What does provision ‘as a service’ actually mean?

In business today virtually all technology is available “as a service” – common examples include software as a service (SaaS), infrastructure as a service (IaaS), mobility as a service (MaaS). Typically, the “as-a-Service” means that whatever is being provided (i.e. the asset / capability / service or the “X” – from XaaS) is made available to the customer (often over the internet or ‘in the cloud) to use as much or as little as necessary for as long as it is needed.

The benefits of these models typically include:

• No upfront costs (the phrase OpEx not CapEx is a favourite here) – generally meaning regular billing for the service rather than a once-off upfront cost.
• Scalability / flexibility – Businesses can increase or decrease consumption dynamically as their demand / requirements change.
• Innovation – the provider ensures that the X provided is always the most up-to-date version. Regular and on-going updates and improvements to the provision are part of the service. This eliminates the need for specific upgrades and provides continuously enhanced functionality.

So, it is much like the flexibility of power or (metered) water delivered to your home, switch any number of lights on, turn on a tap to fill a bathtub and you pay for the electricity and water consumed. Turn off all of the lights and the tap, and costs stop being incurred.

Simple to understand, you are in total control, ramp up and down demand at any time that a need arises.

Why is a closer look necessary?

Reality, however, is always more complicated than the marketing spin. Service flexibility may be constrained by cost, the terms of your contract (where you might only be allowed to scale in steps), or a totally flexible service delivery may simply not be available. Perceived benefits (e.g. from innovation) may not be realized in practice by overstretched business and IT teams.

Other costs (hidden, or at least not obvious at first sight) also often arise. One common cost driver is the use of reservations, where you commit to a specific level of usage or capacity for a period. As a rule of thumb, the most consistent your workloads, the higher your savings. The greater your need for flexibility, the higher premium you’ll pay.

All of this indicates more questions, more decisions, more complexity, rather than the simple contracting and flexibility the as-a-Service model initially seems to promise. The key, of course, is understanding your organization’s value case in the context of broader business and IT strategies – and working with an experienced partner such as HCLTech who can help identify potential benefits (and issues).

Because the bottom line is that adopting an as-a-Service model can lead to both soft and hard benefits, but creating a strong business case will mean identifying - and mitigating – any potential hidden costs.

A case in point: Taking a closer look at RISE with SAP and SuccessFactors

In the past, SAP licensing has been criticized for its seeming lack of transparency. This might be because SAP applications had a level of sophistication that meant a simple user based / usage pricing was not the most appropriate model – and understanding a license BoM and its implications was hard work.

With SAP now embracing SaaS products and the ‘as-a-Service’ mantra, licensing has certainly become more flexible and transparent, and therefore more open to understanding and interpretation. However, complexities remain. I’ll discuss two examples below: RISE with SAP and SuccessFactors.

SAP S/4HANA

RISE with SAP, S/4HANA Cloud licensing is based on four ‘dimensions’ that must be considered – User Access, Add-on Modules, Digital Access and Infrastructure Add-on. This does bring some simplification for both new and existing clients:

• User Access (under RISE with SAP, is now all based on Full User Equivalents – FUEs)
• Defined paths for mapping existing on-Premises licenses to cloud subscription licenses.

However, organizations still need to be aware of a significant number of “subtleties” with the as-a-Service model so as not to be ‘locked in’ too much, or subject to unexpected costs. For example, when business changes may lead to as-a-Service cost uplifts that may come at a premium.

The FUE metric on which much SAP S/4HANA licensing is based is fairly well described by SAP, and the implications of changes to the numbers understood. Other SAP metrics, however, (e.g. based on ‘objects’, ‘transaction blocks’, ‘document blocks’, ‘connections’) are less simple. My advice is to understand exactly what is meant by all of the metrics (such as FUE, blocks of 10000 documents, etc., for examples what is a document in the licensing sense and how you measure them), and then review what you really need now and are likely to need in future.

SuccessFactors

Licensing of SuccessFactors is fundamentally based on only two factors, the number of ‘authorized users’ and the particular modules they use. Simple, except that the modules are put into bundles. For example, Performance Management, Goal Management, 360 Reviews, and Continuous Performance Management all belong to the SAP SuccessFactors Performance and Goals bundle, whereas there is a separate Employee Engagement bundle which covers Qualtrics. To remove a cost, a user must not use any of the modules in a particular bundle, which the business should fully understand before any decisions are made.

Interestingly, SuccessFactors does recognize the challenges of understanding different user types (full or functional, in this case), and allows for the potential for significant changes (for example, covering seasonal workers) and does provide reports to allow organizations to stay compliant.

To ensure continuing licensing compliance and to avoid the hidden costs of ‘shelfware’, a full and complete license BoM including all breakpoints, bundling and “per metric” charges should be understood and reviewed against the current requirements and any foreseeable future changes.

Always remember that in a long-term contract (say of more than a couple of years duration), a licensing true-up is always a lot easier than a true-down.

How to maximize the benefits of “as-a-service”?

Here is my high-level advice when seeking to optimize the benefits of as-a-service licensing:

• No upfront costs – as a benefit

  It is true that there are usually no significant upfront costs for as-a-Service provision, but there will often be a need to contract for a significant term to get the best rates. In which case, you will need to ensure that some ‘flexing of the contract’ can be achieved (if this is likely to be necessary), or that you can accept a certain degree of ‘lock in’.

  However, you do need to factor in any legacy implications, as a move to an ‘as a Service’ provision should consider any current provision and ‘decommissioning’ or similar costs.

  In addition, at the end of the contract term, you also need to be aware that the provider has significant power over contract extension and future rates. This is especially true if a contract has been agreed with rates significantly lower than any published pricelist.

• Scalability / flexibility benefits

  This is an important potential benefit but be sure that your ability to scale / flex is not constrained by your contractual terms, especially in long-term contracts. Similarly, the likelihood and degree / amount of anticipated business change needs to be assessed fully, so you don’t pay extra for flexibility that will not be needed.

  Consider your likely (and more radical) future requirements, and how would each of the options leave you as an organization in one, two or five years (the time period you are probably going to have to commit for).

• Innovation – as a benefit

  There are two aspects to innovation when it comes to “as-a-Service”. One benefit is the elimination of the need to undergo (ideally regular) ‘upgrade projects.’ But the value of not paying for something is often considered to be a virtual as opposed to tangible for business case justification. Realizing a benefit from innovation is eased as new innovation potential is delivered automatically, meaning only the costs of implementation are required.

There are many benefits available to a business that takes on an ‘as-a-Service’ offering, but often two of the biggest and most significant benefits are not realised – primarily due to inertia.

As has been explained, the flexibility in the ‘as-a-Service’ model to ramp consumption up and down is fundamental. Businesses doing well and needing more and more as-a-Service capacity to cope are well catered for, and the provider will be aware of any looming capacity limitations in a service provision and will pro-actively sell more capacity.

The opposite scenario may not automatically be the case. As businesses change and their need for as-a-Service capacity reduces over time, freed up or unused capacity may not automatically be surrendered, and costs lowered. Therefore monitoring and intelligent capacity reduction (if necessary) needs to be proactively and regularly done by the business – otherwise fees that could be reduced may continue.

Lastly, my advice is to exploit new features. Software-as-a-Service provision, for example, will include regular updates to the application provided. The scope may be expanded and / or new features added. These updates will be to make the application more attractive to new clients and may have come from adding features suggested by existing clients who have found gaps. In either case, it is likely that some of the new features will be relevant and of benefit to your business. If the upgrades are not reviewed and potential beneficial features not recognized and their implementation not planned for, benefits will be missed.

A strong partner like HCLTech that understands the ‘as a Service’ marketplace and has direct experience and established relationships with the vendors can help you take a step back and question your requirements; understand the flexibility and optional components of any ‘as a Service’ offering; and do a sensitivity analysis to make sure you are not being (inadvertently of course) sold too much.