Software as a Service is set to transform the agility, cost base and flexibility of technology adoption and utilisation for fashion retailers.
Management overview
Two years ago most people had never heard of Cloud Computing, yet today it is one of the world’s largest growth industries. In essence, Cloud Computing simply means moving things from on-site servers to remote data centres, but the growth is astonishing. Today many data centres are bigger than small towns, and the vast majority of new servers are being installed into "the cloud". The close relative of Cloud Computing is SaaS (Software as a Service), which simply means that business software is delivered to the users’ web browser directly from the cloud.
Cloud Computing and SaaS in particular is now generating interest across all sizes of business around the globe. According to Gartner, nearly 90% of organisations expect to grow their use of SaaS, with more than one third transitioning from on-premises software deployment to a SaaS model. Key drivers for the transition include total cost of ownership and unmet performance expectations.
SaaS promises to deliver greater corporate agility and to reduce the cost of IT ownership. Is it therefore time for fashion retailers to assess and understand the potential of this new technology?
Perhaps the most pertinent benefit of SaaS in the current climate is that it is a low risk model. Instead of a massive "leap of faith" investment, retailers can now start using new software and pay for it month by month. It would of course still be painful if the software fails to deliver the promised benefits, but even in this worst case the cost would be a tiny fraction of the huge sunk cost of perpetual software licences and servers associated with the old model.
Looking a little closer at the risk of failure, it becomes clear that with a SaaS model the supplier has actually got a much bigger incentive to make sure the solution is a success. After all, a system that has just cost hundreds of thousands of pounds to install would have to be pretty awful before the customer would consider throwing it out. With a typical SaaS model the supplier doesn't start to make money for at least two years, so it is vital that the customers stay happy.
Since packed software first appeared in the 1980's, retailers have had to invest heavily in software that in many cases has failed to live up to expectations. At the same time, they have been paying for large user licenses on modules that may become obsolete due to changing business needs or advances in technology. Yet businesses often feel compelled to keep using outdated software for years because they are both financially and emotionally unable to take on the upheaval of a system migration – often despite a clear business imperative.
SaaS can address these shortcomings. Leveraging the inherent flexibility, ubiquitous access and economies of scale delivered by Cloud Computing, it allows companies to invest in systems on a Pay-As-You-Go basis. The software is delivered over the internet, with the systems and infrastructure managed not in-house but by a team of dedicated experts. The new model allows organisations to pay only for the software they use at any given time, ensuring there is no risk of spending money on software licenses that are never used or become unnecessary.
In addition, SaaS offers IT independence by giving vendors less opportunity to lock customers in. If the supplier is failing to meet its Service Level Agreement (SLA) or the software is not delivering the functionally required, it is relatively simple to introduce another SaaS supplier to handle processes not being well managed by the original vendor.
This gives organisations much needed IT and business agility. With most analysts predicting that within a few years the majority of enterprise software solutions will be delivered this way, organisations can expect ever higher levels of both service and innovation as suppliers compete hard to retain customers.
For fashion retailers, the fundamental benefit of the SaaS model is exceptional operational flexibility. Combining the Pay-As-You-Go approach with anytime anywhere access, fashion retailers can embark upon new business ventures without incurring significant IT led business risk or cost, and with the confidence that IT costs will flex up and down in direct response to business requirements.
New model
While fashion retailers have a healthy scepticism for the latest IT industry blandishments, there is little doubt that over the last decade, the majority of organisations have gained huge benefits from their technology investments. From embracing eCommerce to streamlining supply chains, fashion retailers have leveraged technology to control costs and boost sales.
Few organisations are keen to make major investments without a guarantee of significant and rapid return. Most have a tight lock down on capital expenditure and are understandably concerned about the risk of business disruption associated with any major IT investment.
There is a growing awareness that the traditional model of buying a core software package and hardware, supported in house by expensive IT personnel, is becoming outdated. Such solutions require significant up-front investment; they are based on inflexible pricing models that often leave expensive licenses left unused and yet they are still expected to support the business for upwards of seven years, during which time many fashion business will have changed almost beyond recognition.
This traditional approach to technology acquisition is clearly a constraint in a retail fashion industry characterised by continuous and significant business change, from embracing new markets to introducing new fascias and adding new sales channels.
The traditional technology delivery model does not provide the flexibility in either pricing or innovation required to support this vision of operational expansion or enable retailers to respond rapidly to changes in customer behaviour. It demands significant up-front investment that deters organisations from trialling new business models and adds unnecessary risk to new business opportunities.
It is therefore little wonder that growing numbers of fashion retailers are showing interest in the concept of Software as a Service (SaaS) as a fast track to reducing IT costs, aligning technology with the business and reducing the cost of innovation.
Cloud computing
Whilst the terms Software as a Service and Cloud Computing have been bandied around the IT industry for several years, these technologies are now both mature and increasingly mainstream. Cloud Computing is leveraging a number of key technology trends – the use of virtualisation technology to run multiple versions of software on one server, hence improving server utilisation and flexibility, ever increasing bandwidth at lower cost and a dramatic decrease in hardware costs – which together enables complex software and previously complex business systems to be delivered as a service over the internet.
In the early days of SaaS, business people were wary of storing company information in the cloud, but that has proved to be a largely emotional or cultural issue. As individuals get used to keeping their personal information (photos, emails and document) in the cloud, they become less concerned about the security of their corporate data. After all when most companies ask themselves how secure their own servers are from external attack, they often find the answers are quite disturbing.
According to Pew Internet, a not for profit research company, two thirds of online Americans now use web mail services, such as Google Mail, store data online or use software programs such as web based word processing applications.* Users taking advantage of these cloud applications like the convenience of accessing data and applications from any web connected device.
Cloud Computing applications are indeed pervading the web – from Amazon’s Simple Storage Service (S3) to Google’s Chrome browser and its Android mobile phone operating system which were developed specifically to enable Cloud Computing.
But this is just the tip of the iceberg: the real implications are for businesses. Organisations no longer need to invest in and support their own computing infrastructure but can use applications developed under the SaaS model to buy IT systems on a Pay-As-You-Go basis.
SaaS is defined by three key elements
- An application owned, delivered and managed remotely by one or more providers.
- The provider delivers an application based on a single set of common code, which is used in a one-to-many model by all contracted customers.
- Delivered on a pay-for-use basis or as a subscription based on use.
The ability to access computing resource quickly and cheaply from any web enabled location fundamentally transforms the cost and flexibility of technology delivery: organisations now have unlimited access to computing resources in the cloud. And while in the past many of these applications have been small business accounting, email and sales applications, vendors now leverage the SaaS mechanism to deliver robust enterprise application software that makes use of the cloud’s huge capacity.
From the initial, and highly successful pioneer, salesforce.com, a number of organisations such as Prologic are beginning to offer core enterprise applications via the SaaS model. The delay in delivering full scale enterprise applications via SaaS has been due to the incredible functionality required by these business critical applications.
For the start up operations hoping to gain a foothold in the market, it takes a massive investment in time and resources to build the required functionality; whilst the established market leaders have had to re-engineer almost everything they do to deliver the existing functionality and expertise through the cloud.
Key to achieving this goal has been the use of open source software and standards. Based on Oracle technology, Prologic has been able to leverage Oracle’s commitment to Cloud Computing to deliver CIMS via the SaaS model. Indeed, Oracle now has over 250 Independent Software Vendors (ISVs) using its Oracle SaaS platform for the development and delivery of enterprise SaaS and cloud-based applications.
This platform includes Oracle database, Oracle Fusion Middleware, Oracle Enterprise Manager and Oracle VM, a comprehensive, open and integrated set of technologies that allow ISVs to build, deploy and manage complete, open and integrated SaaS and cloud-based applications. Using this platform, ISVs can leverage the scalability, high performance, high availability, integration, security and customisation of the Oracle technology. **
Leading analysts are impressed with the robustness of the Oracle SaaS platform. “SaaS and cloud-based ISVs bet their business on a highly available, scalable platform,” said Jeff Kaplan, managing director, THINKstrategies. “If their platform goes down, their customers lose service – and they lose business. The Oracle SaaS platform provides one of the most robust, reliable and secure platforms for managing SaaS applications.”
By adopting standard technologies to develop the SaaS application, such as Java and web protocols such as http, Prologic is well placed to support this new and exciting shift in technology delivery.
Understanding virtualisation
Traditional technology implementation is inherently inefficient. Each application typically requires its own server that has been configured to meet its specific requirements. As a result, organisations have tens of servers – for email, file server, print, stock management etc – and each is, on average, utilised for only 15% of the time because the system has to be large enough to meet the occasional spikes in demand.
Using virtualisation technologies such as VMWare and Xen, it is possible to turn each server into several different systems, or virtual machines, each running different operating systems and applications. Alternatively, the technology can also be used to combine several servers into a single virtual machine.
It is the use of this technology that allows Cloud Computing pioneers such as Google, Amazon, Oracle and IBM to create clouds comprising hundreds of thousands of servers.
Virtualisation ensures all resources are used effectively to maximise server utilisation. This delivers unprecedented flexibility, allowing organisations to increase and decrease resource requirements – and associated costs – on demand in line with business needs.
Gathering momentum
According to a recent report from Gartner, the use of SaaS solutions is maturing, with more than 40% of organisations using SaaS for more than three years. Nearly 90% of organisations expect to maintain or grow their use of SaaS, with more than one third transitioning from on-premises to SaaS. Key drivers for the transition include total cost of ownership and unmet performance expectations.
“The popularity of the on-demand deployment model has increased significantly within the last four years. Initial concerns over security, response time, and service availability have diminished for many organisations as SaaS business and computing models have matured and adoption has become pervasive,” said Sharon Mertz, research director at Gartner.
However, most companies still do not have policies governing the evaluation and use of SaaS – only 38% indicated that such a policy or process currently exists. And this is essential. If organisations are to get the right solution in place that delivers the agility, flexibility and lower total cost of ownership required, it is essential to understand the underlying components and technologies of SaaS and Cloud Computing.
"It is important to differentiate SaaS from hosting or application management or application outsourcing," said Chris Pang, principal analyst at Gartner. “Because the SaaS/on-demand market is ‘hot’, many suppliers are rebranding their hosting or application management or application outsourcing capabilities as SaaS/on-demand. The core proposition behind SaaS/on-demand is the delivery of multi-tenant service from a remote location over an internet protocol (IP) network via a subscription-based outsourcing contract.”***
It is also important to distinguish the SaaS model from both the Application Service Provider (ASP) approach touted in the early part of this decade, and simply leasing software that is delivered using the old model.
SaaS v Application Service Provider (ASP)
The ASP model basically enabled organisations to relocate on-premises systems into a data centre. The hardware and software resources were not shared, as under the SaaS/cloud model, delivering only minor economies of scale in areas such as system management and support. As a result, the servers remain underutilised and organisations have the same constraints regarding flexibility and scalability as those running on-premises systems.
SaaS, by contrast, leverages virtualisation to share resources efficiently and effectively, delivering significant economies of scale and ensuring excellent server utilisation rates. With a large number of virtual machines in the cloud, it is easy to meet specific customer needs at any point in time.
SaaS v leasing
SaaS is also very different to the concept of buying software licenses which are amortised over three or five years and leasing the hardware. With this approach, organisations still have to make decisions up front about the potential user numbers and invest in inflexible licensing arrangements that typically fail to match actual business requirements.
In contrast, SaaS enables organisations to flex user numbers up and down in line on a monthly basis with actual needs, only paying for the functionality required at any one time. This is a far more cost effective approach than leasing.
Making SaaS work
However, while SaaS and Cloud Computing are fast maturing, organisations also have understandable concerns about this new approach to IT delivery. Is it secure? Will the supplier continue to innovate? How responsive will the solution be to new business requirements? Does the public internet really offer the reliability and robustness of service required to support mission critical applications? And just how difficult is it to migrate from a traditional software deployment model to a SaaS model?
Supplier flexibility
In a survey undertaken on behalf of Prologic in 2008, supplier flexibility – or the perceived lack of it – was one of the key issues for fashion retailers contemplating the move to SaaS. Organisations are concerned that whilst under the traditional IT purchasing model it is possible to pay suppliers to undertake changes to the software – or even make those changes in-house if the right expertise is available – under the SaaS model this will not be the case.
In fact, the increased flexibility of the SaaS model and the ease with which organisations will be able to move between suppliers should encourage far greater innovation and responsiveness to customer demands. As competition grows between SaaS suppliers and organisations realise the ease with which underperforming applications can be replaced, suppliers will have to become increasingly responsive to customer demands for software change.
Secure data
Organisations are also concerned about the security of key data – especially customer data. The issue is in part cultural: there is a perception that data held on-premises is more secure. But this is a somewhat false perception in many cases.
Few mid market fashion retailers have the expertise or resources to put in place the levels of security and business processes that are delivered as standard by experienced Cloud Computing experts. These organisations have invested – and continue to invest – heavily in the resources and expertise required to secure data from both internal and external threats.
Furthermore, under the SaaS model, the security of data and robustness of backup processes is a contractual issue. Under a Service Level Agreement (SLA), organisations are far better protected than when operating on premises systems where server failure too often reveals poor backup processes and significant data loss.
Under the SLA, the supplier is responsible for secure backup and restore of data – any failures to meet expectation will result in serious legal consequences and financial penalties.
Internet reliability
Organisations are right to be wary of relying on the internet to run core business systems. Occasional users, home users and roaming users will of course benefit enormously from available anywhere internet access, but core head office staff, warehouse automation systems and fund transfer systems at stores need to be up and performing at maximum potential all the time. An Internet Service Provider can never deliver the kind of guarantees of service availability and performance required for business critical systems. But organisations can use private networks such as the industry leading BT MPLS network. Taking this approach, organisations have an SLA that guarantees delivery times, availability, and recovery times – all with associated financial penalties should any indicator be missed.
At the same time, however, the inherent flexibility of Cloud Computing means that organisations can use the internet in conjunction with the private network. For example, a new office, distribution centre or shop in the Far East may initially be set up using the internet as the retailer tests the market. As sales increase and the business expands, a private network link can be installed.
Minimising risk
A SaaS approach transfers much of the risk from the customer to the supplier. If a supplier is failing to meet its SLA, or the software is not as functionally rich as promised, it is a far simpler process to move to another SaaS based provider. There are much less sunk costs, no major implementation challenges to overcome and far fewer migration concerns to address.
And while today’s choice of vendors offering enterprise class software via the SaaS model remains limited, most analysts predict that within five years most software will be delivered this way. To retain customers in the future, software suppliers will have to deliver far higher levels of both customer service and innovation.
Smooth migration
Moving from one application to another will always create challenges – from data migration to new business processes and training. However, one of the benefits of SaaS is the use of open standards technologies with open interfaces which significantly eases the process of migrating the core data.
Furthermore, organisations only have to pay for the resources in use at any given time, making the migration process far more cost effective, quicker and less painful than traditional system migration.
SaaS delivers business benefit
The speed with which organisations across the world are adopting SaaS reveals the tangible benefits that can be achieved. From access to systems anytime anywhere to the flexibility of the Pay-As-You-Go pricing model, SaaS is rapidly transforming the role of IT.
Aligning cost with need
Under the Pay-As-You-Go model, operational IT costs are tightly aligned with organisational requirements. The SaaS model enables the supplier to add or remove server resources as required, ensuring the monthly fee reflects an organisation’s demand. This enables retailers to reduce costs during quiet sales periods – such as the post Christmas lull – and ramp up for the big Christmas rush.
The cost and flexibility of this model compares very favourably with the traditional on-premises IT investment undertaken by fashion retailers which has led many to over invest in significant, expensive resources just to cope with the anticipated short lived peak periods. This resource can be woefully underused for the rest of the year.
Flexible pricing
Leveraging the Cloud Computing infrastructure that allows suppliers to add and remove server capacity as required, enables technology to be delivered under a very flexible pricing model. Fees are typically paid monthly and can be adapted in line with business needs – from adding or removing users, to adding or removing software modules used to support new or temporary business opportunities.
Enabling rapid business change
Flexible pricing and the Pay-As-You-Go model significantly reduce the IT risk associated with new business models or trialling new markets. For fashion retailers this supports the process of continuous change, from expanding into mail order and eCommerce, to adding international franchises.
Under the SaaS model, organisations only pay for the element of the package they need. If a new venture fails to meet expectations, that functionality can be switched off and the costs removed. SaaS fundamentally reduces the cost of innovation and enables retailers to trial new business opportunities without the fear of incurring big long term IT costs.
Rapid innovation
Once an organisation has bought into the SaaS model it becomes part of a community that is benefitting from economies of scale that allow the supplier to accelerate the delivery of product enhancements. New functionality will be delivered to all organisations more quickly, providing a fast track to product enhancements.
Facilitating future technology adoption
The best SaaS applications are built using the principles of Service Oriented Architecture (SOA) – a catch all acronym for applications using open web services to communicate with other people and applications. As increasing numbers of applications are built using SOA principles, application interoperability will continue to improve.
For fashion retailers looking to integrate other products such as data feeds between footfall, marketing or demographic information, or CRM and HR applications, this new generation of SOA based applications delivers far simpler – and lower cost – integration.
Successfully moving to SaaS
Quality of solution
While the SaaS approach offers significant opportunities to increase business agility and reduce costs, it is of course essential to ensure the core application offers excellent functionality. The method of delivery is irrelevant if the software is not up to scratch.
Is it really SaaS?
As Gartner points out, SaaS is now a hot button, prompting a number of suppliers to rebrand solutions as SaaS when they are actually just ASP or leasing options. Look closely at the delivery mechanism and ensure the supplier is leveraging the benefits of Cloud Computing to deliver benefits.
Checking the contract
Look closely at the SLA to ensure it meets all your requirements, from system availability, security and backup processes, guarantee of network availability etc.
Flexible pricing
SaaS suppliers are delivering highly flexible pricing models to allow organisations to pay only for the IT resources required. But as the market matures there are a number of different approaches – look closely at each model to ensure it meets business needs.
Private network option
The internet may be fine for personal use and occasional business use, but ISPs do not have the control to offer the required performance guarantees to support business critical applications. Using a private network enables organisations to use SaaS with a network performance and availability guarantee.
Security
Organisations are typically more concerned about the external than internal security threat – although figures suggest internal threats are far more significant. Cloud Computing providers have invested heavily in delivering high levels of security and excellent backup and restore processes to safeguard critical data. However, it is worth checking where the data is located. There are excellent, well run centres across the UK operating PCI compliant environments. Organisations may be wary of SaaS suppliers opting to use offshore data storage resources in countries where quality control is harder to ensure.
Conclusion
Continuous change underpins the success of the fashion retailer. However in the current climate expansion plans are undoubtedly tempered by a strong requirement to review operational processes to drive down costs and improve efficiency. The challenge is to create a flexible, adaptable organisation that can streamline operations whilst also enabling low risk expansion into new business areas, from channels to brands.
By opting to purchase technology via the SaaS approach, fashion retailers can achieve expansion objectives whilst controlling costs and minimising corporate risk.
Source
* http://www.pewinternet.org/Reports/2008/Use-of-Cloud-Computing-Applications-and-Services.aspx
** http://www.oracle.com/us/corporate/press/017501_EN
BOX: http://www.salesforce.com/assets/pdf/analysts/AR_Gartner_Saas_Ent.pdf
*** http://www.gartner.com/it/page.jsp?id=783212