decision and relationship value to historically transactional business systems.

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49 minutes, 41 seconds (49:41)

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Key take away points in the discussion with Thought Leader Michael Fauscette:

  • IDC forecasts the cloud computing market to grow to $149 billion and predicts that half of all transactions will be executed in the cloud by end of 2014. Their research also predicts that by 2014, more than one-third of software purchases will be via the cloud. Michael notes that initial cloud apps were very contained and procured at a departmental level, such as Sales Force Automation or specific components of Human Capital Management (HCM) such as talent management or training. However, the combination of a global recession and lack of available capital created increased leverage and momentum for both broader suites of business applications and an overall accelerated shift to the cloud. The poor economic conditions essentially forced companies to at least consider cloud applications thereby eroding a natural hesitation with new technology and supplementing and driving increased SaaS, PaaS and IaaS adoption.

  • IDC also predicts that by 2015 U.S. businesses will spend $36 billion on cloud delivered IT. Already 77 percent of North American companies are using the public cloud and that adoption is expected to follow in Europe, Asia and the rest of the world.

  • In the CRM software market, Gartner research revealed that in 2011 just over half of all new SFA sales went to the cloud – eclipsing on-premise SFA software and swinging the balance for this particular application. Michael notes that while the trend for complete CRM suites toward SaaS continues upward, the tipping point where SaaS CRM exceeds on-premise CRM remains further out as many companies have large scale CRM software investments that will not be replaced until their useful life is exhausted regardless of new technology. In the interim, Michael sees many companies adopting a heterogenous deployment model whereby some functions are processed on premise and others in the cloud, with a gradual but steady shift away from on premise software toward an increase in cloud services. Small and midsize businesses (SMBs) without existing infrastructures and increasing pressure to leverage CRM software systems are a market segment adopting cloud solutions from the start.

  • Michael distinguishes between systems of transactions, systems of decisions and systems of relationships and notes that systems of transactions often mature to satisfy a steadfast business purpose particularly well and are therefore more resistent to change. For example, once a General Ledger satisfies accounting, reporting, compliance and similar needs, its less likely that system will be replaced if those needs remain unchanged. Because of this nature, IDC forecasts that by 2020, 78 percent of the Global 2000 will still have more than 50 percent of their global IT on premise.

  • Another analyst firm (Gartner) has made a broader market predication that by 2012, cloud solutions will be so entrenched that 20 percent of businesses worldwide will own no IT assets. Michael notes that when you consider the vast SMB market, this may very well turn out to be the case, but should not be confused with the amount of spend for on-premise and cloud solutions as SMB's make up higher numbers of businesses but spend comparatively less, and SaaS revenues are a fraction of on-premise purchases for each given year (i.e. the on-premise amounts are front-loaded and recognized in a single year while SaaS subscriptions are spread out over multiple years).
  • Cloud advocates suggest that SaaS or cloud delivery achieves benefits including elimination or reduction of up front capital expenditures, accelerated time to value, outsourcing of a non-core competency to experts, on-demand scalability, predictable IT expenditures, enhanced business agility and reduced total cost of ownership (TCO) over the life of the application. Michael notes from his experience, top decision making criteria among executives adopting cloud solutions include the change from capital investments to operating investments (capex to opex) and quick return on value. Michael also notes that TCO may be lower or higher for each deployment model based upon various unique customer criterion and therefore must be individually calculated to determine which delivery model actually achieves lower TCO.

  • Michael notes that IT's participation in the selection and acquisition of SaaS and cloud solutions has evolved significantly in the last few years. In the early years, cloud CRM vendors had the reputation of coming into the business from the back door, essentially appealing to business buyers who may circumvent IT and procure cloud solutions using their credit cards. This process essentially works for the business buyers up until IT is needed for data migrations, system integration, software customization or other technical tasks. Michael suggests that this end run around IT has been reduced as IT staff better partner with the business users in a way that allows IT to ensure compliance, security and governance while empowering the business to move quickly in achieving their goals.

  • It's no coincidence that the rise of cloud apps has occurred at virtually the same time as the rise in social. In fact, Michael notes the convergence of four major technology shifts—mobile, social, cloud and big data—have all become interrelated and effectively build upon each other to achieve synergistic growth.

  • Michael suggests that ERP cloud adoption can achieve similar mass market adoption as CRM, however, the trends will vary by market segment. For example, many SMBs have yet to purchase full ERP suites, and therefore don't have the sunk investment to delay the acquisition of new SaaS technology and on-demand ERP suites which support enterprise-wide apps and end to end processes. However, larger enterprise organizations will seek to maintain their existing (on-premise) IT investments, adopt cloud solutions 'around the edges' and ultimately replace some but not all on-premise software with cloud solutions during normal technology refresh cycles—effectively adopting a longer-term incremental plan as compared to a rip and replace approach.

  • We're now seeing more HR, Payroll, or Human Capital Management solutions being offered in the cloud from companies such as Workday, Oracle and SAP (in part from its acquisition of SuccessFactors) as well as a very high number of emerging growth companies. The trend toward increased HCM cloud adoption may be the result of a convergence of three factors—new cloud technology, a shift in HCM processes (i.e. new performance management goals, new social technologies, manager self service, etc.) and the end of useful life for first version HCM software. HCM solutions first stemmed from PeopleSoft and then a number of competitor followers in the early and mid 90's. Many of these applications are now at their normal technology refresh cycle.

  • Somewhat similar to factors that drive SMB adoption of cloud solutions, Michael suggests that emerging markets in geographies outside North America may represent the next wave of growth as they often do not possess significant (sunk cost) IT infrastructures or mature business systems and therefore have fewer barriers and more incentives in adopting world class cloud solutions.

  • System integration has always been a burden for enterprise software implementors. Anthony Lye of Oracle recently called integration "the Achilles heel of enterprise software" which seems a fitting description. The cloud has introduced new or modified SI technologies such as WSDL's, XML web services, RESTful services and most would agree these are helpful advances. However, a potentially bigger advancement may come from the online ecosystems of pre-integrated third party products. Salesforce.com lead this charge with AppExchange, and now NetSuite, Sugar, Microsoft, SAP and many other cloud vendors have followed suit. These online ecosystems are beginning to offer relief and act as an alternative to costly system integration. Further, Michael notes that new technology software is becoming more componentized, and oftentimes disposable, giving customers more flexibility to consume the pieces they need.

  • Cloud ubiquity or portability is becoming a new discussion item. Some of the most popular cloud solutions only permit customers to run their software on the vendor's cloud – which makes portability difficult or impossible. This could be a problem if a customer wanted to change vendors or move clouds and take any internally developed customization or apps with them. Michael notes that when the initial cloud vendors came to market they found themselves having to create the tools to deliver their visionary solutions. Later, standards and component based approaches emerge and now, several cloud vendors are permitting customers deployment choice – by letting customers host the software internally, on the cloud vendors network or on a public cloud such as Amazon's EC2 or MS Azure. This additional choice empowers customers to select the cloud that offers the best uptime, Service Level Agreement, cost, physical location or other factor that they find important.

  • In a visual sense, the cloud can be depicted as a stack of progressive layers which include IaaS, PaaS and SaaS; where IaaS is largely about delivering on-demand I/O processing, compute cycles and data storage, PaaS is largely about development frameworks and middleware-type tools, and SaaS delivers turnkey or packaged business applications. Historically, these cloud layers have existed fairly autonomously. However, we're seeing increased intrusion among the layers. Amazon is a leader in IaaS, and pushes a PaaS tool called Elastic Beanstalk. Microsoft is releasing new PaaS tools for its Azure IaaS. Google pushes their Google App Engine as a PaaS solution for their infrastructure. And at the other end of the spectrum, Salesforce.com is leading the SaaS to PaaS push with Force.com and many other SaaS solutions are doing the same. Beyond a general morphing among these cloud layers, Michael suggests that IaaS will continue to become more granular and componentized permitting customers more flexible consumption, and ultimately IaaS compute power will be delivered like a utility with on-demand extensibility and pay for use variable pricing. PaaS tools are emerging to define how cloud apps come together with increased flexibility among the portfolio of apps to accommodate improved management and more agile business requirements. Very interestingly, platform tools are also aiding systems which were inherently designed for transactions and not for users. Michael notes that 80 percent of information worker time is spent working around their IT systems because rigid systems were built based on processes that solved business problems at the transaction level but failed to support the decision and relationship processes needed for users. PaaS tools are incorporating new technologies such as social to add the missing layers in context to these transactional systems and make them more useful. End

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Componentized, disposable, end-user configurable, pre-integrated [cloud-based solutions] are the future of business applications."

~ Michael Fauscette, IDC

 

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