Drivers of SaaS Adoption in HR Differ by Growth Profile

Alex Bakker

What is Happening?

In our 2016 HCM Adoption Survey we examined whether companies are moving their HCM solutions to SaaS / Cloud (they are), and we also looked into what was driving that shift. As we have seen over the last several years, vendors are increasingly shifting focus to their cloud systems, leaving the fate of many on-premises software applications on an inevitable upgrade path. However, many customers aren’t waiting until the last minute – the HCM suite has been a leading category for enterprise SaaS adoption for several years.

Why is it Happening?

Figure 1 shows what companies indicated were their top three drivers for selecting to move their HR systems to SaaS over the next few years.

Reducing TCO easily tops this – which is somewhat intuitive, because HR software tends to have high total costs. Many systems rely on manual workarounds, have high customization costs, and require 3rd party add-on functionality. Downtime, errors, and maintenance also have costs across the organization and tend to be reduced with SaaS applications. Finally, HR apps and data have high compliance and privacy risks. PII laws often protect the data, and legislation on benefits such as the ACA can also impose significant costs on HR processes.

SaaS Adoption

Figure 1: Top 3 Drivers of SaaS Adoption. Source: ISG Inc., 2016 HCM Adoption Survey, Global n = 206.

After that, reduced demand on IT is seen as a major driver for SaaS deployments – both to avoid configuration and deployment delays, but also to reduce reliance on in-house support. This driver is one that we see often in our consulting engagements in addition to HCM systems typically being lower on IT’s priority list after client facing services and other business systems.  It is also closely related to the TCO question as well, since by sourcing HR functions to SaaS providers it also reduces the helpdesk, hosting and applications development and maintenance burden. Finally, while infrastructure costs are rarely the driver of high total cost of HCM systems, the reduction in human costs associated with the shift of on-premises applications to SaaS has follow-on importance to cost reduction.

However, cost management is far from being the complete story here. Figure 2 looks into the drivers across various company growth profiles. In the fastest-growing companies, the shift to SaaS is driven mostly by the need to increase employee engagement, likely focused on retention and fast onboarding needed by companies that are rapidly adding headcount. For those same companies, user experience is also of high importance.

Companies whose business is shrinking/contracting are looking for benefits that immediately enable them to leverage best practices – often a critical area of liability coverage when reducing headcount. After that, they also seem the most critically focused on reducing their need for IT. We see a strong trend that the faster-growing companies are not as worried about the performance of their IT departments. This reflects a dichotomy in IT that shrinking businesses recognize that their IT departments are holding them back, while fast growing companies often are able to grow quickly because their IT delivers above-average capabilities to the business. IT can be the cause of the fast or slow growth, as well as a symptom of either.

SaaS Adoption 

Figure 2: Top 3 Drivers of SaaS Adoption – By Company Growth Profile Source: ISG Inc., 2016 HCM Adoption Survey, Global n = 206.

Market Impact

While cost management remains overall top-of-mind for the majority of companies selecting HR SaaS, these goals are not uniform across all growth profiles. In our experience, the primary benefit that companies receive from SaaS is seldom true reduction of total cost, at least in the short term. While the lack of costly upgrades can have real impact on the long term total cost, we find that in the shorter term, the primary benefits to the organization are softer, e.g., improved agility, faster time to value, easier data integration, and improved employee experience.  These issues still ranked lower in the survey overall than costs, despite showing up often.

We believe that this indicates a mismatch between what customers really need, vs. what SaaS helps them achieve. For example, they want a reduction in cost, but they are more likely to get improved agility. To truly achieve lower total costs, the organization typically needs to look beyond their basic software implementation toward specific processes and operations that can be streamlined to actually reduce overhead and costs. SaaS sets companies up well to have the flexibility to reduce or avoid costs, but it doesn’t necessarily reduce costs by costing less.

2017 – An Inflection Year for Digital Labor in Enterprise IT?

Bruce Guptill, Ron Exler Research Alerts

What is Happening?

A review of both enterprise client hiring plans and third-party insights indicate a significant and accelerating information technology skills shortage that will continue, and likely grow, through 2017. And unfortunately, that shortage looks to be worst among skills critical to the development and growth of digital business – i.e., IT security, Cloud, and data analytics and management.

Our net take: These shortages will hasten enterprise moves toward more, and more advanced, methods of staff augmentation, including more aggressive outsourcing, more and better skills training, and greater deployment of digital labor in IT through 2017. In some places, governments are stepping in to fund technology training.

Why is it Happening?

Our ongoing research among C-level business and IT leaders clearly indicates the significance of Digital Business development and improvement, as well as the challenges in finding necessary skills such as advanced IT security, data science, and associated analytics and data management. It’s becoming clear that business and IT leaders alike face a skills shortage that threatens their enterprises’ ability to develop and grow Digital Business initiatives.

Figure 1: Digital Business Signposts

Digital Business Signposts

Source: ISG Insights Digital Business Survey among C-level Business/IT Leaders, Nov. 2015 (n=129), & Sept. 2016 (n=141)

Meanwhile, our assessment of hiring plans among enterprise clients, supported by analysis of published third-party research, indicates stagnant IT hiring through 2017. The majority of market data highlight limited (and limiting) technology hiring expectations amongst IT leaders. For example, TEKsystems’ annual IT Forecast reports that 63% of IT leaders expect 2017 IT salaries to stay the same overall compared to 2016. The Robert Half Technology’s IT Hiring Forecast and Local Trends Report says that only 16% of CIOs plan to add more IT staff in the first half of 2017, and 69% plan to hire only for open IT roles. Economic factors exacerbate the flat IT hiring projections, with some economists saying that 2017 will see flat or low growth accompanied by global political and economic uncertainties.

Net Impact

We believe that this stagnation (or at best, very limited growth) in IT hiring will help make 2017 an inflection point in the growth of digital labor adoption, especially within enterprise IT organizations. We already see a clear influence of automation on the cost of IT outsourcing (ITO) and business process outsourcing (BPO) services. Providers’ automation of several traditional aspects of IT operations and management is increasing sharply, leading to upwards of a 50 percent reduction in the number of resources required to support core IT operations services. This, in turn, is leading to significant cost reductions for data center, application management, service desk, and network services customers. We see these approaches both (1) increasing some enterprises’ ability and desire to outsource, and (2) providing examples to enterprises as to how they can address hiring needs when budgets fall short.

2017 will not be the year that software and robots replace highly-skilled IT staff, however. The state-of-the-art in IT automation replaces people in some of the more simplistic IT areas, such as operations monitoring and help desk. Extending automation to more intricate tasks requiring greater skill levels is complex, and outside of today’s capabilities. That being said, we see rapidly increasing use of Robotic Process Automation (RPA) in both provider and enterprise IT; RPA supports additional complexity, and will be key to extending automation beyond the simple tasks.

Digital labor will not only be deployed in IT operations. Our work with clients in areas such as Finance, Human Resources, and Contact Center suggests that more than two-thirds of these business areas will see significant RPA adoption by 2020.

While automation can reduce staffing and associated costs, it doesn’t directly solve the problem of lack of people with expertise in required technology domains. Enterprises can resolve the lack of expertise through training or by hiring beyond current sources.  For that, we see 2017 also being an inflection year in the growth of advanced IT skills training in security and data science.

Some governments are stepping in to help with technology training. The U.S. White House TechHire initiative is a campaign to expand local tech sectors by working with companies in building technology-talent pipelines in communities across the country. There are now more than 50 TechHire communities in the U.S. and the government recently released $150 million in new Department of Labor TechHire grants for training.

Programs such as TechHire should close some of the skills gap and address concerns many companies have in light of some of the populist attitudes in many regions against corporations that outsource work to offshore locations.

CES 2017 – Bellwether of Next-gen Enterprise IT User Experiences?

Bruce Guptill, Jim Hurley, Ron Exler Research Alerts

What is Happening?

CES – formerly known as the Consumer Electronics Show – now underway in Las Vegas, traditionally has been a conference about consumer gadgets and gizmos, and not about enterprise IT. But we see this year as different; it is the year CES transitions from largely disconnected or loosely-connected gadgets and gizmos, to one where devices from augmented reality systems to drones to autonomous vehicles to sensors and controllers become interconnected via 5G and immersive broadband, and utilize context-led data mining and machine learning, and degrees of cognitive capabilities, to transform end-user experiences.

What is important for ISG Insights clients is that the immersive, user-centric IoT experiences being showcased at CES this week are going to create new demands for customer, employee, and partner experiences in the workplace; the use cases showcased at CES are early indicators of where user experience for enterprise IT is headed, and its inherent IT management challenges.

Why is it Happening?

In addition to being a coming-out party for new gadgets and consumer services, CES is an indicator of what is just around the corner involving user-oriented technology innovation. In and among the technology provider announcements, sessions introduce, explain, and demonstrate incredibly diverse consumer and commercial IT as diverse as artificial intelligence, autonomous vehicles, 5G and ATSC broadband, connected cars, entertainment, healthcare, IoT, mobility, public safety, smart cities, transportation and wearables.

But this year is a bit different than past years at CES. This year’s focus on the interconnection between people and their experience with interconnected devices, data, and applications indicates that a new era is underway in the innovative consumer electronics industry. Instead of being about disconnected or loosely connected, the innovations being showcased at CES are forecasting where user experience technology innovation is going, using the convergence of data, devices, immersive connectivity, machine learning and emerging uses of cognitive artificial intelligence.

We see strong focus on the interconnection between voice activation and the command and control of devices and associated services, including messaging, calendaring, device or system access, streaming content, and environmental controls, including those in automotive vehicles. Use cases are being demonstrated this week for all of these interconnected user-controlled-and-customized capabilities across automotive, entertainment, healthcare, transportation, and smart city / public safety applications and environments. This is an important aspect of the growing trend toward greater adoption and adaptation of more immersive user experiences (including wearables, augmented reality, and social IT) in more environments.

Net Impact

In much the same way as the PC, laptop and then smartphones redefined the user experience in the past few decades, we expect this year’s CES will be the beginning act of a longer-term evolution that will again redefine customer experience for enterprise IT. Our experience suggests that key developments demonstrated at CES this year becomes what individual users expect in their business IT environments within the next two years.

The immersive, highly-integrated, voice-commanded environments showcased at CES 2017 are unlikely to make strong commercial showings immediately, but the users will be bringing them in to the enterprise very soon. The most likely early areas of enterprise adoption will be in systems or processes with multiple sets of relatively simple tasks that utilize readily-available information services of some type.  But these early initiatives will help to rapidly develop and refine an increasing range of business environment use cases through 2018. Much of this will be disruptive to enterprise IT management, driven by individual and small group initiatives similar to early Cloud adoption instances.

The net problem to be anticipated and addressed is as follows: An unpredictable mix of traditional and nontraditional devices used by a rapidly-growing number and range of users in nontraditional ways to access and control both traditional and nontraditional (and likely non-approved) services will test resource management and system security at tens of thousands of intersecting points daily – while creating massive amounts of user/device/resource data. Clients of ISG Insights will see continuous updates and guidance on all aspects of this combined burgeoning problem and innovative adaptation of consumer IT for enterprise business.

Grußwort zum Jahreswechsel

2016 war ein äußerst ereignisreiches Jahr. In der Weltpolitik zeigten sich Umbrüche, die auch voraussichtlich unsere Märkte beeinflussen werden. Hierzu passt, dass die Unternehmen in Europa die allergrößten Herausforderungen im Rahmen der Digitalisierung primär nicht nur bei IT-bezogenen Themen, sondern besonders in der (Führungs-) Kultur und der Bereitschaft zum organisatorischen Wandel sehen. Nichtsdestotrotz war der ICT-Markt deutlich in Bewegung. Dies zeigte sich nicht zuletzt an zahlreichen milliardenschweren Übernahmen, mit denen sich viele Anbieter für die Herausforderungen in rasant sich wandelnden Märkten wappnen wollen. Sei es etwa, indem die Möglichkeiten des Internets der Dinge angestrebt werden, der Wandel zum Dienste-Provider vorangetrieben wird oder das Momentum einer gewaltigen Netzwerk-Community dem Geschäft zu Gute kommen soll.

Auch für Experton Group selbst war 2016 ein sehr bedeutendes Jahr. Im März wurde unser Unternehmen von der Information Services Group (ISG) übernommen. ISG ist eines der führenden Marktforschungs- und Beratungshäuser im Informationstechnologiebereich und weltweit aktiv. Die Dienstleistungsangebote unserer beiden Unternehmen sind komplementär und ergänzen sich sehr gut. Der Marktforschungsfokus von Experton Group passt zu den immer wichtiger werdenden Digital Services von ISG. Durch unsere Vendor Benchmarking Services erhält ISG zudem ein neues Standbein, welches weltweit genutzt werden kann. Ein erstes gemeinsames Portfolio haben wir bereits auf unserer Hauskonferenz „Expertonale“ zusammen mit ISG vorgestellt. Unser Ziel dabei ist, für Sie die Markttrends auch 2017 mit zeitgemäßen, innovativen Beratungs-, Analyse- und Research-Methoden zu begleiten.

Zum Ausgleich des in unserer Branche vorherrschenden Innovationstempos wünschen wir und das gesamte Team der Experton Group Ihnen ruhige und erholsame Festtage, einen guten Jahreswechsel und viel Glück, Erfolg und Gesundheit im neuen Jahr.

Frank Heuer Frank Heuer Frank Heuer Frank Heuer

Jürgen Brettel
Vorstandsvorsitzender

Nils Bachmann
Vorstand
Bernd Schäfer
Managing Director
ISG Germany
Barbara Florschütz
Partner ISG Germany

AOP/ISG State of the Industry Survey – Does Digital Require Outsourcing?

Ashish Chaturvedi, Jan Erik Aase Research Alerts

What is Happening?

Digital adoption is accelerating, clients are still heavily dependent upon outsourcing providers, and the use of new business models is impacting the success of digital-centric initiatives. These are three key initial findings from the current State of the Industry survey being conducted by the IAOP in partnership with ISG (and part of the keynote at the IAOP European Outsourcing Summit week in Amsterdam). The survey was distributed to over 12,000 European IAOP members and affiliates as well as over 20,000 global enterprises. An additional section of the survey will be released worldwide to over 100,000 enterprises, advisors, and service providers next week. These findings were focused on the European markets but ISG has observed that they apply globally.

One data point really stands out above the others: Almost two-thirds of enterprises are relying on external providers to implement their Digital projects. Moreover, enterprises tend to completely rely on external service provider whenever Digital projects involve augmented reality, IoT, or robotics. Thus, it appears that the more complex and somewhat uncharted initiatives have the highest probability of being outsourced.

Technology models are playing a more prominent role in the delivery of digitally-focused initiatives. The survey identified Agile as the preferred development model. Agile fulfills critical business requirements such as improved speed-to-market and continuous software delivery, which is core necessities of all digital projects. SOA was rated as the most popular development architecture. SOA is also among the most stable operating models.  It is known to enable operational efficiency, provide agility, and enable more accurate project scheduling.  And test automation tools are the most widely used automation tools in the development process followed by build orchestration and containerization.

The combination of these three circumstances forms the perfect storm – enterprise clients have the will and they are acquiring the skill in order to use the methodologies and tools that enable digital projects to succeed.

Why is it Happening?

Our ongoing work with enterprise and provider clients indicates that enterprise Digital business strategy and execution are heavily dependent upon service providers. The survey data confirms this, indicating that an average of 65% of enterprises rely on service providers to make Digital happen.

This is because effectively and efficiently “going Digital” is hard work and beyond the capabilities of practically any single entity. Properly planned and managed sourcing is critical to making Digital work. This is because all existing and upcoming enterprise business technologies, along with the frameworks and methodologies being used to work on these technologies, must be evaluated from the lens of the overall business impact.

The ability to leverage the technical and technological expertise in the market to improve innovation, flexibility and time to market have all increased in importance. And with the business side typically driving the funding, oversight, and schedule of most Digital projects, reliance on external providers is only going to increase.

This high reliance on external providers also increases the complexity for internal IT and Vendor management organizations, who must manage the project costs, scope and schedule. Proper management does enable the advantages of improved flexibility, increased access to skilled resources and custom solutions. But this is only possible if enterprise (internal) IT is tasking ownership of these projects and driving the digital agenda on behalf of the business.

Net Impact

Collaboration between business and IT leaders through the digitization of business models is making IT as an enterprise function more important and impactful than ever before. Restructuring of the business process landscape and development of technology roadmaps are some of the biggest impacts that digitization will create for Enterprise IT. Through Digital projects, we see enterprise IT forming strategic partnerships with service providers to support growth and internal process transformation rather than just cost reduction. Additionally, digital labor (and not cost arbitrage) has become the primary driver to achieve productivity, speed and quality improvements.

Service providers will require new skills to cater to the demand of the digital economy. They must improve their abilities to provide solutions to enterprise IT, that are business-centric and not just technology based. Additionally, incumbents will be challenged to move from T&M to outcome based models and put more skin in the game. This is what enterprise IT will be expected to do and therefore their “partners” will have to follow suit. It is becoming more apparent that no enterprise IT team can do everything by itself. Hence, the success of a these new digital initiatives will be a direct function of the strength of the ecosystem it works in including start-ups, technology partners, software vendors, system integrators, and the various internal teams.

Within 2 years, we expect a high level of productization of Digital services. This will primarily be driven by start-ups and niche providers. As a result, these players will experience high growth. ISG anticipates that many of them will be acquired by large legacy providers that are already in the process of re-structuring their teams and service offerings to meet the demand of the digital customer. Join me at the ISG Digital Business Summit (DBS2016) in Chicago IL to hear my presentation on these topics and the preliminary results of our survey.

This Research Alert was originally published by ISG Insights, our ongoing globally-focused premium subscription research service. To learn more about ISG Insights, go to http://insights.isg-one.com where you can register for a Research ID that will provide access to some of our complementary content.

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Operational Agility Drives Digital Business Efforts – But What About IT?

Bruce Guptill Research Alerts

What is Happening?

The latest research from ISG Insights shows that the top-rated business factor driving development and adoption of Digital Business, and the move toward enterprise digital transformation overall, is a perceived need for greater enterprise business operational flexibility and agility. Figure 1 summarizes and presents the relevant survey data.

Figure 1: Operational Agility is Job One

Operational Agility

Source: ISG Insights Oct. 2016 global web survey; n = 141 C-level Business and IT leaders

The survey provide data, insights, and context regarding CXO Digital Business thinking, plans, and actions leading up to ISG Insights’ Digital Business Summit events. As can be seen in Figure 1, survey participants were asked to “identify the top three (3) business drivers or pressures causing your organization to adopt Digital Business strategies or tactics.” While all factors received some votes, the need for operational agility and flexibility is the clear #1-ranked factor – and will shape how, when, and why enterprises develop and refine their digital business investments and progress.

Why is it Happening?

Agility, especially the ability to operate the business in a flexible, adaptive manner, is the logical place for enterprise leaders to focus digital transformation efforts, because agility enables practically every other factor listed. If we want to be able to adapt and respond to shifting competition, if we need to build or adapt to different business models, if we want or need to grow market and wallet share, all in unpredictable markets and potentially unforeseen environments,then we must have the ability to operate the business in a adaptable fashion. Without operational agility, there is little chance of surviving, let alone competing, in such conditions.

The uncertainty of Digital Business stands out when we look into more of the data shown in Figure 1. For example, CXOs see the nature of competition itself changing. In addition to 41% worried about more competition from within their industries, nearly one-third of CXOs indicate concern about unknown or previously unseen/unexpected competition from new quarters. Operational models and characteristics need inherent agility and flexibility to respond to and adapt to such forces, as well as to enable new business.

That being said, the relatively low rankings of a need for new business models, and of segment disintermediation, and of changing expectations in the workplace, suggest that we are only beginning to see the fundamental business changes and disruptions that so many expect from the move toward Digital Business. This could be because these changes have yet to emerge en masse; in other words, digital disruption may be expected, or even perceived, but is not completely “real” to the majority of businesses at this time. It’s early days still.

Net Impact

Obviously there is massive digital transformation activity underway worldwide, and it is happening because there are tangible business benefits available. The move toward Digital Business, and the drive toward more complete enterprise digital transformation, will continue. Those enterprises lacking operational flexibility and agility will be unable to compete, whether against traditional competitors or against new competitors from unexpected sources.

But even those firms that develop the most innovative and agile operational models risk accelerating disintermediation between business groups and the IT organization as they rush toward the digital future. We began referring to this as “IT-Business dissociation” several years ago in the early days of SaaS, and have been tracking changes and impacts since then (803MKT, Free-Range Knowledge Work Spotlights IT Dissociation and Future, 30Oct2010; and 1163STR, The Seeds of IT Change Were Planted Well Before Cloud Began Reigning, 31Dec2012). Our net position then, and now, is that the wholesale adoption of readily-affordable and useful business IT by business users and groups is shifting enterprise IT assets, responsibilities, and costs to end users, or to end users’ departments. This is creating or exacerbating the disconnects between IT organizations and the business groups and users who require more effective and more integrative IT capabilities than ever.

The digital future is happening; the new operational models are being adopted, adapted, and refined. But how well will they work without a closely-associated, aligned, and synchronized IT + business relationship? Participants in our three 2016 Digital Business Summit events – Berlin, Germany (October 27), Greenwich, CT (November 17) and Chicago, IL (December 1) – will learn the answers first-hand from C-level IT and business leaders who are making the journey to Digital right now, and who are willing to share what they see as what’s next. Registration is now open! Registration, along with links to the event agendas, speakers, locations, and dates can be found here:http://www.digitalbusiness2016.com/.

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