Is SaaS transforming the CIO's role?

The way Tim Minahan sees it, the rise of Software as a Service business applications is shaking up traditional roles in IT. In the brave new world of cloud computing CIOs become "best practice business assemblers," techno-savvy business line managers become more influential over technology decisions, and consultants move away from hands-on coding and application customizations to "best practices and change management process experts."

Sound too easy?

Well, Minahan does have an axe to grind here: He's the chief marketing officer at Ariba, a spend management and contract management application vendor that has almost fully transitioned its customer base to SaaS. Ariba made its big push two years ago. Today 80% of its customers are using its services in the cloud and the company claims to have captured 40% market share for on-demand spend management services online.

Minahan dropped by Computerworld's offices this morning. No doubt his thoughts were with his family back in Georgia, who were cleaning up after torrential rains flooded their home. He may have been anxious to get back, but was fully engaged when talking about Ariba's transition and how he believes that SaaS is changing the role of IT. While his vision reflects Ariba's marketing strategy, he makes his arguments based on what he says Ariba's enterprise customers want - and what they are doing in the field.

The Pitch

First, Minahan's pitch: Automated spend and contract management tools automate procurement processes and give organizations better visibility and control over expenses in a time when cutting out waste is a priority. And services like Ariba Supplier Network can help businesses negotiate better agreements, he claims.

Currently Ariba offers its software on CD-ROM, as a hosted service through IBM, and as a SaaS offering. Ariba also makes its money through a 600 person consulting practice and the Ariba Supplier Network, a web-based trading network that allows 1,600 buyer organizations to find and negotiate with 160,000 trading organizations online.

Adios, application infrastructure

Minahan says he's spoken with many Fortune 100 companies and two things are happening. "Companies are laying off employees and they don’t plan to hire them back. And it's the same with infrastructure." Businesses have to operate with a lean infrastructure, he says "and they're not looking to install that back." They are going lean and plan to stay lean, even after the recovery is well under way, he argues.

How dismal. But he sees that trend as an opportunity. Minahan thinks that to do that they are turning to the more flexible model that SaaS offers

I'm not convinced that those changes are permanent. In every peak and every valley someone always proclaims that the rules of the road have changed. Banks supposedly learned their lesson and would never again jump into risky complex securities. Consumers, shocked by $4 a gallon gasoline, were supposed to permanently move to energy efficient vehicles. Sadly, both prognostications proved untrue.

Once money starts flowing again, companies are still going to need talented people to grow. And IT, which is always laser focused on cutting "lights on" overhead and improving business processes, will continue to get funding for compelling projects. But Minahan's point here is that top management may be less inclined to approve construction of capital intensive, internally hosted application infrastructures when pay as you go SaaS alternatives are available. And the pressure to do that will come from operations executives in the business units themselves (Which by extension may mean that the business units, not IT, are taking the brunt of the sales calls. Will you be in the loop?).

That's all well and good, but with IT's ongoing focus on gaining efficiencies by using fewer providers, won't CIOs tend to go with a cloud solution from SAP or Oracle that plugs right into their monolithic ERP systems? Minahan thinks SaaS is a game changer here because IT doesn't face the integration headaches that have given IT fits in the application software market. It used to be that if a competing module from SAP or Oracle could do 70% of the functionality of what Ariba or other best of breed products could do that was good enough. Now, he says, "You eliminate a lot of the resistance (to best of breed) with SaaS."

Objections answered?

Are the objections to having application code and data in the cloud really resolved? Minahan says yes, and he touts standardized, auditable security methods and strong integration capabilities with ERP systems through Ariba's consulting group. "In the SaaS environment you can’t ignore the requirement to integrate with legacy infrastructure," he says. He also promotes Ariba's high degree of customization. For example, different procurement policies and rules can be applied based on the user's role and location, reflecting the needs of different business units in different countries. But again, one has to wonder: If world class IT organizations have struggled mightily with complex ERP integrations at scale, will the Ariba's of the world be able to do any better as the integrator wizard behind that cloud computing curtain?

The mid-market white space

Ariba also sees an untapped market. SaaS, with its more economical pay as you go model, is allowing Ariba to push products that once only the Fortune 500 could afford further down into mid-market businesses. Of the 39 new customers Ariba added in the last quarter, 20 had revenues of between $100 million and $1 billion. While 85% of the fortune 100 have at least some investments in automation in this space, just 40% of those mid market companies have done any automation at all. "A lot of folks [in the mid-market] are doing the age-old three bids and a cloud of dust, or managing it via e-mail," Minahan says. So this, in marketing terms, is the "white space" that Ariba has set out to conquer.

Are concerns about moving applications and data into the cloud really resolved? If businesses do go with SaaS applications, will they really be better off choosing best of breed products like Ariba over an SAP or Oracle solution? And are mid-market companies that don't use such tools really ready to change their best practices - and their culture - to automate spend and contract management? Are the benefits of the technology really worth the hassle?

Ariba is betting its future on the answers to those questions. And so its future may rest in the hands of those best practice business assemblers. In smart companies CIOs, not business unit executives, will be the ultimate deciders.