SaaS deployment creates cloudy cost conundrum

Technology cost optimisation has never been easy, but now there are devils lurking in the decisions driven by SaaS deployments…

Back in the day, the traditional layered structure was one of the organising principles for IT architecture, and was probably alright in the 90s…

Traditional layered information technology architecture

That manifested in an IT application and hosting infrastructure mirroring the layering with data centres full of servers to host the apps and a veritable throng of IT Operations people to run it all…

How Enterprise IT used to look

In terms of cost optimisation, a key strategic enterprise consideration was in the tension between vertical specialization and horizontal standardization and cost consolidation, with some simple tradeoffs…

Old view of technology architecture and cost tradeoffs – a simple dilemma of horizontal and vertical

In this simple world, the dilemma was whether you allow business units have their heads and anything they want in the application space or standardize and consolidate applications and infrastructure to get the volume and standardisation benefits. Of course, the decision varied depending on the application types. For example, driving between specialised customer facing apps where the business might be beholden to the requirements needed to deliver best customer experience and competitive advantage. Contrasting with the back-office applications where there is no sense every business unit having a different finance or HR system; that complexity just creates non-value-adding cost, so standardization wins out. The “tin & iron” infrastructure was simple too, as it all ran in the company’s data-centres or perhaps in more exotic cases, in outsourced supplier’s locations.

So a simple life, with easy decisions…yeah…

But then SaaS came along and just busted out of the joint, breaking up the simple layered model and disturbing the simple inward-looking contemplations of the various decisions IT…

SaaS busts out!

The consequence of the bust-out is a substantive reshaping of the enterprise technology landscape for many companies – turning the old layers sideways and abolishing some treasured assumptions. In doing so also the new enduring technology organisations that run that new shape (should) also get smaller since they no longer need to have the people to manage the “tin” (and, for those following the story above, the “iron”)…

SaaS “hollows out” traditional Enterprise technology environment

The “hollowing-out” of the traditional IT infrastructure with separate SaaS services fragments the overall technology cost base, for example, by the separation and vertical integration of hosting costs into the individual SaaS towers. This pushes against some of more traditional levers of infrastructure standardization and creates some new tradeoffs to consider.

Architecturally speaking, under the covers, the actual composition of the SaaS towers is a heterogenous mixture of parts, albeit with some dominant patterns of deployment. SaaS vendors may host their own services, but often enough, they will use commodity IaaS cloud services, e.g., Genesys Cloud and Workday both run on AWS, as does Salesforce which also has self-hosted services. Equally in reverse, Microsoft who do host their own SaaS services, offer an on-premise Office Online Server for those organisations who need to embrace the data themselves, maybe for data residency/sovereignty/security reasons, but also want the reflection of Microsoft 365 online services in their lives.

This admixture of potential solutions creates a trilemma with many more tradeoffs to balance between the different dimensions of the service and cost optimization equation, thus…

Technology architecture and cost tradeoffs – the new trilemma

So, it is a multi-dimensional problem to consider with the application architecture decisions having a considerable impact on the TCO of the resulting technology environment. Compared to the simple days of moving lots of ancient “tin” (and, of course, “iron”) to a shiny virtualized cloud infrastructure, moving to cloud (whether SaaS or IaaS/PaaS) is not these days a slam dunk guarantee of optimal costs; it depends very much on the transformation journey and where you are coming from and heading to, and how tightly managed that new place is.

To be sure, moving from a on-premises landscape with, for example, a multitudinous miscellany of disparate finance systems to a harmonised online SaaS ERP system, should generate some operational cost savings, as well as business benefits from process standardisation and shared services. There may or may not be associated benefits in the hosting infrastructure depending on the existing level of consolidation and virtualisation of the physical assets and support services. On a like for like basis, whilst the internal IT Operations labour costs should go down, it is possible for the (non-transparent) embedded hardware and related costs to go up. So you still need to “follow the money” by looking at the wider TCO benefits or disbenefits as well as just getting excited about the shiny new toys.

Sourcing the right solution, both software and implementation partner together, is crucial with a guiding commercial-technical design considering the target operating model, business and technology architecture, commercial and TCO levers, and beyond that potential for business operating model transformation to deliver the goods

Beware the devils…


Footnote

In furtherance of technology understanding, I used the DALL-E AI to generate the featured image at the head of this post. Here are some of the other ideas it came up with…

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