Tuesday’s Tip: 10 SaaS/Cloud Strategies For Legacy Apps Environments

Published on August 10, 2010 by R "Ray" Wang

Legacy Apps Customers Seek Practical Advice

Organizations determining when and how to make the move to SaaS and Cloud face realistic challenges in gaining buy-in and realizing the apparent and hidden benefits of SaaS/Cloud.  In a recent survey of over 300 companies, 73 respondents who were wary of SaaS/Cloud were asked to list the top 3 reasons they did not plan to deploy a SaaS/Cloud solution in the next 12 months (see Figure 1).  The top 3 reasons related to legacy environments, org structure, and governance include:

  • Legacy apps CIO’s. CIO’s vested in protecting the existing investments may often proceed with caution for SaaS and Cloud solutions.  In some cases, sunk cost mentality takes hold and the goal of being 100% pure with a single vendor clouds the vision to meet needed business requirements.
  • Burden of legacy apps. Legacy apps maintenance and upkeep represents a key barrier to SaaS and Cloud adoption.  Organizations often remain complacent about maintenance and upgrades, preferring to avoid substantial changes and risk.   Becuase the money and resources to support legacy apps consume most of the budget, organizations have little funds for innovation and experimentation.  Eventually, business decision makers procure SaaS/Cloud solutions to by-pass IT.
  • No IT team buy in.  Many constrained IT teams have not taken the time to understand the requirements to support SaaS and Cloud apps in a hybrid mode.  SaaS requires organizations to revisit SOA strategies, integration requirements, and master data management.  Business leaders and decision makers often overlook these dependencies at the organization’s long term expense.

Figure 1.  Legacy Issues Hamper SaaS/Cloud Adoption

SaaS/Cloud Strategies Must Transcend The Burden Of Legacy Apps Over Time

Next generation apps strategies must account for both a future of hybrid deployments and growing independence of legacy apps.  Ten of the most common go forward strategies include:

  1. Point solutions. Organizations often start by augmenting gaps in existing legacy apps functionality.  Common areas include expense management, strategic human capital management (HCM), sales force automation, project based solutions, collaboration, and email.
  2. SaaS best of breed suites. As organizations gain comfort with the ease of use of SaaS, expect organizations to increase their preference for suites.  Over time expect the best of breed “hell” scenarios to subside as SaaS vendors and integration providers rush to provide more end to end functionality or better SaaS to SaaS integration tools.
  3. Two-tier hub and spoke. Once organizations make the plunge to SaaS, the business will seek opportunities to bypass legacy apps in new environments.   Two-tier deployments will emerge as organizations rush to replace legacy apps for modernization efforts, geographic considerations, and organizations with different sets of business models.
  4. Legacy containment and surround. As with legacy apps over time, organizations will seek to contain investment and surround existing apps with new capabilities.   Expect core ERP apps in finance and HCM to be contained but not quickly replaced.  However, failed CRM, project based solutions, and other “extended ERP” systems in vendor suites will be replaced because many vendors have not innovated quickly enough.
  5. Hosted legacy and surround. Hosted legacy and surround will emerge as a critical trend that will cut infrastructure costs for data centers and hardware.  Virtualization will play a key role in reducing application management costs.  Once again, the surround strategy will take hold because business can not wait for innovation from many of the legacy apps vendors.
  6. Legacy mid-term replacement and third-party maintenance. Organizations can fund innovation with maintenance fee reductions by considering third party maintenance (3PM).  Typical deals halve the cost of maintenance while providing regulatory and tax updates.  Upgrades will not be provided but for organization’s who plan to replace apps in the next 5 years, this option should be considered in all apps strategies.
  7. Legacy long term replacement. After usage of 10 to 15 years, most organizations begin their retirement and replacement strategies.  Given the increasing choices in SaaS and Cloud, expect organizations to make the move to migrate to a more flexible solution.
  8. PaaS extensions. As packaged apps move to the Cloud, custom development will also make the same transition.  PaaS will prove to be a key component in the Cloud strategy and major SaaS vendors will make the move to open up the tool kits to allow customers and partners to extend their solutions.
  9. Long term BPO. Expect commoditized business processes to shift to the BPO model. BPO – SaaS will become the norm as organizations shed lower level processes and focus on custom dev in PaaS and extending SaaS and Cloud suites.
  10. Private clouds.  Many organizations will move to private clouds for security reasons.  Private clouds will serve as both a development environment and the “back-up” generator for large commercial and public entities.

Figure 2.  Ten SaaS/Cloud Adoption Strategies Span Business Requirements And Legacy Adoption

The Bottom Line For Buyers (Users) Proceed With Cloud/SaaS Strategies Based On Business Requirements Not Hype

While Cloud/SaaS adoption has moved beyond the tipping point, organizations should not rush in without an adequate apps strategy.  Start by taking into consideration the following criteria in planning an overall apps strategy:

  • Expected business value and outcomes for a project
  • Business processes required to support business value and outcomes
  • Organizational design required to sustain change
  • Technology and solutions to support efforts
  • Deployment options such as on-premises, SaaS, BPO, and other services

Your POV.

Have you already made the transition? Ready to share your best practices?  Buyers, do you need help with your Cloud and SaaS strategy?  Looking to make the transition to Cloud and SaaS?  Let us put the expertise of over 1000 software contract negotiations to work for you.  Please post or send on to rwang0 at gmail dot com or r at softwaresinsider dot org and we’ll keep your anonymity.

Please let us know if you need help with your next gen apps strategy, overall apps strategy, and contract negotiations projects.  Here’s how we can help:

  • Designing a next gen apps strategy
  • Providing contract negotiations and software licensing support
  • Demystifying software licensing
  • Assessing SaaS and cloud
  • Evaluating Cloud integration strategies
  • Assisting with legacy ERP migration
  • Planning upgrades and migration
  • Performing vendor selection
  • Renegotiating maintenance

Resources And Related Research:

20100621 A Software Insider’s POV – R “Ray” Wang – “Research Report: How SaaS Adoption Trends Show New Shifts In Technology Purchasing Power”

20100322 A Software Insider’s POV – R “Ray” Wang -”Understanding The Many Flavors Of Cloud Computing/SaaS”

20091222 A Software Insider’s POV – R “Ray” Wang “Tuesday’s Tip: 10 Cloud And SaaS Apps Strategies For 2010″

20091208 A Software Insider’s POV – R “Ray” Wang – “Tuesday’s Tip: 2010 Apps Strategies Should Start With Business Value”

20091012 A Software Insider’s POV – R “Ray” Wang – “Research Report: Customer Bill of Rights – Software-as-a Service”

20090714 Sandhill.com – R “Ray” Wang – “Opinion: Moving to a SaaS Offensive”

20090602 A Software Insider’s POV – R “Ray” Wang ” Tuesday’s Tip: Now’s The Time To Consider SaaS Software Escrows”

20081028 A Software Insider’s POV – R “Ray” Wang “Tuesday’s Tip: SaaS Integration Advice”


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Copyright © 2010 R Wang and Insider Associates, LLC. All rights reserved.

  • Nara – actually if you run your own private cloud, you are vendor independent. It’s basically saying, I need my own power plant, right? – Ray

  • Ray, enjoyed the post but am a bit perplexed by the chart at the end. How does building a private cloud increase legacy independence? Aren’t you running the same old legacy apps even if the underlying infrastructure is virtualized?

  • Doug – thanks for the details! =) Existing vendors face an innovator’s dilemma. – Ray

  • Examining barriers to SaaS also exposes the limitations of on-premises enterprise software deployments.

    Legacy Apps CIO & Burden of Legacy Apps
    Many organizations budget IT incrementally from one year to the next. There is often little analysis of TCO and use of zero-based budgeting. SaaS can become a compelling event to categorize costs and benefits – which could result in better negotiating power with legacy vendors on maintenance.

    Functionality gaps
    We have reached a point of maturity in enterprise applications where features have gotten in the way of usability. Enterprise software is often bloated to the point that important features often go unused. And, many applications require weeks or months of training in order to be proficient.

    No IT buy-in
    SaaS is a threat to IT personnel. IT is often viewed as a cost centre, so SaaS provides an opportunity to articulate organizational value. IT needs to constantly upgrade skills, particularly business and collaboration skills in the 21st century. Leaders need to understand the threat that off-loading means to IT departments while providing a career path where IT contributes more value to the organization. After all, maintaining software is not often a high value satisfying IT activity.

    Integration Challenges
    For all the hoopla, most enterprise software applications are using legacy technology that limits integration outside the single vendor suite.

    Best of breed “hell”
    This is an interesting point. The portfolio management enterprise application argument is becoming stale. The notion of using a single suite to reduce costs but with less functionality than a collection of best-of-breed is a last decade argument. We’ve got MDM “hell” when using a single vendor solution. New technology following good practices is more available for integration. And, the vertical market vendors seem to be growing because the cost of integration is less than the cost of customizing ERP.

    What does this all mean?
    There really is a perfect storm in IT. Cloud computing, open source and Enterprise 2.0 are complementary technology shifts that threaten incumbant vendors, offer innovation & cost benefit opportunities (&risk) while challenging IT. It may be more profound than the introduction of PCs or Web 1.0 in business. CIOs who look at SaaS should also examine the effects of open source & Enterprise 2.0 on the organization portfolio.

  • Dave – thanks for the kind words. Feel free to drop in any other suggestions you see as well Always value the input! – Ray

  • Ray,
    Great stuff. A good read for any CIO struggling with the balance of on-premise vs. cloud. The answer is not “either-or” which your survey confirms. Its a migration that requires a strategy. Your services offering around this can really help CIOs get this strategy off the ground. Very timely.
    Dave Kasabian

  • Excellent article. Especially agree with your point that SaaS vendors will need to open up “tool kits” that allow customers to extend or personalize their solutions.

  • Excellent article Ray, I think you summarized the transition going on in most companies today. LOB will only wait so long for IT to innovate before going around them. Business must innovate or they will die.

  • Lise – great to hear from you! heterogeneous data requires a lot of care. organizations will have the same best of breed data integration “hell” flashbacks from 1990 and 2000. Care needs to be taken to think about how processes, meta data, and data integrate and work in harmony. What do others think? – Ray

  • Rajesh – you make a good point. connectivity and bandwidth are important. If you substitute Cloud for Mobile, would that change your POV? – Ray

  • Ray, terrific article – good points to learn and think through. Can you explain in more detail what you mean by, “Saas requires organizations to rethink SOA, integration, MDM….”

    Thanks and regards from Lise

  • Hi Ray,

    A great article.

    On “Legacy Issues Hamper SaaS/Cloud Adoption” diagram, it may hold true for the developed nations and not BRIC and majority of developing nation.

    When I was in Microsoft World Partner conference attending Cloud story everywhere, the interesting issue was raised which is Telecom Infrastructure and availability in majority of Asia, Latin America and half of EMEA regions.

    Other observation are
    a) Cyber Laws and Security of developing nations
    b) Too early for the market
    c) Mindset – Companies normally following what other competitors/vendors/partners doing in the region which is on premises – Less risk taking

    Hence, you could see despite many Cloud offerings, the market share and growth of SaaS players is very less in these regions.

    Your comments

  • Roger – great point. add to the fact that there are two types of CIO’s – a chief infrastructure officer (legacy), and a chief innovation officer (business led), it’s only going to get very interesting how the CIO role splits up. Great points! What do other people think? – Ray

  • Ray,

    An interesting interplay we’re seeing as a cloud enterprise content vendor of some of the factors you describe:

    1) With “burden of legacy apps” – IT has invested in legacy software with high on-going TCO, creating both a barrier to innovation and a “legacy software tax” on the business buyer
    2) A business buyer turns to cloud to replace legacy app, reduce cost and get out from under the legacy tax
    3) IT, having little leverage to reduce the legacy TCO, now has to allocate essentially the same cost to fewer “tax payer” units/departments, raising those units’ costs and further stifling innovation.
    4) Back to step 2

    You can see where this story goes. Of course many CIO’s are getting ahead of this phenomenon, but its clearer that being a late adopter isnt going to work when the business has the opportunity to make its own decisions.

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