SuiteWorld 2011: How will software-as-a-service change the IT department?

CIOs are aware of the benefits of SaaS applications as being faster, better, cheaper. But how will the reduction in IT costs change the IT department? Jenny Williams investigates.

As businesses introduce software-as-a-service (SaaS) applications to cut IT costs, the cloud could change how the traditional IT department operates by reducing staff numbers. With prices for SaaS products starting at £70 per user per month, it is easy to see how the IT department may find itself left out of some purchasing decisions.

Zach Nelson, CEO of on-demand ERP firm, NetSuite, says SaaS removes people costs for businesses.

"We're getting back to what IT was originally designed as - the strategy arm of the company that applies technology to advance the business. For 20 years, IT has been hijacked by software suppliers to run applications," said Nelson.

He believes IT staff will need to become business process experts and "not about SQL Server updates".

IT shifts its focus to business processes

While Nelson's remark points to IT becoming more business focused, it is hard to see how or why someone with valuable IT skills would want, or even be given the opportunity, to retrain.

But a number of organisations that have implemented SaaS software have reduced their IT staff headcount. Will IT people fully embrace SaaS, given that it may put certain IT jobs at risk?

Manufacturing firm Mountz oversees quality of manufacturing products for customers such as Apple and the US Navy. The company completely eradicated its IT department to cut costs using NetSuite's accounting, OneWorld and CRM systems.

Mountz CEO Brad Mountz says it now employs only one person to provide IT support for the company's hardware, and that takes up only half of their time.

IT remains a key function

While some organisations have reduced headcount as a result of deploying cloud-based applications, others have changed IT roles rather than remove staff.

Shawn Kernes, CTO at online private shopping club company Beyond the Rack, says the IT function changes with cloud computing, and it becomes about managing people rather than cases.

"It is important to hire smart people and teach them what they need to know. Hiring for specifics might meet today's needs, but you cannot react to technology changes in the future," he added.

Kevin Harding from health charity Imagine agrees. He says using cloud-based applications means "the IT role shifts from person-specific to enterprise-wide issues".

Scott Guinn, research director at analyst firm IDC, says the CIOs are right. "[Service level agreements] SLAs are a big deal. It is still going to be important to test, train and customise [cloud-based applications]."

The strategic IT department

Chris Pang, principal research analyst at Gartner, says UK IT departments are experiencing the same changes seen within US-based divisions, and the deployment of SaaS makes shifts more pronounced.

"The IT department is becoming more strategic and less tactical. A lot of helpdesk support is being [moved] offshore. As a result, IT will become more about strategic changes in what the business wants to achieve with its IT infrastructure," said Pang.

Despite the shift from tactical to strategic roles, he says there is still a need for traditional IT skills for testing functions, integration and customisations. However, new skills will also be needed in cloud languages, web services and service-orientated architecture.

Pang adds that small companies might be able to dramatically reduce or eliminate its IT department but large companies will still need dedicated servers and IT staff support.

Even in the procurement of SaaS, which can sometimes be bought under divisional budgets without IT input, Pang believes IT will need to be involved in decision-making.

Cloud computing presents CIO opportunity

However, CIOs will have to accept loss of asset control. Holger Kisker, senior analyst at Forrester, said: "Many CIOs are fighting against cloud computing in IT departments as they are losing asset control. But cloud computing is a big opportunity. It changes their role to become an owner of data and processes.

"In the future, CIOs will be a flexible source for business needs. This moves the role up in the business layers. CIOs will give up control but gain a lot."

Kisker adds that this will drive cloud computing as an important part of CIO strategy.

The introduction of cloud-based enterprise applications within businesses is changing the IT department. Whether small companies cut people costs or larger businesses change IT roles, the cloud has the potential to change IT's core function towards a greater alliance with the business and its processes.

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