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Chuck Schaeffer Thought Leader Michael Fauscette In His Own Words

4 stars Average rating: 4 (from 37 votes)
 By Chuck Schaeffer

Thought Leader Podcast Series

4 stars
Cloud Computing—HR, CRM, ERP and the Journey to the Cloud
Michael Fauscette Michael Fauscette, Director of the IDC Software Business Solutions Group, shares market data, research results and insight that demonstrate the trends and factors which 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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41 minutes, 24 seconds (41:24)

podcast


Key take-away points in the conversation 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 the close of 2014. Their analysis also predicts that by 2014, more than one-third of software purchases will be deployed in the cloud. Michael recalls that cloud applications were initially very contained and procured at the departmental level, for apps such as as Sales Force Automation or specific components of Human Capital Management (HCM) like payroll processing, talent management or training. However, the dual combination of a recession and lack of available capital created additional leverage and momentum for both broader suites of enterprise software applications and an accelerated shift to the cloud. The difficult economic conditions essentially forced businesses to at least consider cloud apps thereby eroding a natural caution with new technology and driving increased SaaS, PaaS and IaaS adoption.

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

  • Within the Customer Relationship Management (CRM) software market, Gartner noted that in 2011 approximately half of all new SFA software sales went to the cloud – eclipsing on-premise SFA software sales and swinging the balance for this particular business software application. Michael points out that while the trend for complete CRM suites toward SaaS continues to grow, the tipping point where SaaS CRM exceeds on-premise CRM is further out as many companies have large scale CRM investments that will not be replaced until their useful life is exhausted regardless of new or disruptive technologies. In the interim, Michael is seeing many businesses adopting a heterogenous IT deployment model whereby some business functions are processed on-premise and others on-demand in the cloud, with a gradual but steady shift away from on-premise applications toward an increase in cloud services. Small and midsize businesses (SMB) without sunk cost IT investments and increasing pressure to leverage CRM software systems are a market segment adopting cloud systems from the start.

  • Michael distinguishes between application systems of transactions, systems of decisions and systems of relationships and notes that systems of transactions generally mature to satisfy a steadfast business purpose particularly well and are therefore somewhat more resistent to change or replacement. For example, once a financial system or General Ledger application satisfies accounting, reporting, compliance and similar needs, it is less likely that it will be replaced if those business 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 and research firm (Gartner) made a broader market forecast that by 2012, cloud solutions will be so entrenched that 20 percent of companies worldwide will own no IT assets. Michael notes that when you consider the vast size of the SMB market, this may very well turn out to be the case, but should not be confused with the volume of investment or spend for on-premise and cloud solutions as SMB's make up much higher numbers of businesses but spend comparatively less, and cloud revenues are still a fraction of on-premise purchases for each given year (e.g. the on-premise investment amounts are front-loaded and recognized in a single year while cloud or SaaS subscriptions are spread out over multiple years).

  • Cloud advocates suggest that cloud or SaaS delivery achieves benefits including elimination of up front capital expenditures, accelerated time to value, outsourcing of a non-core competency, on-demand scalability, predictable IT expenditures, improved business agility and reduced total cost of ownership (TCO) over the life of the business software application. Michael notes that from his vantage point, top decision making criteria among business leaders adopting cloud and SaaS solutions include the change from capital investments to operating investments (capex to opex) and fast return on value. Michael also advises that TCO may be lower or higher for each deployment model based upon unique customer criterion and therefore must be individually calculated to determine which deployment model actually achieves lower TCO.

  • Michael notes that IT participation in the selection and procurement of cloud and SaaS systems has evolved significantly in the last few years. In the early years, SaaS and cloud vendors had the reputation of coming into the business from the back door, essentially appealing to departmental or line of business buyers who may choose to circumvent IT and acquire cloud solutions using their credit cards. This under the radar process essentially worked for the business buyers up until IT was needed for technical tasks such as data migrations, system integration or software customization. Michael shares that this end run around IT has been reduced as IT better partners with the business users in a way that allows IT to verify compliance, security and governance while at the same time empowers the business users to move quickly in achieving their objectives.

  • It's not a coincidence that the rise of cloud applications has occurred virtually in parallel to the rise in social media. In fact, Michael believes the convergence of four major technology shifts—social, mobile, cloud and big data—which have all become interrelated and effectively build upon each other to achieve symbiotic growth.

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

  • We're now seeing more Payroll, Human Resources and Human Capital Management (HCM) software solutions offered in the cloud from companies such as Infor, Oracle, SAP and Workday as well as a high number of emerging growth companies offering point solutions. The trend toward increased payroll and HCM cloud software adoption may be the result of a convergence of three factors—new cloud technology, a shift in HCM business processes (e.g. new performance management goals, new social technologies, increased use of manager self service, etc.) and the end of the useful life for first version HCM systems. HCM software systems first gained major market acceptance from PeopleSoft and then from a number of competitors in the early and mid 90's. Many of these HCM applications are now at their normal technology refresh cycle.

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

  • System integration has always been a technical burden for business software implementors. The cloud has introduced both new and enhanced system integration technologies such as WSDL, XML web services, RESTful services and most practitioners agree these are helpful advances. Nonetheless, a potentially bigger advancement may come from the online market places of pre-integrated third party products. Salesforce.com lead this charge with its AppExchange, and now NetSuite, Sugar, Microsoft, SAP and many other cloud providers have followed suit. These online ecosystems are beginning to offer relief as an alternative to time consuming and costly system integration. Michael notes that new technology software is also becoming more componentized, and many times disposable, giving customers increased flexibility to consume just the pieces they need.

  • Cloud computing portability or ubiquity has become a new discussion topic. Some of the most popular cloud systems only allow customers to run their application on the vendor's cloud – which makes portability difficult or impossible. This could be a serious issue for customers that want to change software vendors or move to a different cloud and take any internally developed software customization or apps with them. Michael recalls that when the initial cloud software vendors came to market they found themselves having to create the tools to deliver their solutions. Later, standards and component based alternatives emerged and now, several cloud software vendors give customers deployment choices – by letting them host the software internally, on the cloud vendors network or on a public cloud such as Amazon's EC2 or Microsoft Azure. This additional choice enables customers to choose the cloud that offers the best uptime, Service Level Agreement (SLA), cost, location (for proximity) or other factor that they find important.

  • The cloud can be visually depicted as a stack of progressive layers, possibly in a pyramid like shape, which include IaaS (Infrastructure as a Service), PaaS (Platform as a Service) and SaaS; where IaaS is largely focused on delivering on-demand I/O processing, compute cycles and data storage; PaaS is mainly about software development frameworks and middleware tools, and SaaS seeks to deliver turnkey or packaged software applications. Historically, these progressive cloud layers existed fairly autonomously. However, we are seeing increased overlap among the cloud layers. Amazon is a leader in IaaS, and also pushes a PaaS tool called Elastic Beanstalk. Microsoft is releasing new PaaS apps for its Azure IaaS. Google promotes its Google App Engine as a PaaS tool for their hosted infrastructure. And at the other end of the spectrum, Salesforce.com is leading the SaaS to PaaS charge with Force.com and many other SaaS vendors are doing the same. Beyond a morphing among these cloud layers, Michael forecasts that IaaS will continue to become more granular and componentized allowing 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 is emerging to define how cloud apps are united with increased flexibility among the portfolio of apps to better support improved management and more agile business objectives. Also interestingly, platform tools are also advancing business systems which were inherently designed for transactions and not for users. Michael notes that 80 percent of information worker time is spent working around IT systems because rigid applications were built based on processes that solved business problems at the transaction level but failed to support the relationship and decision processes needed for users. PaaS tools are including new technologies such as social and in-context analytics to add the missing layers to these transactional systems and make them more useful. End

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

— Michael Fauscette, IDC

 

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