Upping The Ante For SaaS Providers And Corporate CIOs

Although cloud services continue to be a hot IT topic, a2010 Quest Software survey revealed that 40 percent of businesses interviewed had yet to adopt a cloud solution and that, "After an initial surge of adoption, growth will slow until remaining companies see proof of success from early adopters."  A 2010 survey of senior level IT professionals conducted by Electric Cloud, a private development cloud company, and Osterman Research revealed that 52 percent of companies using cloud computing have cloud infrastructure resources that are rarely or never used and that 47 percent report some or lots of excess capacity. Gartner further reported that many companies are taking their on-premise bad habits into the cloud--like paying for unused software, also known as shelf-ware.

This brings us to the story of The Williams Companies, with an Exploration & Production division recognized as one of the nation's largest natural gas providers, and Transzap, an energy sector SaaS (software as a service) company known throughout the industry by the Oildex brand. More than 9,000 companies use Transzap's ePayables, eBudgeting, eRevenue and eStatement solutions.

"We'd reached the point where we were processing over 14,000 invoices per month for our suppliers, and we were unable to process these invoices within the 30-day timeframes for payment that we had committed to," says Tim Haltiner, a Williams Production Team Leader. "Between late fees, operational costs and vendor relationship issues, our internal payment processing operation was costing us money."

The cost was being incurred through penalties and late fees that Williams was being charged from its suppliers. The culprit? An internal legacy accounts payable system that was virtually impossible to modify and that had operations so complicated that it was also impossible to meet vendor requirements of issuing payments to invoices within 30 day timeframes.

"This was a major issue for us because we were being assessed late payments and penalties, and we were unable to take advantage of valuable early payment discounts. This directly impacts the business' bottom line," says Haltiner, who reports to the end business (and not IT) in his role as a production team leader."Basically, I am part of a business analysis organization that reports to the end business, and that helps to identify operational and systems costs, as well as strategic new systems that we need to bring online," says Haltiner. "Once we identify these, we meet with business managers to develop requirements definition documents for system acquisitions or upgrades, and we then meet with internal IT leaders who are in charge of the actual IT assets, whether they are Unix servers, Linux servers or whatever. From a strictly technical standpoint, IT tells us what has to be done to facilitate the solution we want, and it is then up to us to put together a business case for management."

Haltiner's team's role doesn't stop there. If the decision, for example, is to look for a third-party vendor solution, it is Haltiner and his team that interview the vendors, make the vendor selection and ultimately assume responsibility for the ongoing management of the relationship with the vendor. It was exactly this situation that Haltiner and his team found themselves in when they determined that they needed to end the cash bleeds that were resulting from not being able to pay suppliers on time.

"We were interested in Oildex's ePayables system called Spendworks, which we felt would give us the agility we needed," says Haltiner. The decision came down to whether we wanted to take on running this system internally or outsourcing to a credible SaaS vendor."

There were plenty of reasons that favored an internal solution. First and foremost was control, since IT could maintain a direct handle on security, governance, new application development and deployment, and system performance.

There was also the strong argument of tradition. After all, Williams had always internally maintained and developed for this system. "We were already moving down this path when we decided to also look at some SaaS solutions," says Haltiner.For SaaS to work, it had to be able to deliver results that could meet Williams' business and IT SLAs (service level agreements) in governance, security, performance, application development and deployment, and responsiveness. This was a tough bill to fill, but then Haltiner and his team found out about Oildex. "Oildex was a SaaS company providing ePayables services to the oil and gas industry, and they were running and developing for the accounting software platform that we wanted to use," says Haltiner. "We had many reservations when we considered outsourcing a system like this, but it didn't take long for us to discover that Transzap understood our business. They were able to integrate their SaaS services with our systems and operations, and, most importantly, were able to get us to a point where we are no longer late issuing invoices to our supplier base."

"What it ultimately comes down to is trust," says Peter Flanagan, Transzap's president. "To gain that trust, you must consistently perform to demanding SLAs, and you need detailed knowledge of the industry your customers are in."

SaaS vendors, if they want to be ahead of the curve where more corporate CEOs will be demanding ROI results from their CIOs on cloud services utilization, also need to consider providing fully utilized applications and resources; on-site application development, deployment and maintenance services by a staff with intimate knowledge of the industry sector they are serving; an almost intuitive knowledge of the most pressing concerns of the industry sectors they serve; and governance and security in the form of IT and SAS70 audits for their own data centers (in contrast to handing customers reports from other third party data centers that they simply lease).

This is a tall order for SaaS providers and also for the IT and end business decision makers who will be expected to make more informed decisions on cloud-based resources that produce measurable paybacks as the technology moves forward--but the stakes are worth it. "Since we made the move, we are paying our bills on time, and we save the company an estimated $1.7 million a year in early payment discounts,"says Haltiner. "Our supplier relationships have also improved."

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