Cloud Applications and ROI:
Cloud applications continue to gain momentum in enterprise applications as buyers are attracted
to fast deployment speeds, low upfront costs, and ongoing !exibility to scale up or down as needs
change. But as "rms spend more and more of their closely guarded IT dollars on cloud applications,
sourcing executives must scrutinize the long-term value of these investments. Today’s cloud
investments represent millions of dollars of annual IT spend for some larger consumers of cloud. #is
report analyzes the longer-term, "ve-year cost of ownership and value for cloud applications across
four categories: customer relationship management (CRM), enterprise resource planning (ERP),
collaboration (including email), and IT service management.
Cloud applications, also known as so$ware-as-a-service (SaaS), are taking the so$ware market
by storm.1 Cloud giant salesforce.com boasts nearly 100,000 companies in its CRM-centric client
base; SaaS keeps growing at rapid pace across sectors like ERP (NetSuite, Workday, and Business
ByDesign), IT service management (CA, BMC, HP, and Service-now.com), and email (Google,
Microso$ O%ce 365, and IBM Lotus Live).
Buyers gravitate to these solutions because of their low upfront costs and fast speed of deployment.
Many SaaS solutions also o&er a more user friendly UI than their on-premises competitors due to
their more recent introduction or the providers’ ability to rapidly update the UI through automatic,
FOUR FACTORS DETERMINE THE ROI OF CLOUD APPLICATIONS
Cloud is certainly fashionable at the moment among business leaders, but few understand its full
implications. Sourcing executives should therefore cut through the fog of misinformation and
objectively evaluate the "nancial impact on business when considering the adoption or avoidance
of cloud applications. How? Companies can use a simpli"ed version of Forrester’s Total Economic
Impact™ (TEI) model to systematically consider:
1. Bene!ts. How will your company bene"t from cloud applications?
2. Costs. How will your company pay, both in hard costs and resources, for cloud applications?
3. Risks. How do uncertainties change the total impact of cloud applications on your business?
4. Flexibility. How does this investment create future options for your organization?
#is report looks at four representative scenarios in categories where Forrester sees high demand
for cloud applications: CRM, ERP, collaboration, and IT service management. For each scenario, we
analyzed the total economic impact (TEI) of an organization moving from an existing on-premises
application to a cloud-based alternative.
Key Benefits: Cloud Applications Drive Faster Time-To-Value
Organizations that are implementing cloud applications can expect several bene"ts, mostly around
deployment speed, subscription pricing models that align with usage, accessibility, and usability.
#e scale, timing, and duration of these bene"ts can be estimated by considering one or more key
metrics and the value to the organization of improving those metrics over time (see Figure 2).
Ongoing bene"ts include:
· Faster deployment speed. Cloud applications appeal to business buyers because cloud enables
them to roll out solutions much more quickly than with on-premises; many SaaS deployments
take only days or weeks. Why so fast? Cloud solutions are ready to go — users need only a login
and an Internet connection to get going; there is no need to procure hardware or do testing. Also,
implementation is usually quicker, with a lighter, more iterative approach to con"guration versus
the heavy upfront customization that often characterizes on-premises deployment. This faster
speed also applies to ongoing enhancements. An avid user of cloud applications told us: “The
end users don’t want to wait, they want to get the thing done. [We use cloud to] deliver tailored
solutions with great appeal to the end user. #e pace of the stu& we deliver is so much quicker.”
· Reduced support needs. Cloud applications’ clients o$en can reduce or eliminate IT support;
the SaaS provider typically includes a help desk in the subscription, and technical support needs
are lower since the provider does all the patching and bug "xing. Additionally, many cloud-based
applications were built for business and have simpler, more self-service-oriented user interfaces.
For example, many companies have reduced internal IT sta& by moving email to the cloud, since
their subscription payment covers all necessary support, infrastructure and archiving costs.2
Simpler, more frequent upgrades. Cloud applications o&er seamless, automatic upgrades,
typically two to four times per year. #is means that users get access to the latest features and
functionality faster than in an on-premises deployment where upgrade cycles o$en take three to
10 years. #e more frequent, more incremental upgrades also mean that "rms typically have no
consulting costs or change management issues during upgrades. One cloud application client we
spoke with who uses NetSuite told us that he “would have had to use consultants to upgrade the
on-premises code whenever there was an upgrade. With SaaS, our upgrades happen seamlessly.
There are e%ciencies that we get because we always have the best version of the so$ware.”
Better utilization. Pay-as-you-go applications typically yield better adoption for three reasons:
1) firms pay for what they need, eliminating the shelfware problem typical of on-premises deals,
so SaaS providers have a "nancial incentive to encourage deployment and promote use; 2) cloud
applications are typically geared toward more of a business audience, meaning they are easierto-
use and built to have a familiar (think Facebook-like) look-and-feel; 3) cloud vendors o$en
deliver proactive health check reports that provide statistics about usage, making it easier for
companies to identify employees who may need more training or incentive to use the apps
| || |
| || |Reducing the licensing, training, and support costs of adding additional users
| || |Decreasing the time to ramp up new users, maximizing their productivity from
| || |Eliminating maintenance costs. Reducing full time helpdesk, support and transferring staff to higher value
| Reducing spending on excess capacity |
The ROI Of Cloud Apps
by Liz Herbert and Jon Erickson