Building capabilities leveraging alternate solution deployments

SAP White Paper
adaptive operating models

Building CapaBilities leveraging alternate
solution deployments
Strategic LeverS for competitive poSitioning

Content

4 Executive Summary 16 Deliberate Design process
4 the need to go Beyond 16 clarity of vision:
the traditional approach enabling alignment
4 Leveraging alternate Solution 16 Knowing the Base: reality check
Deployment models 17 Knowing the options:
5 constructing a Best-in-class increased probability of Success
Solution Landscape and 18 value-Based Decisions:0
operating model improved roi
5 need for Deliberate Design 18 managing the transformation
5 need for orchestration: 18 process alignment to Drive
operating as a Singular Unit efficiency
5 no Shortcuts: collaborating for 18 retained organization –
the Best results vital to Success
18 operational Discipline
6 Capability Needs and 18 governance and orchestration
Acquisition Options
6 existing Landscape: 20 Architecting the Solution
often convoluted Landscape
6 Scarcity of resources: increasing 21 Hygiene factors
the challenge 22 Strategic alignment
7 new Service Delivery models 22 Business Strategy
offering possibilities galore 22 operations Strategy
8 challenge: choosing the right 22 risk tolerance
Solution Deployment model 24 Business and operational factors
8 on-premise Deployment: 24 Business Situations
the traditional Workhorse 24 operational factors
8 outsourcing Services: 25 Supplier compatibility
Leveraging partner capabilities 26 financial evaluation
10 Shared Service centers: 26 one-time costs
an alternative to outsourcing 26 ongoing costs
11 on-Demand Deployment: 26 Scope creep and overtime cost
more flexibility and reduced 26 Business continuity costs
expenditure 27 exit cost
12 Business process as a Service: 27 Special-case circumstances
Ultimate partner network
13 private versus public cloud: 28 Conclusion
Security comfort versus cost
Benefit 29 Appendix
14 Key to Success – getting it right
the first time 35 Glossary of Terms

15 Deliberate Design 36 Bibliography
15 Best-in-class Landscape Qualities 36 Sap references
15 evolutionary
15 Delightful to Use
15 operate as a Singular Unit
16 Simplicity – the Key to Success

exeCutive summary
neeD for fLexiBiLity anD SpeeD

in today’s global economy, enterprises are faced with the operating costs but also reduce
capital expenditure and provide the
intense competition. new network-based business models flexibility to scale based on business
and practices are transforming the way enterprises collab- needs. this can be very attractive, as
the vendor makes all the investments
orate and grow. Businesses need to be highly flexible, needed and provides businesses with
scalable, and nimble to stay successful. it requires their access to ready-to-use solutions or
services through a pay-as-you-go model.
operations to be able to adapt quickly to market conditions this reduces and sometimes even elimi-
and be responsive to customer demands. However, this is nates the need for initial investment on
the part of the buyer while providing
easier said than done; building and maintaining such capa- the ability to scale according to needs.
bilities the traditional way is laborious and challenging. it is
these options provide businesses with
imperative that businesses innovate and seek alternate ways opportunities to build the capabilities
to acquire essential capabilities in a cost-effective manner. they need while reducing capital and
operating expenditures. However, like
everything in life, there are limitations
The Need to Go Beyond evaluating alternatives to acquire and downsides with these models as
the Traditional Approach best-in-class capabilities. this includes well. enterprises need to evaluate the
building a network of strategic business implications for their businesses and
Business needs are not homogeneous; partners that are able to provide the determine the best combination of
while some may be short term, others required capabilities at a competitive deployment models that will suit their
will be longer term. certain capability price. the concept itself is not new; it needs (see figure 1).
requirements may be related to core is about extending it into operational
business aspects, while others may be and it functions previously considered
peripheral. the traditional approach to beyond scope. On premise
building capabilities in-house to address Shared service
every need is time consuming and often
capital intensive; sustaining these capa- Leveraging Alternate Solution
bilities at market-comparable levels is Deployment Models Outsourced
even more challenging. also, businesses
may not have the requisite knowledge, many large enterprises have taken On premise
competencies, and resources essential to outsourcing, while some have estab- Decentralized
to adequately address the needs. lished captive shared service centers
in resource-rich, low-cost locations
given the fast-paced business environ- to reduce their operating costs. more
On demand
ment, diversity in demand, and chal- recently, we have seen a slew of solu-
lenges associated with the traditional tion and service providers under the
approach, businesses may be well banner of “on demand” or “cloud” Figure 1: Hybrid Solution Landscape
served by looking outside the box, services, offering to not only reduce

4 SAP White Paper – Building capabilities Leveraging alternate Solution Deployments

Constructing a Best-in-Class scientious effort, which we refer to as as a singular unit, provide seamless
Solution Landscape and Operating “deliberate design” (see figure 2). support for end-to-end businesses
Model Deliberate design is about architecting process integration, and have the ability
every aspect of the solution landscape to evolve over time according to the
While the new solution deployment to address specific business objectives business needs. this requires planning
options offer businesses opportunities and goals, without leaving anything to and orchestration at the enterprise level.
to solve several it-related issues, they chance. this does not happen naturally architecturally, the solution landscape
are not yet in a position to address all and requires deliberate effort on the needs to be componentized with a lower
of the enterprise needs and challenges part of architects and decision makers. level of diversity and a higher level of
– for example, what does one do with enterprises need to think in terms of integration. this will help achieve a
the complex and often convoluted legacy enterprise capabilities and not in terms higher degree of flexibility and agility.
systems that many businesses have of the functionalities and features of
today? these cannot be replaced individual technology components. When No Shortcuts: Collaborating for
overnight – there will be considerable architecting the solution landscape, the Best Results
risk exposure. the on-demand and businesses must take into consider-
cloud services industry is still in its ation existing capabilities and constraints, Deliberate design needs to be more than
infancy, and there are a limited number balancing solution benefits and risks, just an approach; it needs to be ingrained
of enterprise solutions available today. to get to the best possible outcome. into the operating culture. enterprises
the products currently available often must live it, from both a business and
have smaller functional footprints as an it perspective, to be successful. any
compared to their on-premise counter- Strategy data and process inconsistencies can
parts, and many of the on-demand destroy gains made on the functional
vendors are new and small. even the fronts. Despite the pressures to respond
outsourcing industry, which is more to market opportunities and inclinations
than two decades old, is still evolving to bypass enterprise it, business leaders
and is not in a position to service all need to collaborate with their it col-
of the enterprise needs. these new Benefits Risks leagues to identify and implement the
solution deployment models increase right solutions. many of the it challenges
the level of dependency on the service that enterprises are faced with today are
provider; any failure or shortcoming often a direct result of a series of non-
on the part of the service provider will Capabilities integrated purchasing decisions. care
expose the buyer to significant risks. and needs to be taken to ensure that short-
in addition, not all aspects of business constraints term fixes are aligned with longer-term
functions are conducive to every form business interests and that risk levels
of alternate deployment. Figure 2: Deliberate Design are acceptable.

Need for Deliberate Design Need for Orchestration: Operating this paper aims to discuss the various
as a Singular Unit capability acquisition and it solution
every enterprise situation is different. deployment options and provide a per-
to get to the best solution option, independent of the ultimate solution spective on how to evaluate the suitability
enterprises need to undertake a con- selected or deployment model used, of those options, given an enterprise’s
the enterprise landscape must operate situation, and to get the best outcome.

SAP White Paper – Building capabilities Leveraging alternate Solution Deployments 5

CapaBility needs and aCquisition options
tHe cHaLLengeS

the marketplace has become more have ended up with – often a direct to develop innovative solutions required
complex with globalization – having a result of years of a piecemeal approach to provide a competitive edge. even if
good strategy is not enough, the ability to building it-driven capabilities. this they are currently able to garner the
to execute is vital, and only the proficient incoherent approach has left many resources, will they be able to retain
and dexterous will survive. enterprises enterprises with a plethora of technolo- the talent on a long-term basis and what
need to have market-relevant capabilities gies and systems, with varying degrees will it cost? Businesses also need to
to stay competitive, and technology is of antiquity and often with a suboptimal determine if internal development is the
a key enabler. at the same time, there level of integration, creating significant most cost-effective option to acquiring
are limitations on available resources. business risks (see figure 3). the necessary capabilities. it is important
enterprises need to build or acquire to ensure that investments made today
the right set of it-enabled business Scarcity of Resources: Increasing will remain productive and relevant a
capabilities in a cost-effective manner the Challenge few years down the road.
to remain competitive – and this is
easier said than done. With continued pressures to reduce
operating costs and an increase in a piecemeal approach
Existing Landscape: Often competing demand for capital, many to solution selection and
Convoluted businesses are reducing their it bud-
gets as a percentage of revenue. deployment has resulted
Business executives often feel that their in enterprises having convo-
enterprise it is unable to keep pace with Besides monetary constraints, enter-
their needs. While there may be several prises also find it difficult to attract and luted solution landscapes.
reasons why, typically it is the convoluted retain the talent essential to build the
solution landscape that enterprises needed operational capabilities and

Service
providers
Outsourced

Cloud
services
Business
need Risks
On demand Benefits

On premise
Captive
shared
service
center

Figure 3: Impact of Piecemeal Architecture Evolution


New Service Delivery Models However, the industry still has a long for obvious reasons – low capital
Offering Possibilities Galore way to go before it can be categorized expenditure, low deployment costs,
as being mature. recent advancements faster implementation, better alignment
With increasing competitiveness, enter- in internet technology, the growth of of cash flow, quicker access to innova-
prises need to make best use of their communication infrastructure, the tion, lower internal resource needs, the
resources, focusing their own efforts development of virtualization technolo- ability to scale, and the ability to change
where they can make a difference while gies, and new internet-based solutions providers due to no fixed investments.
leveraging others to provide additional have enabled the provisioning of a new
capabilities and solution support. over breed of services, commonly referred there are four categories of on-demand
the last two decades, many businesses to as on-demand or cloud services. the services:
have leveraged outsourcing to address vendors make the investments necessary 1. infrastructure as a service (iaaS),
a scarcity of resources and escalating to provide the on-demand or cloud ser- wherein the vendor delivers computer
operations costs; some have managed vices, thus eliminating the need on the infrastructure as a service. rather
to go beyond cost reduction and improve part of the buyer to make major capital than purchasing servers, software,
their operational performance and drive investments. vendors typically charge data-center space, or network
innovation. for the services on a consumption basis. equipment, enterprises instead
these services are becoming popular buy these resources as a fully
outsourced service.
In-house Infrastructure
2. platform as a service (paaS), wherein
shared services management services the vendor provides the computing
On premise platform and solution stack as a
Hosting services service, often consuming cloud
Outsourcing infrastructure and sustaining cloud
applications. it facilitates deployment
Application services
of applications without the cost and
complexity of buying and managing
Business process the underlying hardware and soft-
outsourcing services ware layers.
Deployment
models
3. Software as a service (SaaS),
Infrastructure as wherein the vendor delivers software
a service applications as a service over the
internet, eliminating the need to install
Platform as a service and run the application on the enter-
On demand prise’s own computers and simplifying
Software as a service maintenance and support. the appli-
cations are hosted on the vendor’s
premises on a vendor-owned or
Business process as vendor-leased infrastructure. the
a service users get access to the application
via the internet.
Figure 4: Alternate Deployment Models


4. Business process as a service be advantageous for some and not so downsides – the need to invest up front,
(BpaaS), wherein the vendor pro- for others, depending on their situation. longer implementation lead time, opera-
vides the business services, (for enterprises need to fully understand tions management, and ongoing access
example, payroll services or travel- the benefits and risks associated with to quality resources (see figure 5). the
expense processing services). the each option as well as the longer-term inability to attract and retain quality
vendor installs all the hardware and implications for the business. resources can pose a significant risk.
software necessary to provide the With alternate options now being avail-
business services, which frees up on-premise Deployment: able, enterprises will be well served
the user from having to deal with the traditional Workhorse to evaluate the traditional on-premise
the entire it layer. enterprises have traditionally deployed solution deployment approach relative
solutions on premise primarily because to others. on-premise deployments
prima facie, these solution deployment there were not many alternatives. the will make sense when system security
or capability acquisition models appear question is whether it is still the best is paramount, business capabilities
to be tailor-made to address the enter- option now that there are more choices. supported are strategic, and the enter-
prise needs. industry analysts expect prise has the core competencies
a major portion of the global it and the primary advantage with on-premise required to perform better than the
business services to be provided via deployment is the sense of security market in a cost-effective manner.
these models in the foreseeable future. and control, with the solution being
However, there is the need to exercise deployed within the enterprise firewall outsourcing Services: Leveraging
caution. Like everything else in life, and managed by internal resources. partner capabilities
there are pros and cons with each of there are other advantages, such as By leveraging global resources and
these options – a poor selection will lower vendor dependency, the possibility newer technologies and adopting
have long-term business ramifications. to customize, a certain level of opera- industry best practices, outsourcing
tional flexibilities, and potential lower service providers are typically able
Challenge: Choosing the Right cost per unit over the long run based to offer enterprises opportunities to
Solution Deployment Model on utilization. lower their operating costs, improve
performance, and provide operational
each of the deployment models has While ownership does provide a sense flexibility, to name just a few. there are
distinct attributes; these attributes may of independency, it comes with some several different outsourcing options –
infrastructure outsourcing, hosting
services, application management
Key Drivers Key Inhibitors services, and business process out-
• Less dependency on the supplier • Up-front capital requirement sourcing (Bpo) services – each with its
• Lower risk • Infrastructure needed own value proposition. the appropriate
• Deployment flexibility • Implementation lead time
• Operational control • Internal IT resources needed option for a buyer enterprise depends
• Security • Additional operational workload on its situation and what it is seeking
• Lower per-unit transaction cost • Lack of operational flexibility to achieve (see figure 6). for example,
in the long run an enterprise with an underutilized,
high-quality data center but limited
skilled it resources may find it cost-
effective to host the solution internally
while leveraging a third party for oper-
ating services; whereas an enterprise
Figure 5: On-Premise Influencers


that does not have a robust it infra- outsourcing does not mean transferring work to an external
structure but has cost-competitive
internal human resources may benefit enterprise; it is really about bringing the external entity into
by having the solution hosted externally the enterprise’s own supply chain.
but operated by its own personnel.

While outsourcing provides significant supply chain. enterprises are now icant organizational and operational
benefits, not all enterprises are satisfied. dependent on the supplier to fulfill its change management on the part of
a forrester research survey conducted business needs – the supplier’s risks the buyer. as such, selecting the right
in november 2009 shows that the key become part of the enterprise’s risk service provider is extremely important.
reasons for dissatisfaction are lower profile, and any failure on the part of
cost savings than expected, services the supplier can directly impact the given the risks, when should one out-
not being up to expectations, a lack of buyer. enterprises need to have fall- source? to get to the answer, the risks
innovations, and an inability to respond back plans in place; transitioning associated with outsourcing need to be
to changing business needs. in today’s back the work will be expensive and, weighed against the risks of maintaining
competitive business environment, these at times, not a viable option. the solutions in-house. the key ques-
can be severely debilitating. • Differences in organizational cultures tions to consider are:
and operating models – no two orga- • Does the enterprise have the
the success and failure of outsourcing nizations are alike. there are several resources and competencies to be
depends on several factors; however, aspects that drive differences, includ- able to perform comparable to best
there are two fundamental aspects that ing operational processes, organiza- in class, and are these sustainable?
need to be recognized: tional culture, priorities, and so on; • is the intellectual property (ip), func-
• introduction of a third party into the these can create significant operation, or process central to the business,
value chain – outsourcing is not tional issues. for outsourcing to be and does it need to be rigidly guarded
about throwing things over the wall; successful, it requires complete inte- at all cost?
on the contrary, it introduces the gration of the operating models and • is the internal operation more cost-
external party into the company’s the organizations; this requires signif- efficient and sustainable?
• What are the longer-term implications
in terms of future investment needs?
Key Drivers Key Inhibitors
• Lack of internal IT resources • Strategic intellectual property enterprises must consider outsourcing
• Freeing up of valuable internal or operations when internal capabilities are in short
resources • Dilution of control
supply and the organization does not
• Reduction in operating • Significant transition costs
expenditure • Significant change management have the competencies and resources
• Operational flexibility • Higher supplier dependency required to outperform the market.
• Access to best practices • Local regulations typically, functions and processes that
• Redeployment of assets
are noncore to the business and do not
provide distinct marketplace differentia-
tion are ideal candidates for outsourcing.
this does not mean that enterprises
should not consider other areas for out-
sourcing. outsourcing service providers
Figure 6: Outsourcing Influencers


are often able to bring in innovation and
best practices as well as leverage scale Key Drivers Key Inhibitors
to create value. in addition, outsourcing • Control • Significant transition costs
can help free up key resources to focus • Security • Organizational change
on more strategic business aspects. • Economies of scale • Process changes
• Strong internal competencies • Cultural change
• Lack of critical mass
Shared Service centers: an alternative • Divergent service needs
to outsourcing • Inability to attract essential
Some enterprises opted to establish resources
their own captive shared service centers
in low-cost, resource-rich locations
as an alternate way to reduce operating
costs and improve performance. estab-
lishing captive shared service centers
provides certain advantages over Figure 7: Shared Services Influencers
outsourcing – it enables retention of
full operational control, protects the enterprises need to ensure the appro- to go beyond the selection of the city;
company’s ip, and avoids third-party priateness of the functions and pro- it needs to be as granular as possible,
cesses being shifted to shared service down to a specific site within a city
Centralized Versus Localized Service centers. operations that require inti- (see “case example: Shared Service
Centers mate knowledge of local cultures and center Location” sidebar). there are
those that benefit from face-to-face several factors to be considered, like
Centralized Localized
interactions are not ideal for remote local laws, the quality of infrastructure
Back-office func- front-office func- shared service centers.
tions, transaction tions, functions
processing, analytics requiring customer moving to a shared services model typ- Case Example:
and research, non– interactions (like ically requires redesigning the processes Shared Service Center Location
customer facing receivable and involved and the operating structure, a global enterprise set up a regional
activities collections man- resulting in a need for significant orga- shared service center in a certain
agement and sales nizational change management. the low-cost location. Within a few
management) ability to recruit and retain the right years, the company had to relocate
resources on an ongoing basis is vital to a different location with a larger
for any shared service center, a chal- resource pool. the same location
risks. However, establishing a captive lenge that enterprises often underesti- attributes that attracted that com-
shared service center is not for every- mate. factors like brand recognition, pany to the original location had
one – it requires considerable investment growth opportunity, perception of the brought in other businesses com-
to set up a world-class shared service job, supply pool, and competitive land- peting for the same resources.
center. there are costs related to facili- scape influence an enterprise’s ability recruiting and retaining quality
ties buildup, recruitment and training, to attract and retain talent. resources became a challenge. it
and organizational changes; without also meant an increase in operating
the critical mass and market compara- Location is central to any shared service cost due to higher attrition, training
ble competencies, establishing a cap- center operations. establishing a shared costs, and productivity losses.
tive shared service center is a risky service center in the wrong location this also impacted its operational
proposition (see figure 7). can be disastrous. the evaluation needs performance during the transition
period.


or entirely eliminates the need for
the buyer to acquire assets. this is
Legal system a major value proposition, especially
when businesses are faced with
Location attractiveness considerable competing demand
for investment capital.
Brand attractiveness • Standardized services – Services are
provided on a standardized basis with
Economic stability very limited or no ability to customize.
the inability to customize may impair
Costs and inflation an enterprise’s ability to optimally
leverage the solution to address its
Geopolitical stability unique needs and gain a market
advantage.
Laws and regulations • Speed – the other side of standardized
services is that businesses do not have
Infrastructure to go through a long, drawn-out imple-
mentation; for example, businesses
Labor availability can easily procure additional comput-
ing resources within minutes by simply
swiping their credit card. Similarly,
0 1 2 3 4 5 businesses can have access to certain
Location B desktop applications and collaboration
Minimum
Location A Threshold tools by setting up a subscriber
account. enterprise applications, on
Figure 8: Location Assessment Grid the other hand, will be somewhat more
complicated but still faster than an
available, costs, inflation, geopolitical ingly crowded with on-demand solution on-premise implementation.
stability, economic stability, location vendors everyday. While it is imperative • Scalability – Suppliers typically offer
attractiveness, ability to compete, and that enterprises evaluate a solution buyers the ability to scale up or down
so forth (see figure 8). offering by comparing it to their needs, based on their need. this is highly
having an understanding of the key valuable for businesses that are in
the ability to maintain competitive attributes typically associated with such a growth mode or have unpredictable
advantage over the longer term can be on-demand offerings will help businesses business demand. it also helps busi-
a challenge. Several companies with construct a solution landscape appro- nesses better align their cash flow
successful captive shared service centers priate to their needs. with consumption.
have exited – some did it to monetize • flexibility – Having the ability to sub-
their capabilities, while others did it there are several types of on-demand scribe to services or have access
because it was not as cost-effective services available these days. the key to resources enables businesses to
as they had anticipated. attributes associated with software on experiment without having to expend
demand are the following: significant capital to build capabilities.
on-Demand Deployment: more • capital expenditure – the supplier it also allows businesses to deploy
flexibility and reduced expenditure makes all the investment needed interim solutions while evaluating
the marketplace is becoming increas- to provide the service, which reduces longer-term solution options.


• Shared services basis –the on-demand suppliers for all aspects of the opera- by having rights to the software and
services are typically offered on a tions, including system performance, other assets that may be essential
shared services basis. the customers service quality, and disaster recovery. to operate the system efficiently. in
share the application and the underly- any weakness on the part of a sup- case a supplier uses third-party
ing infrastructure. While this is one plier creates direct exposure for its resources to provide the service,
of the core value drivers, it is also the customers. a business must also seek to have
biggest source of concern – about • emerging industry – the on-demand access rights to those assets or
system security, performance, extent industry is still in its infancy; the mar- solutions.
of operational control, and compliance ket will invariably consolidate as it
with the law. grows and matures, and buyers need enterprises need to balance the bene-
• Supplier dependency – there is a to evaluate the survivability of their fits of low capital requirement, better
higher level of supplier dependency for suppliers. alignment of costs, and operational
everything from fixing simple solution • integration – the ability to integrate is flexibility with the risks of failure on
problems to developing more complex an important consideration, especially the part of the service provider (see
solution upgrades. many of the solu- in cases where the application services figure 9). as the industry develops and
tions available today have limited are part of a process chain. matures, there will be more offerings
functionalities. While a smaller foot- • Legal protection – While procuring and further refinement of the service
print may serve today’s need, the SaaS and on-demand solutions is delivery model. Selecting the right ser-
vendor’s ability to address future needs relatively easy, businesses must not vice provider is paramount to success.
is crucial. the ability of a vendor take contracting for these services
to provide timely upgrades will have lightly. a company will be well served Business process as a Service:
a direct impact on an enterprise’s by having its legal team review the Ultimate partner network
ability to respond to market needs. services contract to ensure adequate BpaaS, or platform Bpo, or business
Suppliers are unlikely to build new protection and avoid situations where process utility (BpU), as gartner
capabilities unless there is a broader it does not have recourse in case the refers to it, is part of the on-demand
demand for the functionality. enter- supplier is unable to deliver services. services category. BpaaS has existed
prises are also dependent on the a business can protect its interests for decades, common examples being
the payroll and benefits administration
services provided by companies like
Drivers Inhibitors aDp. Like other on-demand services,
• Lower up-front capital requirement • Supplier dependency vendors make the investment required
• Speed of implementation • Security and privacy to provide the business services; they
• Less internal IT resources needed • Limited customization possibilities
• Operational flexibility (scaling) • Need for tight integration
either have their own underlying infra-
• Better alignment of cash flow • Uncertainty over total cost of structure or use a third-party infrastruc-
• Agility ownership ture solution to provide the services.
• Access to resources • Portability this category of services is expected
• Access to best practices • Existing landscapes
to become more popular, with busi-
nesses seeking to move away from
fixed costs and reduce investments in
noncore functional areas and more
service providers entering the market
with a wide range of offerings. the
Figure 9: On-Demand Influencers


option is attractive in a number of While sharing resources helps reduce potential benefits. enterprises need
situations: cost, it brings up questions about safe- to consider several aspects:
• enterprise does not have market- guards, data security, ip protection, • robustness of the supplier’s infra-
comparable it and operational statutory and regulatory compliance structure – is it robust enough to
capabilities in-house. obligations, liabilities, consumers’ legal deliver the services at the expected
• the need for business services rights in case of breach, backup and performance level? is it fault tolerant,
capability is immediate and does not recovery, data portability, ability to audit, and does it have built-in redundancies
offer adequate lead time to build it and system availability and performance. to guard against failures?
in-house. • Security – is the service delivery
• the cost of internal operations is public cloud service providers will infrastructure secure, and does it
significantly higher than the cost of argue that their infrastructure is safe. adhere to international standards?
externally sourced business services. fortunately, there has not been any Besides the systems, how robust
• the business needs are short term. major incident of breach. However, with are the supplier’s security policies
increased global competition and and procedures?
external providers are better positioned increasing industrial espionage via • ease of integration – Will the enter-
to leverage economies of scale, lever- the internet and attacks on Web sites, prise be able to easily integrate the
age technology advances, and incorpo- it is prudent to be cautious. the very cloud solution with other in-house or
rate best practices, bringing value to their resources that can provide computing third-party systems? With a diversity
customers. However, opting for BpaaS power to enterprises on demand are of business needs, enterprises are
also means greater supplier dependency; also available to hackers. Whether likely to end up with a combination
buyers need to protect their investment a cloud is safe or not depends on of in-house systems, outsourced
by having a comprehensive fall-back strat- the quality of the underlying assets solutions, and on-demand services.
egy in case of exigency. and tools and how they are deployed the ability to easily integrate systems
as well as the service provider’s will make the difference.
private versus public cloud: Security operational practices. many leading • ability to audit – Will the enterprise
comfort versus cost Benefit cloud infrastructure service providers be able to perform system audits at
the on-demand story is not complete are deploying best-in-class security any time?
without discussing the private versus solutions and building multilevel redun- • portability – Will the enterprise be
public cloud. Simply put, cloud services dancies to protect against breach and able to easily transition the solution
are dynamically provisioned it and busi- service failures. However, buyers must back in-house or to a third party, if
ness services that are delivered over not assume that this is always the case the need arises?
the internet in a multitenancy mode, and must verify the robustness and • Business continuity – Will the enter-
leveraging shared it resources. With security of the service provider’s deliv- prise have the rights to the service
virtualization technology, it is possible ery ecosystem. as with any in-house delivery components in case the
to perform real-time assignment of system, weakness at any level of the supplier defaults or is unable to deliver
technology to consumers on demand. technology stack can potentially impact to contracted service levels?
Subscribers to cloud services share service, security, and compliance. • Business case – What is the incre-
the underlying infrastructure, operating mental cost savings as compared to
environment, applications system, and opting for public cloud is primarily other solution deployment options?
human resources, as the case may be. a question of balancing risks with


not all enterprises are fully convinced Key to Success – Getting It Right
about the safeguards and are opting for the First Time
what is called a private cloud deploy-
ment. a private cloud is nothing but With pressures to respond to the
a carving out of physical resources customer, there is often a temptation
within the public cloud ecosystem for to opt for quick fixes. History has
exclusive use. this allows the enter- shown that such short-term fixes have
prise to incorporate additional security the tendency to have longer-term
and other safeguards that it may desire. consequences creating complexity
and adding to the challenge rather
the private cloud is not exactly new; than reducing it. the “appendix” sec-
enterprises have used virtual private tion contains a list of factors to consider
networks for a while. vendors are (see “Deployment model Selection
using the same concept by offering consideration” table) when deciding
standardized services via a dedicated between the deployment models. as
infrastructure within the shared eco- enterprises seek to address business
system. Having a private cloud is needs, it is not the lack of options that
analogous to having a reserved parking is a constraining factor nor is it the extent
space in a public parking lot for exclu- of potential benefits with the various
sive use, as opposed to using any solutions; it is the associated constraints
available parking space in the lot as and risks that makes it a challenge. a
needed. Under the private cloud, the comprehensive evaluation of the options
buyer pays for the dedicated parking will enable the buyer to make informed
spot rather than paying based on decisions, guard against potentially
actual utilization. avoidable adverse impact, and increase
the probability of success.
at the end of the day, it is a question
of cost versus the ability to operate
on your own terms. it is important to
understand the potential risks and have
a plan in place in case of failure on the
part of the service provider.


deliBerate design
maKing oBjective-Driven,
fact-BaSeD DeciSionS

How does one optimally leverage the scape to be flexible and evolutionary enable the enterprise to take advantage
various deployment options without as well – without having to expend of innovation without adversely impact-
overly increasing the risks? a purist may significant resources. this then requires ing the business or losing out on previous
say, “Start with a clean slate.” the reality the solution landscape to be modular investments. Standardizing interfaces
is that enterprises cannot afford to start in design, with plug-and-play solution and integration points based on open
from scratch and need to be able to components and with each having the protocols will help enterprises to avoid
leverage their existing investments in ability to evolve independently and lock-ins and retain the power of choice.
the best possible manner. this requires according to the needs of the business. this approach will help minimize the
the enterprise to adopt a very systematic to achieve this, the architecture needs interdependencies and improve the
and deliberate approach to architecting to be designed using the concept of ability to swap components according
its solution landscapes, reevaluating “capability units.” each capability unit is to needs.
existing solutions, and designing every a self-contained solution component
component such that it has a definitive consisting of technology and operating Delightful to Use
role to play in creating enterprise value. resources, with the ability to execute another important attribute is the ability
the “deliberate” design approach is predefined processes, delivering spe- to delight the users. When a solution is
based on strategic intent, as opposed cific outcomes. Being self-contained delightful to use, there will be a higher
to an “accidental” design, which is basi- allows each capability unit to evolve on adoption rate, reduced errors, and
cally a string of mostly opportunistic, its own and according to business needs. improved productivity, resulting in lower
stand-alone decisions without an over- cost and better business outcomes. this
arching set of guidelines or road map. these units need to be built using proven requires the solution to be intuitive to
technology. Having components devel- use, be easily configurable, and have
Deliberate design is anchored on busi- oped on proven technology platforms the ability to tune performance accord-
ness goals and objectives, the operating by established firms will help improve ing to the company’s needs. it must
environment, and constraints. it is based the life of the capability units. this is support company policies and processes,
on facts with metrics to measure success because proven technologies have wider promote productivity, and enable
in terms of final outcomes. for creating adoption rates, which translates into a informed decision making.
sustained value, the solution landscape higher probability of new solutions being
needs to have certain qualities. developed on the platform and the like- operate as a Singular Unit
lihood of a large resource pool, thereby the solution landscape needs to oper-
Best-in-Class Landscape Qualities extending the useful life of the compo- ate as one singular unit despite being
nent. Using appropriate adaptation a collection of disparate components
there are several qualities that your layers, namely middleware, and loose with a diverse set of attributes. the
solution landscape should have in order coupling between the components will components need to complement each
to best support your business needs.

evolutionary Deliberate design should be more than just an approach,
Businesses are not static and need
to continuously innovate to stay com-
it should be a sacred tenet; enterprises need to ingrain it
petitive; this requires the solution land- into their operating culture to benefit from it.


other to provide seamless support for existing solution landscape, replace where, when, and at what pace the
end-to-end business processes. the legacy technologies and systems, and leadership wants to grow; what its
underlying technologies, solutions, or implement a more modular architecture. go-to-market strategy will be; whether
deployment models should be imper- it will go alone or partner with an existing
ceptible to the users. integration needs Deliberate Design Process local firm; and so on. Such clarity and
to occur at all levels – technology, solu- granularity will help architects deter-
tion, process, and organizational. When Deliberate design is all about designing mine the organizational capabilities
multiple service delivery entities are with an end in mind – the end being a set that need to be built and determine
involved, integration needs to occur of business capabilities that the enter- the best approach to get them. time-
across these entities. prise needs to be successful in the lines are important, as they have a
marketplace on an ongoing basis (see significant influence on the approach
Simplicity – the Key to Success figure 10). it must be able to evolve, taken to acquiring the required solution
as einstein once put it, “make every- be efficient, and be cost-effective. support and building the capabilities.
thing as simple as possible, not simpler.”
enterprises will be well served to follow clarity of vision: enabling alignment Knowing the Base: reality check
einstein’s advice when designing their Knowing your destination increases your this is a self-evident idea but not
solution landscapes. Simplicity helps chances of getting there. Businesses consistently practiced. to get to the
reduce errors, improve productivity, and typically have some sort of strategic optimal outcome, decisions need to be
deliver better results. commonality in objectives and goals; these need to be based on fact. Decision makers need
solution attributes will help reduce the translated into specific operational met- to have a clear understanding of their
complexity – for example, having a rics, such as capacity, competencies, existing ecosystem and what they can
common underlying technology, using and capabilities required – and where and cannot do with it. they need to know
design frameworks based on open and when. what they have in terms of solution
architecture philosophy, standardizing components, organizational capabili-
operational practices – will likely result for example, an enterprise plans ties, and supplier capabilities (and the
in a simpler solution landscape. along to expand into new markets and strengths and weaknesses of each);
these lines, many enterprises have expects to double in size over the next which regulatory and statutory compli-
recognized the need to clean up their five years. it is important to know ance requirements they have to follow;
and what contractual obligations they
have. this knowledge will help enter-
Know the prises develop a more pragmatic
base Value Enterprise- approach to building up their solution
Clarity of vision based specific landscape and acquiring business capa-
Know the filter landscape
bilities. Knowing the base will help iden-
options
tify serious risks that may exist within
and need to be addressed on a priority
Figure 10: Deliberate Design Framework


basis. to do it right, enterprises will • Know the shackles: understand the Best-run companies actively manage
need to do the following: obligations – existing contracts and their supplier relationships, often
• Benchmark to the marketplace – legal obligations can become stumbling working closely with their suppliers
the organizational competencies and blocks. enterprises need to know to understand and influence the sup-
operational capabilities need to be the restrictions and constraints that pliers’ strategies and plans.
evaluated relative to the marketplace, may exist with respect to software
to get a more accurate assessment license transfer rights, employee Knowing the options: increased
of strengths and weaknesses. Best- contracts, labor union or work council probability of Success
run companies benchmark not just agreements, labor laws, and regula- einstein once said, “We can’t solve
within their industry but across other tions prior to changing the deployment problems by using the same kind of
industries as well. reality checks can models. for example, certain states thinking we used when we created
be painful but can help enterprises be in the United States insist that health- them.” Knowing the base helps enter-
successful when appropriate remedial care insurance claims processing prises to better evaluate the options
actions are taken. to ensure long-term must be handled in-state; while out- and avoid the mistakes; understanding
sustainability of the solution, enter- sourcing is possible, the work still the options and their implications will
prises must benchmark their ability needs to be done in-state. there are enable an enterprise to better deploy
to attract and retain skilled resources similar laws in the United Kingdom its resources.
on an ongoing basis. and europe that regulate where data
• Technology matters: business needs to reside and how it must be enterprises often look at obvious choices
performance depends on it – Despite handled. these can have a significant and miss out on nontraditional options.
the rhetoric that it should not matter impact on the business case. for example, these days there are it
when it comes to business services, • Track suppliers: companies depend outsourcing service providers that are
the reality is that technology is the on them more than they know – willing to finance the acquisition of soft-
single greatest value driver; it helps enterprises must periodically assess ware, provided the buyer is willing to
drive productivity, quality of service, their suppliers for their ability to pro- procure other related services (such
decision-making ability, and overall vide continued best-in-class services. as implementation and operations) and
success. enterprises must be selec- Suppliers’ interests and capabilities even provide it as software-as-a-service
tive when it comes to technology. change as well. it is important to know to their customers via a subscription
Whether the solution is internally their strategic intent, where they plan model. this means an enterprise now has
deployed or provided by a third party, to invest, and areas they plan to exit. the ability to lower its capital expendi-
they must evaluate the underlying it is also important to know their ture without having to forego the ability
technology that is used to deliver the relative standing in the marketplace. to implement a customized solution. the
services. it can provide early indica- assess if they continue to be leaders options need to be evaluated for longer-
tion of the quality of service that the in their space. With alternate deploy- term impact on the organization and its
enterprise can expect to receive. ment models, suppliers become an ability to remain competitive. Keeping
Having reliable and flexible technology integral part of an enterprise’s supply the solution landscape simple goes a
makes it easier for businesses to be chain; their ability to deliver will impact long way in improving effectiveness and
responsive to business needs. the enterprise’s ability to perform. efficiencies. it is often tempting to opt


for the next new technology. But diver- success. implementation of any new many or too few resources increases
sity in technology across the solution solution typically involves some form risks and can dilute the value. they
landscape can become untenable. of operational or organizational change. need to have clarity about what needs
for an alternate deployment to be suc- to be done internally under the new
value-Based Decisions: improved roi cessful, enterprises must align their operating structure and eliminate
Saying that all decisions need to be processes and organization structure, redundancies. enterprises must avoid
value based is as basic as it can get. instill operational discipline, and imple- the temptation to shuffle existing
as there is no single right answer, each ment joint governance. resources to these roles and must be
enterprise must determine the combi- open to recruiting from outside the firm
nation of solutions and deployment process alignment to Drive efficiency to get the right skills essential for suc-
options that will enable it to get to its When enterprises outsource, external cess under the new operating model.
desired state in the most cost-effective entities are introduced into the process enterprises must proactively address
manner. When selecting the solution chain. external service providers bring the resulting change management
components, decision makers need their own operating policies, procedures, requirement. extensive communication
to keep both the immediate-term and and standards into the supply chain. and retraining of resources are vital for
the long-term value in perspective. there is a need to ensure that processes enabling smooth organizational transition.
Having a well-defined, value-based pri- between the entities dovetail, which may
oritization framework can help resolve require enterprises to redesign the pro- operational Discipline
conflicts and enable decision makers cesses, taking into consideration the another impact of outsourcing or on-
to select solutions that are better aligned strengths and limitations of both parties. demand deployment is the operational
with the enterprise’s value system. enterprises must involve the suppliers elasticity. Unlike in an on-premise situa-
in the redesign process. the transpar- tion, an enterprise will not be able to make
the final choice may well depend on ency will enable both parties to develop operational changes at short notice
factors outside of the enterprise, such a more comprehensive value chain. without having to pay for them. Service
as supply constraints. Business situa- providers operate strictly to their con-
tions often change; what was important retained organization – vital to Success tracts. a poor demand management
yesterday may not be essential tomor- one common mistake that enterprises process can lead to increased overall
row. Hence, this process needs to be often make when outsourcing is that they costs, manifesting in additional service
iterative. an enterprise must not hesi- do not redesign their retained organiza- provider charges or the inability to meet
tate to pull the plug on an initiative if tion for the new operating model. this business needs. enterprises need to
there is a dilution in benefits or if it is often leads to the creation of shadow ensure that there is operational disci-
no longer required. organizations that are nonproductive pline to avoid “scope creep” and ensure
and potentially disruptive. to avoid realization of the business case benefits.
Managing the Transformation the creation of a shadow organization,
enterprises must clearly define the roles governance and orchestration
Designing is only the first part of the and responsibilities under the new Having an efficient and effective gover-
equation; implementing and managing operating model. enterprises need to be nance organization is vital for ultimate
the transformation is key to the ultimate deliberate in their design. retaining too success. Buyer enterprises must ensure


Enterprise Enterprise

On-demand Business On-demand Business
supplier process supplier process
outsourcing outsourcing
supplier supplier

Hosting Shared Hosting Shared
supplier services supplier services

Figure 11: Integrated Service Delivery Management

that they do not become the bottleneck issues quickly. there should be a clear
when multiple service providers are set of goals, objectives, guiding principles,
involved in the delivery of a service and issue resolution processes. enter-
(see figure 11). they must put in place prises will be well served by establishing
an operating mechanism that enables a competency center that defines stan-
the service delivery providers (except, dards and coordinates activities related
perhaps, standard out-of-the-box SaaS to alternate deployment models, sourc-
providers) to work collaboratively and ing, contracting, administration, and
resolve any problem that may arise, governance.
without having to depend on the buyer
enterprise to facilitate the interactions.

the governance organization must be
staffed with decision makers and key
individuals who are accountable for
business outcomes. it must include
executive-level representation from the
supplier organizations. internally, the
governance organization must have
representation from it, business, and Hr.
orchestrating the relationships at the
enterprise level will enable it to resolve


arChiteCting the solution landsCape
factorS to conSiDer

When buyers do not have choices,
decision making is relatively straightfor- Solution models are a function of

p
ownership, technology deployment,

hi
ward. With increased choices, buyers

rs
w et
and operational responsibility

ne

wn
O ss
have a greater opportunity to choose

o
A

nt
something that will make a difference.

re
alternate deployment models can pro-

third-party
operated
vide significant value as long as the

Operations
appropriate model is chosen for the
given circumstance. it is important to

operated
internally
note that no single model is appropriate
for every situation; as such, an enter-
prise must expect to have a combination internally hosted externally hosted

of solution deployment models within Technology Hosting
its landscape.
Figure 12: Three Dimensions of the Operating Model
a simplified way of looking at these
deployment models is in terms of asset 2. On-premise rental – Solution is
ownership, location of deployment, and rented from a third party but hosted
operational responsibilities, as shown and operated by internal resources.
in figure 12. fundamentally, there 3. Classical hosting – this is the same
are three questions that need to be as classical on premise, except the Hygiene factors
addressed for any solution component: solution is hosted externally by a
• Should the enterprise own the tech- third party on its infrastructure. Strategic
nology component? 4. On demand or SaaS – a supplier alignment
• Where should it deploy the component provides the solution platform or Business and
– internally on the company’s infra- the services using its own solution operational factors
structure or externally on a third- components for the buyer to use.
Supplier
party infrastructure? 5. Classical BPO – a supplier provides compatibility
• Who should operate it – internal the business services using the cus-
resources or an external service tomer’s it platform (“labor arbitrage Financial evaluation
provider? Bpo”).
6. Bundled outsourcing – the supplier
the right answers may vary based on operates the customer’s technology
Best fit
component type and the circumstances and business process – that is,
that the enterprise finds itself in. We bundling classic Bpo and classic
see seven of the eight possible combi- hosting (owned, externally hosted, Figure 13: Solution Evaluation Framework
nations in use in the marketplace; the externally operated).
last one, which involves on-premise 7. Platform BPO – the business Deciding between the various solutions
rental operated by a third party, is process provider provides the full and deployment options can be chal-
rarely seen in practice: process infrastructure, which lenging. there are several factors to be
1. Classical on premise – the enter- enables full economies of scale considered, and they can be grouped into
prise owns, hosts, and operates the (“full-stack Bpo”). five major categories (see figure 13):
solution itself.


• Hygiene factors • Technological alignment – the solution many mature service providers have
• Strategic alignment must be aligned with the enterprise’s built robust service delivery opera-
• Business and operational factors technology strategy and standards. tions with world-class security and
• Supplier compatibility evaluation it is preferable to adopt solutions that have specialized staff to keep track
• financial evaluation adhere to open standards and are of regulatory changes and compliance
based on proven technology; this requirements. also, outsourcing and
this five-step approach can help busi- will enhance the ability of the solution on-demand vendors are better posi-
nesses conduct a systematic evalua- to easily integrate with other compo- tioned to implement frequent chang-
tion of the options. nents of the solution landscape and es that might occur at a lower per-
enhance the life of the solution. Here customer cost basis, as compared
Hygiene Factors again, solutions that do not meet to in-house operations.
the standards get filtered out. • Budgetary limits – all enterprises
Hygiene factors can also be referred • Compliance and security – noncom- have budgetary constraints. consid-
to as show stoppers and can help pliance to applicable regulations can ering them up front in the evaluation
enterprises quickly narrow down their create significant liabilities for an process can save a lot of time and
solution choices (see figure 14). While enterprise. certain industries (like U.S. effort. for example, not having the
each enterprise must come up with its healthcare) and certain geographic necessary capital to procure the
own set of factors, a typical set will regions (such as the european Union) software license reduces the options
include the following: have stringent data privacy require- available for on-premise deployment.
• Solution fit – the solution needs ments. there might also be local con- enterprises must explore financing
to be good enough – that is, it has tent rules or political circumstances options prior to eliminating an other-
the basic functionalities and support (for example, local hosting in china) wise good solution. there are a num-
for capabilities that the enterprise is that weigh in favor of staying local ber of finance sources, including
seeking in order to address its busi- with services “production.” this does service providers who may be willing
ness needs. Solutions not meeting not mean that enterprises must nec- to make an investment in exchange
this threshold get filtered out. essarily opt for an in-house solution. for additional business.
• Urgency of business needs – While
every customer would want to have
Hygiene Factors an immediate solution to a problem,
it is often not a mandatory condition.
Solution a
Buyers must determine the true
Solution B urgency of the need; having more
compliance and security
technological alignment

time often increases the number of
Budgetary restriction

Urgency of business

Solution c
options available to them.
Solution D

at the end of this exercise, enterprises
Solution fit

Solution e Short-listed solutions

Solution f
can expect to have a narrower set of
valid options. now it is the question
Solution g of finding the best among the viable
Solution H solutions.

Figure 14: Hygiene Factors


Strategic Alignment Operations Strategy help determine priority segments for
Enterprises use different operational investments. When evaluating solutions
Immediate-term requirements often strategies to differentiate themselves and deployment models, having align-
dominate the decision-making process, in the marketplace; for instance, some ment to operations strategy can enable
however, having alignment with strate- may pursue a cost leadership strategy better allocation of resources.
gic objectives and goals enables better while others may adopt a value leader-
return on investment. Enterprises must ship strategy. This will have an impact Risk Tolerance
deploy solutions that support their stra- on the selection of the solution. Buyers There is risk associated with each
tegic objectives and business goals. must also look into the capability-to-cost deployment model. The question is,
There are three aspects with which the equation. At the same time, enterprises what is an acceptable level of risk and
solution needs to align, as shown in may choose to keep certain solution what option provides the best value
Figure 15: components guarded; they may not want equation? This question is pertinent
to let others have insight into their IP, when enterprises have choices.
even if it means higher operating costs. One way to look at solution choices is
to consider the extent of external
Business
Enterprises must be truly critical in their dependency it creates (see Figure 16).
strategy evaluation when determining what needs It is preferable to limit external exposure
to be retained in-house. This does not in business-critical areas, as failure
mean that every business within an on the part of the supplier to provide
industry will perceive its solution land- the necessary services can critically
scape in a similar manner. What is core hamper the enterprise. When an enter-
Solution
selection to an enterprise can differ even within prise outsources, it is not moving work
an industry. For example, a large box to an external entity; rather, it is bringing
retailer may consider its supply chain the external entity into the supply chain.
Risk Operation and logistics management as being its
tolerance strategy strategic value differentiator, whereas
a high-end retailer may view its customer Case Example: Business Strategy
intimacy and shopping experience as Case example: A U.S. company was
Figure 15: Strategic Alignment core to its business. These two firms in urgent need of a new HR system,
will have different views of what they as its existing system was not able
• Business strategy need to have direct control over. to address new regulations. The IT
• Operations strategy department initially identified a
• Risk tolerance An enterprise must reflect on what is solution that was tailor-made for
core to its business and its ability to its immediate needs. What the IT
Business Strategy build the essential competencies department did not know was that
While the solution may need to address required to gain competitive advantage. the company board had plans in
immediate-term objectives, the selection Investing to build up competencies in place to expand into Asia within
process must also take the long-term noncore areas can be suboptimal, as it the next few years. Had they known
business strategy into account. Having may require diverting scarce resources that, they may have selected a
alignment with the longer-term business from activities that are more fundamen- different solution, one that provided
strategies will help reduce total cost of tal to the business. Here again, seeking expanded geographic coverage and
ownership in the long run (see “Case alignment with strategic objectives can avoided future costs. Seeking
Example: Business Strategy” sidebar). alignment with longer-term goals
can help reduce overall cost and
better return on assets.

22 SAP White Paper – Building Capabilities Leveraging Alternate Solution Deployments

for the services, security, compliance, access to world-class capabilities and
IT outsourcing or business continuity, and innovation. improve their ability to compete with
business process
outsourcing
Weakness on the part of the supplier more-established competitors by lever-
can have negative implications. aging third-party providers. They may
Hosting On also be able to improve their ability
demand As enterprises move from on-premise to comply with legal requirements (for
solutions to platform BPO, the level of example, national and multinational tax
On supplier dependency increases. One reporting) and thus reduce business
premise way to determine the appropriate level risks by outsourcing. Badly implemented
L H Platform
business of dependency is by mapping the solu- and operated on-premise solutions can
process tion options to business criticality. The be riskier than best practices–based
outsourcing
“corridor of acceptability” (see Figure 17) outsourced solutions.
will depend to a large extent on the
Figure 16: Supplier Dependency Meter internal capabilities of the enterprise – Besides evaluating individual solution-
the lesser the in-house capabilities, the level risks, businesses must also evalu-
Similarly, when an enterprise implements lower the slope will be. If the business ate risks at the enterprise level. Does
on-demand solutions, it brings the sup- function is critical and the enterprise implementing a specific solution increase
plier’s service delivery stack into the does not have the requisite competen- the enterprise’s exposure to a specific
process chain. There are literally hun- cies and capabilities in-house, it is self- supplier? Often, enterprises conduct
dreds of things that can cause supply destructing to keep it in-house. On the risk assessment on a stand-alone basis.
chain disruptions (for example, the other hand, with strong internal capabil- Best-run companies also evaluate the
avian flu outbreak in 1997 and the ities, an enterprise may be able to gain enterprise risk when selecting solution or
tsunami in 2008). Events like labor distinct competitive advantage by service providers. (see “Case Example:
unrest, geopolitical events, and key retaining the solution in-house. Vendor Selection” sidebar).
supplier employee attrition can cause
service disruption. The responsibility Enterprises must determine when it
for outcomes remains with the enter- makes sense to leverage a third party. Case Example: Vendor Selection
prise even as it relies on the supplier Smaller companies can often gain Case example: A global company
decided to outsource a business
function. Through a detailed evaluation
L Higher internal
capabilities process, it identified two potential
vendors, each capable of providing
Business criticality

the requisite services. The company
Platform business had a strong incumbent relationship
it y process outsourcing
abil with one of them. Despite the rela-
cc ept
of a tionship, it decided to opt for the
dor
Corri second vendor. The company was
Lower internal
capabilities not comfortable about the increased
H On premise exposure it would create by awarding
L Supplier dependency H
the new business to the incumbent.

Figure 17: Acceptability of Supplier Dependency

SAP White Paper – Building Capabilities Leveraging Alternate Solution Deployments 23

Business and Operational Factors needs to be aligned with the strategic Service providers make significant
plan. an enterprise implementing a investments to build up their service
this is the third stage in the solution short-term fix must also put in place delivery capabilities to stay competitive
selection process. While alignment with plans to replace it with longer-term in the marketplace. this means that a
broader, long-term strategies is essen- solutions at the earliest possible time. service provider’s operational capabilities
tial, there are always base realities, in many noncore business processes
such as competing demand on existing operational factors will be superior to that of most enter-
operational capabilities (see figure 18). We all like to believe that we are really prises, even large ones. for example,
good at what we do – it is only human, while enterprises consider Hr as being
Business Situations and enterprises are no different. Before important, they also consider it to be a
often, enterprises find themselves in deciding on on-premise or shared ser- support function; this often translates
situations in which they need to act vices deployment, an enterprise must to limited budget being available for
quickly to address a challenge or lever- ask the tough questions regarding its improvement in operational capabilities.
age a market opportunity; these situa- operational capabilities: Does it have on the other hand, an Hr outsourcing
tions may call for some flexibility in the operational capabilities comparable service provider will invest heavily in
how the solutions are deployed. (see to its direct peers? Will it be able to building up its operational capabilities,
“case example: Business Situations” sustain any competitive advantage going as that is its core business. the Hr
sidebar). forward? Will it be able to attract and service provider may also be able to
retain the skilled resources needed? How attract and hire better talent by offering
there can be other reasons, such as does its performance compare to a better career opportunities.
uncertainty of the business opportunity, third-party service provider? are the
lack of capital, and so on, that may operations cost-effective, as compared the buyers must not take a service
influence the selection. even under to the market? if the answer to any of provider’s capabilities for granted.
these circumstances, the selection these questions is “no,” the enterprise While many have strong capabilities in
may want to consider an alternative certain areas, that does not translate
deployment. into strengths across the board. enter-
Case Example: Business Situations
case example: a U.S. healthcare
company was about to undertake a
comprehensive systems upgrade ini- In-House World Class
tiative. just before it started on its
implementations, it received an Competencies
acquisition offer. this made the Competencies
management put a hold on all major Domain
knowledge Domain
initiatives. However, the business
knowledge
needed certain additional capabilities
Processes
to maintain compliance. to address this Processes
specific need, the company opted for Infrastructure
a niche solution for the interim that it Infrastructure
could deploy immediately.

Figure 18: Comparative Assessment of Operational Capabilities


prises must validate their suppliers’ Supplier Compatibility for new business segments instead
abilities to proactively develop innova- of improving current offerings.
tive solutions. for example, an it out- Suppliers become an integral part of • Financial stability – Having financial
sourcing service provider may have the buyer’s enterprise, especially in stability allows the supplier to focus
strong technical knowledge but may cases of outsourcing and on-demand on operational aspects and customer
not have equally strong domain knowl- services. Businesses must evaluate needs. it also means a reduced risk of
edge across all industries. this may their suppliers on five aspects besides the supplier becoming insolvent. this
limit its ability to innovate and deploy how well the solution fits their business is vitally important in the on-demand
industry-specific solutions. needs (see figure 19): space, as many of the providers are
• Supplier’s strategic intent – Under- relatively small.
a recent forrester research survey standing the supplier’s strategic • Willingness to invest – Having finan-
shows that 41% of those dissatisfied intent can provide actionable insight; cial stability is not enough; there needs
with their outsourcing relationships for example, a supplier that intends to be a willingness to invest – in new
picked lack of innovation and continuous to grow through value leadership is technologies, tools, and best people.
improvement as causes for dissatisfac- likely to invest more in creating value, Businesses must seek to understand
tion. Benchmarking internal and service whereas a supplier focused on cost how the supplier treats and motivates
provider capabilities will help determine leadership will help drive down cost its employees. How does it incorpo-
the best combination for maximizing but may not necessarily develop inno- rate best practices on an ongoing
returns while minimizing risks. enter- vative solutions. Similarly, a supplier basis? is it investing in areas relevant
prises must not compromise on value intent on broadening its service offer- for the enterprise? partnering with
leadership while trying to get to a lower ings will likely dedicate more funds suppliers willing to make the invest-
cost base. ments will help the enterprise maintain
competitive advantage.
• Organizational compatibility – the
importance of organizational compati-
bility is often underestimated. cultural
differences, generation gaps, com-
Solution fit
munication styles, and different value
systems contribute greatly to opera-
partnership Strategic intent
tional incompatibility. While a perfect
commitment match may be difficult every time,
having similar corporate values and
operating principles will help the
Supplier
buyer and the supplier employees
to better understand each other and
organizational financial lead to better collaboration and
compatibility stability improved results.
• Commitment to partnership – at the
Willingness end of the day, the supplier’s commit-
to invest ment to a partnership is what dictates
success. this can be gauged by the
senior resource commitment they
are willing to make with regard to
Figure 19. Key Supplier Evaluation Framework


the relationship. the relevance of example, a data migration cost is typically straightforward, it is the ongo-
the buyer’s business to the supplier’s incurred if the enterprise is migrating ing support structure cost – including
goals will partly drive the level of from an old system to a new one. Simi- costs related to service delivery manage-
commitment. larly, the costs associated with transition, ment, governance, and contract admin-
reorganization, and change management istration – that can be a challenge.
Financial Evaluation are applicable only when enterprises
transition from an on-premise model Scope creep and overtime cost
When everything else is acceptable, to an alternate deployment model. one aspect of operations cost that often
the selection boils down to financials: these elements are often missed gets overlooked is the cost associated
what will it cost over the productive or underestimated. with overtime needs. in an outsourced
life of the solution, commonly referred situation, the service providers will charge
to as the total cost of ownership (tco)? the training costs associated with additional fees for services beyond the
enterprises must consider cost over reskilling retained employees for their contracted scope of work; the same is
the lifetime – initial cost, ongoing cost, new roles and responsibilities can be the case with on-demand and cloud
and exit cost. each category has significant, especially in the case of services. the cost for enterprises with
a number of cost elements and applica- outsourcing or establishing shared fluctuating workload and absence of
bility of these elements may differ service centers. there is a need for operational discipline can be significant.
based on the deployment model extensive people management during additionally, scope creeps are easier in
(see the “Key tco cost elements” the transition process; the risks of the case of outsourced services, as
table in the “appendix” section for operational errors and productivity service providers are
a list of key cost elements). losses are very high and can be expen- typically not constrained by resource
sive. there are also costs associated availability and are more likely to expect
one-time costs with process and behavioral changes, requests for additional work – of course,
the cost elements that get invoiced in order to be effective under the new for a fee.
by the supplier are the obvious ones; operating model.
estimating internal costs are often the Business continuity costs
challenge, even in the case of SaaS Besides internal change management, enterprises must account for business
deployments. a survey by forrester there is a need to proactively manage continuity under the different solution
research of customers using third-party external stakeholders, such as custom- options. in the case of supplier-provided
systems integration support to roll out ers, suppliers, local governments, and disaster recovery, it is important to
SaaS solutions found that 36% of the others, as the case may be. these determine the level of protection desired
SaaS projects involving enterprise solu- can be onerous at times and must be and the associated cost. While many
tions took more than a year to complete, considered when calculating transition enterprises do account for this, they
with only 7% completed within three cost. Legal issues are a possibility and often underestimate the cost associated
months. the survey also found that can be expensive. When functions and with coordination and the complemen-
the key drivers of these were heavy processes are outsourced, there are tary effort needed on the part of the
integration with legacy systems, deeper two types of integration costs – one enterprise to bridge the gap in service
customization than previously anticipated, relates to the technical integration and levels during a disaster. enterprises
and significant process reengineering. the second pertains to operational must also account for the probability
integration. these can be significant. of failure on the part of the service pro-
the cost of integration is, of course, vider for providing business continuity
dependent on the extent of integration ongoing costs and have their own fall-back plan in
involved. Some of the one-time costs the ongoing costs are often difficult place. there will be a cost element
are dependent on the situation – for to gauge. While direct labor costs are associated with such arrangements.


exit cost
the last cost category is the “exit cost.”

business process
Depending on the circumstances, this can

outsourcing

outsourcing
on premise

on demand
be very significant. transitioning work

platform
back in-house can be more expensive

Hosting
than outsourcing the first time around.
in case of termination midway through
the contract, there may be additional cost-
related legal matters, including costs Speed of implementation L H
related to termination for convenience.
the need for termination can occur for Cash-flow alignment L H
reasons other than performance – for
example, the supplier gets bought out Operational flexibility L H
by a company that the enterprise does
not want to do business with, the enter- Supplier independence L H
prise decides to sell off its unit that was
consuming the outsourced service, or Organizational change H L
the supplier’s financial situation becomes
unstable. for tco calculations, enter- preferable not preferable
prises must weigh the probability of such
events occurring, based on the busi- Figure 21: Alternate Deployment Characteristics.
ness situation and assessment of the
provider, to estimate a potential cost. always helps lower the cost, but it always must be used to decide on the solution,
comes with some risk. enterprises must all other preconditions being fulfilled.
the decision to go for one deployment decide the acceptability of the risk.
model or the other must not be based on Special-Case Circumstances
any presumption that one type of solu- tco must be calculated over the antici-
tion deployment will always be cheaper pated life of the solution (see figure 20). there may be other special-case circum-
than the other. the real costs will vary the on-demand solutions, with their stances that may have an influence on
by circumstances. Sharing resources pay-as-you-go model, will be more the ultimate selection – for example, an
cost-effective in the shorter term. the enterprise may be planning to divest one
subscription model also helps smooth of its business units. in the case of it
Cumulative cost over time out the cash flow and improve alignment needs for this business unit, it may want
of cost with consumption. Some enter- to opt for a third-party solution, as it would
prises may prefer such flexibility, even be easier at the time of separation.
if the tco is higher over the life of
Costs

the solution. in summary, each deployment model
has its merits and demerits (see figure
typically, solutions vary from one another 21). the cost-benefit trade-offs need to
on premise
in terms of functionality footprint, capa- be evaluated on a case-by-case basis.
on demand bilities supported, and potential value. While immediate pain points need to be
Hence, tco must be considered with resolved, a deliberate design approach
Time
reference to value realizable. it should can help enterprises achieve a sustain-
Figure 20: Total Cost of Ownership Projections ideally be the value-to-cost ratio that able competitive advantage.


ConClusion
HyBriD SoLUtion LanDScape: Key to SUcceSS

in conclusion, alternate solution deploy- Influencing On Premise Outsourcing On Demand
ment models offer enterprises choices Factors
on how to build up their capabilities. capability type core noncore noncore
these choices can provide significant
Business Long term Long term Short term or
benefits or introduce undesirable risks, requirement unsure
depending on the circumstances.
Urgency of Low Low to medium High
currently, there is no single deployment business need
option that can address all types of
business needs. as such, a business Demand pattern Steady fluctuating fluctuating
will need to select the solution deploy- in-house readily available not adequate not adequate
ment option based on its circumstanc- infrastructure
es. While there are several aspects to in-house market comparable not adequate available in-house
consider when evaluating, there are competencies
some key factors (see the “influencing cost of internal comparable to expensive to expensive to
factors” table) that will likely influence operations market the market the market
the choice of the deployment model – Up-front available available not available
these being capability type, short-term investment capital
versus long-term business requirement,
urgency of need, nature of the demand,
in-house infrastructure and competen-
cies, internal cost structure compared
to the market, and availability of invest- ac Us
p ce inte er User
ment capital. Backu ssi
bili rfa functionalities accessibility
ty ce interface

Whatever the deployment model, network
the solution component needs to be Server Server network Deployment
Security model
able to operate cohesively with the rest
functionalities
of the solutions in the landscape. the ent
loym
solutions need to be aligned with Dep odel Storage middleware Security
m
the enterprise’s longer-term it and Storage
s
m

operations strategy. every component ion
id

cat technologies Locations
dl

Lo Backup
of the solution landscape needs to
ew

techn
ologie
ar

come together as a singular unit, with s
e

the ability to adapt and evolve accord-
ing to needs (see figure 22).
Figure 22: Operating as a Single Unit
to get to the best solution landscape,
it and business leaders need to collab-
orate. a collaborative approach can help
the enterprises develop innovative solu-
tions to address immediate term needs
without sacrificing longer-term success.


appendix

Deployment Model Selection Considerations

Areas On Demand On Premise Outsourcing

capital requirement capital requirement is lower, capital requirement is higher, capital requirement is higher,
as the vendor invests in the as the buyer needs to invest as the buyer needs to invest
requisite hardware and soft- in the requisite hardware and in the requisite hardware and
ware to provide the service. software. software. outsourcing vendors
may be willing to finance or
subsidize the investment need-
ed in exchange for additional
future revenue.

cash flow the on-demand vendors cash flow is skewed and front cash flow is skewed and typi-
charge either on a fixed price loaded. However, this results cally front loaded. additionally,
subscription basis or on a con- in lower ongoing operations if the solution is being shifted
sumption basis. in either case, costs. from an on-premise to an
it helps enterprises get better outsourced model, there is an
alignment of cash flow with additional transition cost. How-
consumption. ever, the resulting operating
expenditure is expected
to be lower.

functionality match Solution needs to be a good Buyer has access to the Buyer has access to the
match, as buyers typically do source code and can build source code and can either
not have the option to exten- additional functionalities, if build or have the service
sively customize the solution. required. provider build additional
Software as a service (SaaS) functionalities, if required.
is provided via a shared re-
source that is configurable at
the user interface level but not
customizable at the database
or application levels. at best,
businesses can build add-on
solutions, outside of the core
SaaS application.



implementation effort and implementation lead time implementation lead time can implementation lead time can
lead time is minimal; the on-demand be significant, as the solution be significant, but lower than
offerings are standardized with needs to be configured and on premise, as outsourcing
minimal possibilities for cus- deployed. Having the ability to suppliers can bring in best
tomization. this means buyers customize the solution often practices and lower per-unit
do not have choices; however, translates into longer deploy- cost resources to reduce lead
the positive aspect is quick ment time. time and cost.
deployment.

future needs and supplier’s Buyer is dependent on the Buyer is not entirely dependent Buyer is not entirely depen-
product road map vendor to build and deploy new on the vendor to build and dent on the vendor to build
functionalities and features deploy new functionalities and and deploy new functionalities
to address future needs. the features to address future needs. and features to address future
buyer must evaluate the sup- the buyer, while preferring needs. the buyer, while prefer-
plier’s strategy, future product that the vendor provides new ring that the vendor provides
road map, and ability to ad- functionalities as part of stan- new functionalities as part of
dress future needs in a timely dard software, has the option standard software, has the
manner. if the supplier does of building add-ons or making option of building add-ons
not have a clear road map, modifications, if required. or making modifications, if
this can be a red flag. required.

Shared resources SaaS vendors typically offer the solution is deployed the solution is deployed either
services via the multitenancy in-house on buyer’s own infra- in-house behind the firewall
model, meaning that the un- structure behind the firewall. or on the outsourcing service
derlying service delivery infra- as such, the security is entirely provider's infrastructure. the
structure and resources are within the buyer’s control. infrastructure is typically sepa-
shared. this can have implica- rated out at the outsourcing
tions and must be evaluated. providers' site, unlike in the
SaaS vendors may in turn use case of on-demand services.
third-party services to develop
their service delivery platform;
this may require the buyer
to evaluate the third party as
well. firms should review the
vendor’s architecture to ensure
proper data segregation.



access SaaS is offered via the public With deployment within the With deployment within
internet, using standard user firewalls, enterprises have the firewalls, enterprises can
interfaces for authorized users. direct control over who can choose to maintain access
Buyers need to evaluate the access the system. within the security of vpn.
implications in terms of enter-
prise security.

application performance Buyer is dependent on the Buyer is dependent on the Buyer is dependent on the
supplier to ensure application software design for its perfor- software design for its per-
system performance according mance but is not dependent formance and is dependent
to service-level agreements. on the vendor for infrastructure- on the outsourcing vendor for
the buyer must understand related performance and infrastructure-related perfor-
the underlying quality of the operational service levels. mance and operational service
resources being deployed to levels.
ensure system performance
in a high-volume, multitenancy
environment.

Scalability a key value proposition of Buyer can scale up with Buyer can scale up with
SaaS is scalability. the buyer additional licenses but may additional licenses but may not
must evaluate if the vendor’s not have the option to scale have the option to scale down
architecture is designed for down and get a refund in case and get a refund. additional
true scalability. of reduced utilization. services, such as business
processing services, can be
procured on a transaction
basis with a stepped-scalability
option.

ability to integrate with in- this can be an issue and must With access to the source With access to the source
house and partner solutions be evaluated up front. the code, it is often easier to code, it is often easier to
inability to integrate can dilute integrate the solution to other integrate the solution to other
any savings due to lower oper- in-house and partner systems. in-house and partner systems.
ating cost.



Supplier commitment Supplier's commitment to Supplier's commitment to the Supplier's commitment to the
invest in building up the SaaS product is important; however, product is important; however
solution and service delivery if the supplier fails to deliver, if the supplier fails to deliver,
capabilities is vital. Unwilling- the buyer is less at risk as the buyer is less at risk as
ness or inability to invest will compared to its on-demand compared to its on-demand
place the buyer in a bind. counterparts. counterparts.

financial stability SaaS is based on a shared- Having a strong customer Having a strong customer base
cost model. the sustainability base is always beneficial; is always beneficial; however,
of the model is dependent on however, there is less depen- there is less dependency on
the supplier’s ability to make dency on the vendor's financial the software vendor's financial
continued investments, as strengths. strengths. But there is depen-
the revenue and cost recovery dency on the outsourcing
happens over an extended vendor’s financial strengths to
period. Hence, the customer enable continued investment
base becomes important. required for performance
Dependency on a few large improvements and innovations.
customers can be risky, as the
vendor will be severely impacted
if any of them drop out. if the
vendor is unable to attract a
large number of customers
to its platform, the solution
may have a short life. evaluate
the vendor’s customer base,
financial standing, and invest-
ment ability.

compliance risks Understanding the supplier’s entirely within the buyer's Buyer is dependent on the
ability to fulfill all of the compli- domain. outsourcing service provider
ance requirements is para- to comply with all laws and
mount. certain industry and regulations.
country regulations mandate
that the data be domiciled with-
in the territory or region. as
such, it is important to under-
stand where the data resides
in such situations.



Backup and recovery Buyer needs to assess the entirely within the buyer's Buyer is dependent on the
backup and disaster recovery domain. outsourcing service provider
processes and determine if the to ensure backup and provide
recovery time and recovery acceptable disaster recovery
point objectives are accept- capabilities.
able. on the same note, the
buyer must determine if it will
have access to the software
source code if the vendor fails
to perform. it must also assess
the solution’s ability to perform
in a single tenancy mode.

portability in case of failure on the part Question does not arise, as the data resides either within
of the provider, is it possible the data resides within the the enterprise or can be easily
to extract and move the data enterprise. moved back in-house from an
to a different system? outsourcing vendor platform.


Key TCO Cost Elements

Cost Elements Classic On Classic Classic SaaS/ Classic Bundled Platform
Premise Rental Hosting On Demand BPO BPO BPO

Initial cost
Software license ü ü ü ü
Hardware ü ü ü (ü)
facilities ü ü ü (ü)
other software ü ü ü ü (ü)
configuration and
implementation
ü ü ü (ü) ü ü ü
Data migration ü ü ü ü ü
integration ü ü ü ü ü ü ü
transition (ü) ü ü (ü)
reorganization (ü) ü ü (ü)
change management cost (ü) ü ü (ü)
Business user training ü ü ü ü
Ongoing cost
Service charge ü ü ü ü ü ü
Standard software
maintenance support
ü ü ü ü
facility costs ü ü ü ü (ü)
it operations ü ü ü
Business operations ü ü ü ü
governance ü ü ü ü ü
contract administration ü ü ü ü ü
Business continuity ü ü ü ü ü ü ü
Exit cost
alternate solution selection ü ü ü ü ü
migration ü ü ü ü ü
reorganization ü ü ü ü
User training ü ü ü ü

Legend: (ü) – Depends on the situation


glossary of terms

On premise – Solution that is deployed on enterprise-owned infrastructure and
operated by internal resources. this includes shared service centers that are fully
owned and operated by the company.

On demand – Solution or service that is provided in a fully hosted and ready-to-
use mode, either on a subscription basis or a consumption basis. the ownership
of the assets resides with the service provider. the on-demand services include
infrastructure services, application services, and business services.

Shared service – centralized service operations that provide services to multiple
business or operating units located in multiple geographies

Outsourcing – any operational activity performed by an external party; these can
be either it related or business related or both.

Platform BPO – Standardized business services using a single technology platform
to provide services to many clients

Cloud services – it-enabled solutions and services (including business services)
ubiquitously delivered, over the internet, to multiple customers and consumers,
on demand, using standardized processes and leveraging shared resources –
infrastructure, systems, and people

Hybrid landscape – Solution landscape that includes more than one of the deploy-
ment models – that is, on premise, outsourcing, and on demand


BiBliography

1. forrester research inc., “real-World insights into SaaS implementation
Success,” by Liz Herbert, with christina ferrusi ross and elizabeth rose,
may 2010.
2. forrester research inc., “Status, challenges, and near-term tactics for
cloud Services in enterprise outsourcing Deals,” by paul roehrig, phD,
november 2009.
3. forrester research inc., “SaaS adoption 2010: Buyers See more options
But must Balance tco, Security, and integration,” by Liz Herbert, with
christine ferrusi ross and mark grannan, june 2010.
4. forrester research inc., “SaaS valuation criteria,” by Liz Herbert; february
2010.
5. forrester research inc., “Best practices: SaaS Systems integration,” by Liz
Herbert with christine ferrusi ross and mark grannan, november 2010.
6. gartner research presentation, “Who really cares about the cloud – an
industry perspective,” by jeff roster, cynthia moore, and Kristine pfeiler.
7. gartner research, “SaaS Dynamics continue to act as a catalyst for the
convergence of Services and Software,” by frances Karamouzis and
matthew goldman, april 2010.
8. gartner research, “four Steps to get in front of the SaaS curve,” by
robert p. Desisto, june 2010.
9. gartner research, “Hype cycle for cloud computing,” 2009.
10. iDc, “Success in outsourced cloud Services involves Building to the end
State, Understanding your genetic code, and avoiding potential pitfalls and
Dead ends,” by David tapper.
11. iDc, “Worldwide Software as a Service 2010 – 2014 forecast: Software
Will never Be the Same,” by robert p. mahowald.
12. iBm 2010 global ceo Study.
13. HrBr 2010 volume 3, number 1, “to Bundle or not to Bundle?” by
prof. Leslie Willcocks, Dr. ilan oshri, and Dr. john Hindle.
14. HrBr 2010 volume 3, number 1, “imperfect arbitrage,” by Deborah Kops.
15. Wikipedia Web site “cloud computing.”

SAP References

1. “Business Solutions Without compromise – integrated on-Demand and
on-premise applications from Sap.”
2. “the impact of technology in Business process outsourcing – the complete
Business process outsourcing cost picture.”


50 104 008 (11/03)
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Business objects Software Ltd. Business objects is an Sap company.

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