By Sramana Mitra and guest author Shaloo Shalini
SM: Can you describe more the case of your HR application going from $100,000 a year to $20,000 a year? How did you accomplish that? Could you take through the changes you made that resulted in those kind of savings?
PS: Our human resources application, which includes timekeeping on the shop floor, HR functions and payroll processing products, this human resource management system is run by company called Kronos. We have been using it for about 12 years. Originally the management system was in an IBM iSeries environment; since we moved to a client–server environment the application has become more Web based and Web enabled. One of the reasons I mentioned why we wanted to outsource the hosting was because the administration of the application was so onerous and difficult for a small shop like ours – this applies to tasks like doing patches, doing legislative updates, keeping current with what’s happening in the legislative world. What would it take to host us? I wondered.
At the time there were few Kronos providers who could do this because it was expensive – quotes were in the six figures – and it required a shared a dedicated environment a dedicated server and dedicated team. With the advent of virtualization, the economies of scale inside data centers have improved and therefore the costs have been reduced, so now our Kronos application is sitting on top of its shared infrastructure. It has a much better utilization of infrastructure, so the economies of scale of these various data centers are more favorable. The price for hosting has dropped significantly. I would say it’s a fourfold reduction in the annual subscription for the host application in two or three years; that is significant. As soon as we hit that price point it was an easy decision.
SM: So, the entire cost saving has come from simply putting the application in a hosted environment?
PS: Yes. I mentioned earlier that the previous internal resources that were previously dedicated to managing this have been redeployed into higher value-added IT functioning.
SM: So, what you have done is taken the Kronos application and created a private cloud for yourself by hosting it in a third-party data center. It’s not like Kronos is offering you the SaaS application
PS: No, we have already purchased and licensed the software. We just moved it to the cloud hosted environment.
SM: Interesting. Now, I think one thing you did not mention as you took me through the reasons for moving to a hosted environment through is the evolution or what you could even call the revolution in the movement of cloud computing – change in business models going from capex to opex; many of the cloud services are being offered as a service for which you don’t have to pay a lot of upfront fees that represent an investment.
PS: I agree; the barriers to entry are lower, so much of IT has this upfront risk and cost that is avoided, and I translate that to agility and speed of deployment. You are absolutely right: It goes from capex associated capital, and approval process to an operating expense. It’s very much one of the drivers [of adoption]. It’s all at a fixed cost, pay per use, and then if you decide to discontinue that service you just discontinue use. If you need to scale up or down it’s easily doable. So, the business model is a key driver.
SM: I have two questions that are related to what we just discussed. One is, you said $100 million to $500 million companies are laggards. Well it seems like the business model change that has happened over last decade and brought as SaaS, IaaS, and entire opex model it has made technology in general much more affordable and made low barriers to entry for a much broader range of companies, especially for the mid-market technology. It has become affordable where it was not before. How is your peer group is not taking advantage of that?
PS: Why others aren’t adopting . . . I think part of it is because they are confused about what cloud computing really is. Some of these companies have already been using SaaS, so they see the value proposition in point solutions. However, they are not yet ready to do their core infrastructure in this way. To adopt the cloud in a more robust way is premature for them.
SM: But Saas is where cloud computing adoption is happening most rapidly.
PS: Agreed, but they are not going after IaaS or PaaS because that is typically reserved for larger companies that have unique, specialized, or complex information technology requirements
SM: So, the lower adoption of band is about IaaS and Pass. But do you acknowledge that SaaS is being widely adopted widely in the mid-market?
PS: Yes, I do.