IT Service-Oriented Investment Analysis

Transcrição

A Comparison of
In-House versus Software-as-a-Service
Deployment Solutions
DISSERTATION
of the University of St. Gallen,
Graduate School of Business Administration,
Economics, Law and Social Sciences (HSG)
to obtain the title of
Doctor Oeconomiae
submitted by
Susanne Glissmann
from
Germany
approved on the application of
Prof. Dr. Walter Brenner
and
Prof. Dr. Lutz M. Kolbe
Dissertation no. 3685
Pro BUSINESS Verlag, Berlin 2010
The University of St. Gallen, Graduate School of Business Administration,
Economics, Law and Social Sciences (HSG) hereby consents to the printing of the
present dissertation, without hereby expressing any opinion on the views herein
expressed.
St. Gallen, October 19, 2009
The President:
Prof. Ernst Mohr, PhD
Acknowledgements
i
Acknowledgements
This dissertation was developed in the context of the Competence Centers ‘Customer
Management’ (CC IIM) and ‘Industrialized Information Management’ (CC IIM) at the
Institute of Information Management, University of St. Gallen. The dissertation would
not have been possible without the contribution of many people and institutions in
academia and industry. Here, I wish to acknowledge some of them in particular.
First, I would like to thank my primary advisor, Professor Walter Brenner. Walter
guided this research project as a whole and provided me with valuable suggestions and
reviews without which this dissertation would not have been possible.
I would also like to thank my associate advisor Professor Lutz M. Kolbe. As project
manager, Lutz led the CC CM, which allowed me during my PhD program to engage
in various consulting and research work with large global enterprises. The experiences
I gained from this work formed me as a person and prepared me for my future career
as research scientist.
This dissertation is the result of my interactions and intellectual exchanges with my
former colleagues and friends at the Institute of Information Management. Among
them, I would like to express my appreciation in particular to the following people for
a loyal atmosphere and a wonderful time in St. Gallen: Dr. Ragnar Schierholz, Dr. Annette Reichold, Alexander Ritschel, Dr. Oliver Wilke, Christian Fischer, Bernhard
Schindlholzer, HanhQuyen Nguyen, Friedrich Köster, Dr. Malte Geib, Dr. Malte
Dous, Dr. Harald Salomann, and Dr. Enrico Senger. I am also thankful to Uwe Pilgram, who gave me most helpful advice in the initial phase of my dissertation project.
I also wish to extend my thank to Barbara Rohner, assistant of Professor Brenner and
good soul of the Institute of Information Management. Barbara gave me strength and
support in many telephone calls between Switzerland and the US.
I am greatly indebted to Professor Michael Genesereth and Dr. Charles Petrie who invited me to Stanford to work with them as visiting scholar. I would like to thank them
for their friendship, their personal support, as well as the insights they gave me in their
research. Furthermore, I would like to thank David Haley, a colleague at Stanford, for
the hours he spent with me calculating the capacities of IT resources. Financial support
of my visiting scholarship was generously provided by the Swiss National Science
Foundation (SNF).
I want to acknowledge Dr. Timothy Chou, former president of Oracle OnDemand. In
each meeting with him and in each lecture Tim gave on Software-as-a-Service (SaaS)
at Stanford, I found something new that I could incorporate into my dissertation. For
my empirical study, Tim also introduced me to numerous SaaS providers in the US.
ii
Acknowledgements
I am grateful to people from the industry that allowed me to gain the practical insights
most relevant for my dissertation. First, I would like to thank the partners of the CC
CM (i.e., Audi AG, Commerzbank AG, Credit Suisse Group, Luzerner Kantonalbank,
Swisscom IT Services AG, Bausparkasse Schwäbisch Hall AG, TUI AG, and Union
Asset Management Holding AG) for the excellent collaboration between academia and
industry. Second, I would like to thank the many people from European and US enterprises, who participated in my interviews, providing me real-life information on SaaS
applications from the provider and customer point of view. Special thanks go to Martin
Vogl from Audi AG and Ed Romson from Plantronics Inc.. Furthemore, I would like
to thank Nicholas Carr, author of the book ‘Does IT Matter?’, Alireza Beiklou from
Business Objects, Brenda Boyle from Empirix Inc., Michele Hincks from Enviance
Inc., Roman Hoffmann from Deutsche Bank AG, Dr. Ralf Nowak from Deutsche Post
AG, Dr. Sven Graupner from Hewlett-Packard Co. Ltd., Fred Chong from Microsoft
Corporation, Tom Kucharvy from Ovum Summit, Frank Prenninger and Siegfried
Radspieler from RightNow Technologies Inc., Scott Bolick, Tim Stucka, Jai Das, Michael Beutler, and Michael Mankowski from SAP AG, Franz Berger from Salesforce.com Inc., Jim Parkinson from Sun Microsystems Inc., Michael Gregoire from
Taleo Inc., Rena Wickenheiser and Berry Paton from T-Systems AG, Fred Magner
from Unocal Inc., as well as Hanspeter Lipski from Zurich Financial Services Group.
I am sincerely grateful to Howard Almond, a great friend who supported me throughout the entire dissertation project. Howard proofread my dissertation and helped me
with numerous comments and suggestions on my dissertation.
I am most grateful to my fiancé Axel Hochstein, who has been a constant source of
encouragement and support. I thank him for his love, his critical feedback, his patience
with me and for many sacrifices he has endured.
Finally, I would like to thank my parents Helga and Lothar, my brothers Robert and
Rüdiger, as well as my grandparents Walter and Magdalene. Their unconditional love,
guidance and support throughout my life have been a source of inspiration and
strength, and to them I dedicate this dissertation.
Palo Alto, December 2009
Susanne Glissmann
Table of Contents
iii
Table of Contents
1
Introduction..................................................................................................................................... 1
1.1 Motivation..................................................................................................................... 1
1.2 Objective & Audience .................................................................................................. 3
1.3 Origin & Dissertation Framework ................................................................................ 4
1.4 Research Methodology ................................................................................................. 6
1.5 Structure ........................................................................................................................ 9
2
Conceptual Foundations............................................................................................................... 11
2.1 Business Engineering.................................................................................................. 11
2.2 Industrialized Information Management .................................................................... 14
2.3 Software-as-a-Service ................................................................................................. 24
2.4 Summary & Research Gap ......................................................................................... 36
3
Relevant Investment Analysis Approaches ................................................................................ 38
3.1 Decision Theory.......................................................................................................... 38
3.2 Sensitivity Analysis .................................................................................................... 41
3.3 SaaS Investment Analysis........................................................................................... 44
3.4 IIM Cost Accounting .................................................................................................. 48
3.5 Manufacturing Resource Planning.............................................................................. 52
4
Case Studies ................................................................................................................................... 55
4.1 Selection of Cases ....................................................................................................... 55
4.2 Audi AG’s Selection of an In-House Solution ........................................................... 57
4.3 Plantronics, Inc.’s Selection of a SaaS Solution ......................................................... 63
4.4 Cross-Case Analysis ................................................................................................... 67
5
Method Proposal for IT Service-Oriented Investment Analysis .............................................. 70
5.1 Method Introduction ................................................................................................... 71
5.2 Phase 1 – Customer Requirements Analysis .............................................................. 83
5.3 Phase 2 – Pre-Selection of In-House & SaaS Solutions ........................................... 105
5.4 Phase 3 – Manufacturing Specification of In-House & SaaS Solutions ................... 119
5.5 Phase 4 – Capacity Requirements Planning for In-House & SaaS Solutions........... 136
5.6 Phase 5 – Cost Accounting of In-House & SaaS Solutions...................................... 157
5.7 Phase 6 – Final Selection between In-House or SaaS Solution ................................ 185
5.8 Conclusion ................................................................................................................ 204
6
Summary ..................................................................................................................................... 209
References .......................................................................................................................................... 211
iv
Table of Contents
Table of Contents (in detail)
1
Introduction..................................................................................................................................... 1
1.1 Motivation .................................................................................................................... 1
1.2 Objective & Audience .................................................................................................. 3
1.3 Origin & Dissertation Framework .............................................................................. 4
1.4 Research Methodology ................................................................................................ 6
1.5 Structure ....................................................................................................................... 9
2
Conceptual Foundations............................................................................................................... 11
2.1 Business Engineering ................................................................................................ 11
2.1.1
Characteristics of Business Engineering ........................................................ 11
2.1.2
Method Engineering ....................................................................................... 12
2.1.3
Contribution to this Dissertation ..................................................................... 14
2.2 Industrialized information management .................................................................. 14
2.2.1
Origin and Principles ...................................................................................... 14
2.2.2
Characteristics of IT Services and IT Products .............................................. 16
2.2.3
Role Model of IT Service Providers ............................................................... 20
2.2.4
2.3 Software-as-a-Service ................................................................................................ 24
2.3.1
IT Outsourcing ................................................................................................ 24
2.3.2
Application Service Provision ........................................................................ 27
2.3.3
Software-as-a-Service Continuum .................................................................. 30
2.3.4
2.4 Summary & Research Gap ........................................................................................ 36
3
Relevant Investment Analysis Approaches ................................................................................ 38
3.1 Decision Theory ......................................................................................................... 38
3.1.1
Elements of Decision Models ......................................................................... 39
3.1.2
Decision Process ............................................................................................. 40
3.1.3
Evaluation for this Dissertation ...................................................................... 41
Table of Contents
v
3.2 Sensitivity Analysis .................................................................................................... 41
3.2.1
Risk Assessment ............................................................................................. 42
3.2.2
Monte Carlo Analysis ..................................................................................... 43
3.2.3
3.3 SaaS Investment Analysis .......................................................................................... 44
3.3.1
Academic Research......................................................................................... 44
3.3.2
Market Analysts .............................................................................................. 46
3.3.3
3.4 IIM Cost Accounting ................................................................................................. 48
3.4.1
Integrated IT Cost Tables ............................................................................... 49
3.4.2
IT Product-Oriented Cost Accounting ............................................................ 50
3.4.3
3.5 Manufacturing Resource Planning .......................................................................... 52
4
3.5.1
Functions......................................................................................................... 52
3.5.2
Case Studies ................................................................................................................................... 55
4.1 Selection of Cases ...................................................................................................... 55
4.2 Audi AG’s Selection of an In-House Solution ......................................................... 57
4.2.1
Company ......................................................................................................... 57
4.2.2
Investment Analysis........................................................................................ 58
4.2.3
Findings .......................................................................................................... 62
4.3 Plantronics, Inc.’s Selection of a SaaS Solution ...................................................... 63
4.3.1
Company ......................................................................................................... 63
4.3.2
Investment Analysis........................................................................................ 63
4.3.3
Findings .......................................................................................................... 67
4.4 Cross-Case Analysis ................................................................................................... 67
vi
Table of Contents
5
Method Proposal for IT Service-Oriented Investment Analysis .............................................. 70
5.1 Method Introduction .................................................................................................. 71
5.1.1
Objects of Comparison ................................................................................... 71
5.1.2
Requirements .................................................................................................. 72
5.1.3
Meta Model ..................................................................................................... 74
5.1.4
Procedure Model ............................................................................................. 77
5.1.5
Fictitious Example .......................................................................................... 80
5.2 Phase 1 – Customer Requirements Analysis ............................................................ 83
5.2.1
IT Product Contract ........................................................................................ 84
5.2.2
Sales Specifications of IT Services................................................................. 87
5.2.2.1 Core Services ........................................................................... 89
5.2.2.2 Support Services ...................................................................... 91
5.2.3
Sales Plans of IT Services............................................................................... 97
5.2.3.1 Core Services ........................................................................... 98
5.2.3.2 Support Services .................................................................... 101
5.3 Phase 2 – Pre-Selection of In-House & SaaS Solutions ........................................ 105
5.3.1
Blueprints of IT Production Alternatives ..................................................... 106
5.3.2
Blueprints of IT Development Alternatives.................................................. 113
5.3.3
Decision-Making by Internal IT Service Provider ....................................... 116
5.4 Phase 3 – Manufacturing Specification of In-House & SaaS Solutions .............. 119
5.4.1
Bill of Services & Work Plans of IT Production Alternatives ..................... 120
5.4.1.1 Core Services ......................................................................... 121
5.4.1.3 Maintenance Services ............................................................ 129
5.4.2
Project Plans of IT Development Alternatives ............................................. 131
5.5 Phase 4 – Capacity Requirements Planning for In-House & SaaS Solutions ...... 136
5.5.1
Capacities & Service Levels of IT Production Alternatives ......................... 138
5.5.1.1 Core Services ......................................................................... 139
Table of Contents
5.5.2
vii
Capacities & Service Levels of IT Development Alternatives ..................... 155
5.6 Phase 5 – Cost Accounting of In-House & SaaS Solutions ................................... 157
5.6.1
Costs of IT Production Alternatives ............................................................. 162
5.6.1.1 Core Services ......................................................................... 163
5.6.2
Costs of IT Development Alternatives ......................................................... 179
5.7 Phase 6 – Final Selection between In-House or SaaS Solution ............................ 185
5.7.1
Decision-Making by Internal IT Service Provider ....................................... 186
5.7.1.1 Influencing Factors for IT Production Alternatives .............. 191
5.7.1.2 Influencing Factors for IT Development Alternatives .......... 197
5.7.2
Decision-Making by Customer Company .................................................... 199
5.7.2.1 Influencing Factors for IT Product Contract ......................... 200
5.7.2.2 Influencing Factors for Sales Specifications of IT Services . 201
5.8 Conclusion ............................................................................................................... 204
6
5.8.1
Fulfillment of Requirements ......................................................................... 204
5.8.2
Limitations & Need for Further Research .................................................... 205
5.8.3
Outlook ......................................................................................................... 207
Summary ..................................................................................................................................... 209
References .......................................................................................................................................... 211
viii
Exhibits
Exhibits
Exhibit 1. SaaS adoption by segment ............................................................................ 2
Exhibit 2. Topics and industrial partners of the CC IIM ................................................ 5
Exhibit 3. Research process of this dissertation ............................................................. 6
Exhibit 4. Dissertation structure ..................................................................................... 9
Exhibit 5. Meta model of method engineering ............................................................. 13
Exhibit 6. Meta model of IT services ........................................................................... 17
Exhibit 7. Role model of an industrialized IT service provider .................................. 20
Exhibit 8. Structures and relationships of service-oriented IM ................................... 25
Exhibit 9. Comparison of conventional IT outsourcing and ASP model ..................... 28
Exhibit 10. Partners in the ASP ecosystems ................................................................ 29
Exhibit 11. Development of ASP and SaaS .................................................................. 30
Exhibit 12. Key attributes of the Software-as-a-Service continuum ............................ 32
Exhibit 13. Database architecture ................................................................................ 33
Exhibit 14. Classification of selected SaaS providers .................................................. 35
Exhibit 15. Evaluation of relevant decision-making approaches ................................. 38
Exhibit 16. Core elements of a decision model ............................................................ 39
Exhibit 17. CFD example of construction cost model ................................................. 42
Exhibit 18. Compressor cost and labor cost distribution ............................................. 43
Exhibit 19. Integrated model of ASP choice ............................................................... 44
Exhibit 20. Scoring of in-house & SaaS solutions ...................................................... 46
Exhibit 21. TCO comparison between in-house and SaaS .......................................... 47
Exhibit 22. System requirements for integrated cost tables ......................................... 49
Exhibit 23. Value chain model of IT cost accounting .................................................. 51
Exhibit 24. MRP II framework .................................................................................... 53
Exhibit 25. Overview of analyzed companies .............................................................. 56
Exhibit 26. Company Information of Audi AG ........................................................... 58
Exhibit 27. Lead management: system evaluation criteria catalogue........................... 60
Exhibit 28. Plantronics, Inc. ......................................................................................... 63
Exhibit 29. Plantronics’ Vendor Requirement List ...................................................... 65
Exhibit 30. IT service-oriented investment analysis..................................................... 70
Exhibit 31. ICT value chain – Source versus make of IT services ............................... 71
Exhibit 32. High-level view of meta model .................................................................. 75
Exhibit 33. Procedure model for the IT service-oriented investment analysis ............. 77
Exhibit 34. Input, output, & roles of the procedure model ........................................... 78
Exhibit 35. SaaS usage by software application .......................................................... 81
Exhibit 36. Initial situation of fictitious company Electro Ltd. .................................... 82
Exhibit 37. Detailed view of meta model – Key elements of phase 1 .......................... 83
Exhibit 38. Targeted groups for new IT service portfolio ............................................ 85
Exhibit 39. Contract for IT product ‘IT support for marketing activities’ ................... 86
Exhibit 40. Business impact of core and support services............................................ 88
Exhibits
ix
Exhibit 41. Business impact of core services .............................................................. 89
Exhibit 42. Example of core services included in an IT product.................................. 90
Exhibit 43. Sales specification of selected core services .............................................. 90
Exhibit 44. Example of support services included in an IT product ............................ 91
Exhibit 45. Sales specification of support service ‘enable end-user’ ........................... 92
Exhibit 46. Sales specification of support service ‘train end-user’ .............................. 93
Exhibit 47. Sales specification of support service ‘help desk’ ..................................... 94
Exhibit 48. Sales specification of IT support service ‘setup business unit’ ................. 95
Exhibit 49. Sales specification of support service ‘change request’ ............................ 96
Exhibit 50. Sales specification of support service ‘upgrade software’ ......................... 97
Exhibit 51. Service consumption of different core services ......................................... 99
Exhibit 52. Sales forecast example for a core service ................................................ 100
Exhibit 53. Sales plan for core service ‘view customer profile’................................. 101
Exhibit 54. Sales forecast example for support services ............................................ 102
Exhibit 55. Sales plan for support service ‘enable end-user’ ..................................... 104
Exhibit 56. Detailed view of meta model – Key elements of phase 2 ........................ 105
Exhibit 57. In-House & SaaS – Blueprints of IT production lines for core services . 107
Exhibit 58. Blueprints of IT production alternatives ................................................. 112
Exhibit 59. Blueprints of IT development alternatives .............................................. 115
Exhibit 60. IT Feasibility Matrix ............................................................................... 117
Exhibit 62. Resource capacities provided by in-house and SaaS IT production lines 121
Exhibit 63. In-House & SaaS – Sample BOS of a core service ................................. 122
Exhibit 64. In-House & SaaS – BOS of core service ‘view customer profile’ .......... 124
Exhibit 65. Human resource capacities used for the creation of support services ..... 125
Exhibit 66. In-House & SaaS – Sample BOS of a support service ............................ 126
Exhibit 67. In-House & SaaS – BOS of support service ‘enable end-user’ ............... 128
Exhibit 68. In-House & SaaS – Work plan for maintenance services ........................ 130
Exhibit 69. In-House & SaaS – Project phases and activities .................................... 131
Exhibit 70. In-house & SaaS project phases and activities ........................................ 135
Exhibit 72. Determination of resource workload........................................................ 137
Exhibit 73. Decomposition of service response time into capacity response times ... 139
Exhibit 74. Admission control to manage incoming orders of core service units ...... 140
Exhibit 75. Past exceptional increase of Internet response time ................................ 144
Exhibit 76. In-House – Regular MPS of CPU (January - November)........................ 145
Exhibit 77. In-House – Workload profile of CPU ...................................................... 146
Exhibit 78. In-House & SaaS – Response time of core service.................................. 147
Exhibit 79. In-House & SaaS – Labor capacities required for support services ....... 148
Exhibit 80. In-House & SaaS – Workload of new IT employee (support services)... 150
Exhibit 81. In-House & SaaS – Labor capacities required for maintenance ............. 152
Exhibit 82. In-House & SaaS: Workload profile of new IT employee ...................... 154
x
Exhibits
Exhibit 83. Detailed view of meta model – key elements of phase 5 ......................... 157
Exhibit 84. Cost accounting of service units .............................................................. 159
Exhibit 85. In-House & SaaS – Cost overview ......................................................... 160
Exhibit 86. Allocation of total production costs to IT services .................................. 162
Exhibit 87. Stepwise change of actual CPU capacity according to capacity need ..... 164
Exhibit 88. Overview of SaaS providers’ price models ............................................. 167
Exhibit 89. In-House & SaaS – Total production costs of core services ................... 169
Exhibit 90. In-House & SaaS – Unit cost of core service ‘view customer profile’ ... 171
Exhibit 91. In-House & SaaS – Unit cost of support service ‘enable end-user’ ....... 174
Exhibit 92. In-House & SaaS – Total costs of maintenance services ....................... 178
Exhibit 93. Allocation of total projects costs to IT services ....................................... 179
Exhibit 94. In-House – Total costs of development services ..................................... 183
Exhibit 95. SaaS – Total costs of development services ............................................ 184
Exhibit 97. Decision-Making by Internal IT Service Provider................................... 186
Exhibit 98. Influencing factors to develop scenarios of IT production alternatives... 187
Exhibit 99. Cost volume profit graph ......................................................................... 188
Exhibit 100. In-House & SaaS – IT production scenario 1 ........................................ 189
Exhibit 101. In-House & SaaS – Final selling price of IT product ITP_056 ............ 190
Exhibit 102. Contributing factor diagram of IT production alternatives .................... 191
Exhibit 103. In-House – Cost pattern of growing hourly unit demand ..................... 193
Exhibit 104. SaaS – Cost pattern of growing hourly unit demand ............................. 195
Exhibit 105. Scenarios of IT production alternative ................................................... 196
Exhibit 106. Contributing factor diagram of IT development alternatives ................ 197
Exhibit 107. In-House & SaaS: Scenarios of IT development alternatives................ 198
Exhibit 108. Final Decision-Making by Customer Company .................................... 199
Exhibit 109. In-House & SaaS – Updated IT product contract .................................. 200
Exhibit 110. In-House & SaaS – Updated sales specifications .................................. 203
Exhibit 111. Application of proposed method ............................................................ 206
Exhibit 112. Summary Statistics for a database server............................................... 206
Abbreviations
Abbreviations
AM
Account Management (IIM role)
ASP
Application Service Provision
ACT
Agency Cost Theory
app
application
BE
Business Engineering
BOS
Bill Of Services
BYD
Business ByDesign
e.g.
for example
ERP
Enterprise Resource Planning
ESE
External Service
equiv.
equivalent
CC CM
Competence Center ‘Customer Management’
CC IIM
Competence Center ‘Industrialized Information Management’
CFD
Contributing Factor Diagram
CO
Controlling
CPU
Central Processing Unit
CRM
Customer Relationship Management
ESE
External Service
HW
Hardware
HR
Human Resource Management
ICT
Information Communication Technology
i.e.
id est
IM
Information Management
IIM
Industrialized Information Management
IRR
Internal Rate of Return
ISP
Internal IT Service Provider
ISPO
IT Service Portfolio
IT
Information Technology
ITIL
IT Infrastructure Library
IWI-HSG
Institute of Information Management, University of St. Gallen
LAN
Local Area Network
MPS
Master Production Schedule
xi
xii
Abbreviations
MSE
Maintenance Service
NPV
Net Present Value
OS
Operating System
OVH
Overhead
p.
page
PC
Personal Computer
PE
Product Engineering
PDE
Production Engineering
PM
Product Management
pp.
pages
PPS
for Production Planning and Scheduling
PSE
Preliminary IT Service
rep
representative
RES
Resource
RM
Resource Management
ROI
Return Of Investment
RPC
Remote Procedure Calls
SaaS
Software-as-a-Service
SCM
Supply Chain Management
SCOR
Supply Chain Operations Reference Model
SW
Software
SME
Small and Medium Enterprises
SLA
Service Level Agreement
SOX
Sarbanes-Oxley Act
SSE
Support Service
et sqq.
and the following
TCO
Total Cost of Ownership
TCT
Transaction Cost Theory
TEI
Total Economic Impact
WAN
Wide Area Network
Abstract
xiii
Abstract
In recent years, the application of Software-as-a-Service (SaaS) solutions, such as Salesforce.com, NetSuite, Taleo, or RightNow Technologies, has increased significantly
due to improved software functionality, more reliable service levels, as well as customers’ pressure to cut IT costs. Since the beginnings in the late 1990s, SaaS - at that
time still called Application Service Provision (ASP) - has changed from a simple outsourcing solution exclusively designed to meet small-and medium sized enterprises’
needs, to an outsourcing solution that is able to support large enterprises’ complex
business processes. Consequently, when these days a company considers introducing a
new IT solution, the conventional in-house deployment of packaged enterprise software must compete more often with Software-as-a-Service. However, a lot of tradeoffs need to be considered and decisions between these two IT solutions are rather
complex requiring sophisticated investment analysis approaches.
Thus, the method ‘IT service-oriented investment analysis’ introduced in this dissertation aims at providing guidelines for the ambiguous decisions to pursue in-house versus SaaS deployment solutions. Constantly changing customer requirements affect the
efficiency of these deployment solutions and need to be taken into account. Thus, it is
necessary to understand the relationships between changed requirements and implemented IT solutions on a detailed level. Based on this understanding, scenarios can be
developed and based on probabilistic assumptions sound decisions can be derived.
Striving for a holistic approach and considering the necessity of high granularity, the
proposed method analyses each solution based on the level of individual IT services.
For both IT solutions, it considers the view of the customer and the internal IT service
provider, the sales forecast and projected sales plan of IT service units, the initial
availability and planned utilization rate of IT and human resources, as well as the
costs of each individual IT service unit. Extending the framework of ‘Industrialized
Information Management’ developed by the Institute of Information Management,
University of St. Gallen, the method uses concepts from Operations Management,
such as Manufacturing Resource Planning II (MRP II) and Activity-Based Costing
(ABC) for creating a knowledge basis necessary to support the deployment decision.
This knowledge is then used to create scenarios and to derive the final decision for
one IT solution.
The proposed method represents the conceptual foundation for an IT service-oriented
investment analysis, whereas it is obvious that a sophisticated software support is necessary to implement this method.
Motivation
1
1 Introduction
1.1 Motivation
The online delivery of software, referred to as Software-as-a-Service (SaaS) or software on-demand, has gained significantly in momentum in recent years [IDC 2005,
pp.6 et sqq., Akella et al. 2007, Chou 2008, p.2]. Gartner estimated SaaS to grow annually with a rate of 22.1% through 2011, which is more than double the expected
growth rate for the total enterprise software market [Mertz et al. 2007]. Concurrently,
most SaaS providers recognize rapidly increasing customer numbers and fast growing
revenues. In the last years, for instance, Salesforce.com increased annually its customer base by circa 60% to up to 1,100,000 subscribers by the end of the fourth quarter of
2008 [Salesforce.com 2008]. For the fiscal year 2008, the SaaS provider expected a
new high of $1 billion in total revenues.
The confident predictions for SaaS solutions and the remarkable achievements of established SaaS providers, such as Taleo, NetSuite or WebEx, have attracted numerous
new start-up companies and convinced them to offer their software as online service.
Generous venture capitalists have been continuously enlarging their support in these
companies’ endeavors1 [Winblad 2007]. At the same time, traditional software vendors, such as SAP or Microsoft, have recognized the growing risk of losing their customers, and of missing opportunities to augment their customer base [Dubey et al.
2008a]. SAP’s new SaaS solution, Business ByDesign is only one example of these
vendors current shift towards the Software-as-a-Service movement [SAP 2008].
Today, due to various technology catalysts, such as the continuous extension of SaaS
functionality, improvement of customization and integration capabilities, enhancements of service levels, as well as concurrent progress in web technologies and network bandwidth, SaaS appeals equally to small, medium, and large enterprises2 [Herbert 2007]. According to Forrester, the number of large customers grew from 12% in
2006 to 16% in 2007 entailing a general increase in SaaS providers’ average user
number per customer [Band/Marston 2008]. Hence, this development stands in strong
contrast to the first generation of online software delivery, i.e., Application Service
Provision (ASP), which in particular targeted small enterprises with simple business
processes. SaaS evolves as a serious deployment alternative to traditional delivery
approaches for almost all kinds of applications as shown in Exhibit 1 (see next page).
1
Interview with Jai Das, partner at SAP Ventures, 2008/05/02, Palo Alto
2
Interview with Nicholas Carr, author of ‘Does IT matter?’ and ‘The Big Switch’, 2007/09/17, San Francisco
2
Introduction
SaaS adoption by segment
infrastructure & tools
• secure content
management
• security/ vulnerability
management
• backup/archive
• integration/
deployment tools
• identity/access
management
• threat management
• change/ configuration
• performance
management
• event automation/ job
scheduling
• network and service
management
back-office applications
general applications
• payroll
• human capital
management
• CRM
• procurement
• logistics
• conferencing
applications
• eCommerce (on-line
storefront)
• Information services
• engineering
applications
• PLM
• project management
• business intelligence
• product planning
• inventory management
• financial applications
• IT technology
• messaging
• web content
management
• web analytics
• search tools
• location-based services
• authoring applications
• documents and
records management
Applications
already
migrating
to SaaS
applications
will migrate
to SaaS
in 3 years
applications
unlikely to
migrate
to SaaS
Exhibit 1. SaaS adoption by segment [Berryman et al. 2006]
Consequently, companies more often face the challenge to decide between the two IT
deployment options: in-house (i.e., packaged software deployed internally) versus
SaaS (i.e., Software-as-a-Service deployed by and sourced from an external provider)
[Dubey/Wagle 2007]. However, this decision is not trivial due to trade-offs between
the differing advantages and disadvantages of the two options (e.g., faster implementation versus lack of competitive advantage, lower upgrade costs versus more basic
functionalities, lower initial total cost of ownership versus hidden costs, etc. [Pring et
al. 2007]). Thus, a detailed analysis is necessary to generate a comprehensible decision based on facts instead of vague instincts.
A closer look at current planning and evaluation approaches developed for Information Management (IM) in general and ASP/SaaS in particular reveals, as illustrated in
the following, the mismatch to current companies’ needs. Aiming at establishing efficient and effective information management, IT controlling provides various methods
and tools for planning, managing, and controlling data centers [Kargl/Kütz 2007].
However, IT controlling is limited in its decision-making capabilities as identified by
Scheeg and Uebernickel based on an extensive analysis of current IT cost accounting
approaches [Scheeg 2005, pp.57-131, Übernickel 2008, pp.35-37]. Most methods assign Information Technology (IT) overhead costs merely based on broad cost estimates without any consideration of the actual resource consumption. Furthermore, the
effect of cost drivers on individual IT services cannot be determined. Thus, existing
approaches do not consider the diversity of the numerous IT services provided by both
IT deployment solutions, nor do they offer capabilities to build detailed cost and benefit scenarios.
Objective & Audience
3
For the specific area of decision-making in IT outsourcing several methods exist,
which provide guidelines for various outsourcing approaches. Since the beginning of
2000, various guidelines for ASP and SaaS solutions have been derived from existing
IT outsourcing literature. However, no approaches could be identified that systematically support companies’ decision makers, i.e., internal IT service provider and business units, through the entire in-house versus SaaS decision process.
Against the above-mentioned approaches, the framework of ‘Industrialized Information Management’ (IIM) offers principles, which appear to be most relevant in the
context of the investment analysis of in-house versus SaaS solutions. According to
IIM’s major objective to overcome current IM drawbacks by transferring established
operations management concepts to IT, these principles address topics, such as, product and service orientation, customer and market orientation, manufacturing-oriented
IT product design, output-oriented management of IT production, and life-cycleoriented information management [Hochstein 2006, pp.32-45]. Hence, the IIM
framework provides, particularly practical for ambiguous decisions, a solid basis for a
systematic, highly granular decision-making approach, which can determine benefits
and cost on the level of individual IT services from the view of end-users, as well as,
the internal IT service providers.
1.2 Objective & Audience
The previously described challenges demonstrate the need to find answers to the following research question:
How can internal IT service providers reach the decision between the two deployment
options in-house, i.e., packaged enterprise software deployed internally, and SaaS,
i.e., software deployed by and sourced from a SaaS provider?
The dissertation pursues the main objective to deliver a reference method that supports
companies in their investment analysis of in-house versus SaaS deployment options.
This objective can be classified into following sub goals:
• Development of a holistic and systematic approach that offers guidelines to internal IT service providers, explaining the analysis of costs and benefits, the identification of influencing factors, and the creation of decision scenarios.
• Comparison of in-house and SaaS deployment options that illustrates exemplarily
similarities and differences on the level of individual IT services.
4
Introduction
• Application of the IIM framework and extension through the transfer of further
operations management concepts relevant for the investment analysis.
• Evaluation of the method using a comprehensive fictitious example that illustrates
the implementation and the feasibility of the method.
As the dissertation is based on the IIM framework, the thesis demonstrates how concepts and principles of operations management can be successfully applied in order to
reach rational decisions in information management. Thereby, the proposed method
follows the essential processes of decision-making. Each phase of the method describes in detail activities, roles, as well as input and output documents.
The dissertation addresses equally decision-makers in companies, as well as scientists
and students, who are engaged in investment analysis of IT deployment options. The
defined target groups benefit from the dissertation as described in the following.
• Decision-Makers in the area of IT management, in particular a company’s IT departments or internal IT service providers, obtain design guidelines for investment
appraisals to pursue one of the two previously defined IT deployment options. On
the level of individual IT services, decision makers can build scenarios of their
specific company situation in order to reach a final decision.
• Scientists gain from the dissertation in two ways. First, the dissertation provides
new findings in the still academically unexplored outsourcing field of Software-asa-Service. Second, the dissertation applies and evaluates the current research of the
Competence Center ‘Industrialized Information Management’ (CC IIM). Moreover, it extends the research by transferring OM concepts, such as Manufacturing
Resource Planning II, to the discipline of information management.
• Lecturers and students gain practical insights from case studies illustrating the realization of IT decision-making of Software-as-a-Service. Furthermore, the holistic
example instantiates each phase of the proposed method demonstrating its implementation with fictitious numbers.
1.3 Origin & Dissertation Framework
The dissertation is part of the research program Business Engineering (BE) of the Institute of Information Management, University of St. Gallen in Switzerland (IWIHSG). At the IWI-HSG, scientists and large European enterprises research in longterm cooperation in information management and adjacent fields. The business concepts of business engineering [Brenner 1995, Österle 1995a], method engineering
Origin & Dissertation Framework
5
[Gutzwiller 1994], and information management [Brenner 1995] form the basis for
this thesis.
The proposed method emerged in the context of the competence centers ‘Integrated
Information Management’ (2002-2005) and ‘Industrialized Information Management’
(since 2006). Within the two competence centers, industrial partners and researchers
focused in workshops and projects on the topics summarized in Exhibit 2.
Topics
•
•
•
•
•
•
requirements management
systematic development of services
IT portfolio management
IT product descriptions
development of IT product catalogues
service-oriented architectures
•
•
•
•
•
•
IT production planning
IT production management
IT controlling
product-oriented cost accounting
quality management
industrialization of IT sourcing
Industrial partners
• Altana Pharma
• Bayer Business Services
• Deutsche Bahn
• Deutsche Bank
• Syskoplan
• Swisscom IT services
• T-Com
• T-Systems
Exhibit 2. Topics and industrial partners of the CC IIM
The results of the two competence centers have been incorporated in various publications, i.e., dissertations, journal contributions, conference papers, functional specifications, sample descriptions, and presentations. For this dissertation, in particular, publications on the following topics were of high relevance.
• IIM processes and roles elucidated in [Hochstein 2006] and [Ebert et al. 2007a]
provided for the proposed method valuable insights for the assignment of roles to
decision-making activities.
• The sales view of IT products described in functional specifications [CC IIM Team
2007a] and sample descriptions [CC IIM Team 2007b] provided the basis for the
goal specification to be met by the defined IT deployment options.
• The production view of IT products explained in the functional specification of end
IT products [Hochstein et al. 2008d] was adopted in the manufacturing view of the
decision process.
• IIM cost accounting approaches illustrated in [Scheeg 2005],[Hochstein et al.
2008b] and [Übernickel 2008] was applied to evaluate the costs of in-house and
SaaS deployment options.
In addition to the research of the CC IIM, the dissertation builds on the findings from
interviews with selected SaaS customers and SaaS providers. Thereby, interviews with
two companies are presented as case studies to exemplify one investment analysis’
6
Introduction
resulting in a decision for an in-house solution, and one resulting in a decision for a
SaaS solution.
1.4 Research Methodology
The dissertation is allocated to business computing, an autonomous discipline within
managerial economics [Wöhe 1996]. Thus, in analogy to managerial economics, business computing is an applied or action-oriented science [Gutzwiller 1994, pp.6 et
sqq.]: Its problems emerge in the real-life, it is interdisciplinary, its research is the development of the managerial reality, its statements are normative and judgmental, and
its research criteria is the strength of its models and guidelines to resolve problems
[Ulrich 1984, pp.178-191].
The research process of this dissertation, illustrated in Exhibit 3, is embedded in the
Business Engineering (BE) framework. It is part of business computing as it integrates
managerial economics and information system science. Its goal is to embody the managerial reality in models and methods. Statements and guidelines deriving from these
artifacts are evaluable in real-life [Gutzwiller 1994].
• more advanced SaaS solutions compete
increasingly with packaged enterprise software
• companies face more often the challenge to
decide between SaaS and packaged enterprise SW
•
•
•
•
theoretical
foundations
business gap
• theoretic: Foundation of existing
theoretic concepts
• qualitative-empiric: case study
research
• desk research
• building and evaluation of method
• findings of interviews with SaaS
customers and SaaS providers
• creation of two case studies of SaaS
customers
• guidelines for a rational investment
analysis to pursue in-house versus
SaaS deployment options
• documentation of case studies
including results and insights
contributions
to business
Business Engineering (BE)
Industrialization of Information Management (IIM)
Software-as-a-Service (SaaS)
investment analysis approaches
research
gap
no approaches exist which support sufficiently
companies in their investment analyses of in-house
and SaaS deployment options
research
goal
• development of a reference method that
provides guidelines to perform investment
analysis based on the level of individual IT
services
• method evaluation through instantiation with a
holistic example of a fictitious company
research
method
research
work
• exploration of the still unexplored SaaS field
• design elements of an IS investment analysis,
(i.e., roles, activities, input and output
documents)
• transfer of operations management concepts to
the discipline of information management
• application of current IIM research concepts
theoretical
contributions
Exhibit 3. Research process of this dissertation
[adapted from Fleisch 2001, pp.289-296, Riempp 2004, p.316]
Research Methodology
7
The research process of this dissertation is adapted from Österle, Brenner and Hilbers'
research process, which aims at generating new insights in business computing on the
foundations of applied science [Österle et al. 1992]. The discrepancy between theory,
real-life and practical requirements form the research gap. The systematic procedure
model aiming at providing answers to the research question can be derived from a detailed problem definition. The research work produces results, which contribute to
science, as well as to real-life.
The research question in this dissertation deals with the development and evaluation
of a method. Therefore, the dissertation is based on design-science, which aims at
creating artifacts in the field of information systems, i.e. constructs, models, and methods [March/Smith 1995]. According to [Hevner et al. 2004] methods are described
as follows:
Methods define processes. They provide guidance on how to solve problems, that is,
how to search the solution space. These can range from formal, mathematical algorithms that explicitly define the search process to informal, textual descriptions of
'best practice' approaches, or some combinations.
Like business engineering, design science addresses research questions, which describe a business need in real life. In order to analyze how well the developed artifact
meets this need, instantiations of the artifact are created [Hevner et al. 2004]:
Instantiations show that constructs, models, or methods can be implemented in a
working system. They demonstrate feasibility, enabling concrete assessment of an
artifact’s suitability to its intended purpose. They also enable researchers to learn
about the real world, how the artifact affects it, and how users appreciate it.
In this dissertation, two evaluation methods of experimental and descriptive nature
were applied to evaluate the proposed method: first, simulation to execute the method
with artificial company data, and second, scenarios to exhibit the method’s utility in
different company situations.
In order to develop the artifact of this dissertation, a further research method, i.e., method engineering, was applied [Gutzwiller 1994, pp.11-39]. Originally, method engineering was developed to support the creation and modification of methods in software engineering. It provides systematic and structured descriptions of a method’s
elements and their relationships amongst each other. In recent years, method engineering has also been successfully adopted to design procedure models and transformation
methods in organizations, such as in this dissertation.
8
Introduction
The focal point of the development of the proposed method is the transfer of concepts
from a managerial discipline (i.e., manufacturing resource planning) into a business
computing domain (i.e., information management).Thus, the dissertation is furthermore based on transfer-oriented interdisciplinary science [Schophaus et al. 2003]. The
transfer-oriented interdisciplinary science provides major benefits when the level of
knowledge in the initial discipline is larger than in the goal discipline, and the problem
definition is identical or at least similar in both disciplines [Zarnekow et al. 2005,
p.17]. According to the transfer-oriented interdisciplinary, Zarnekow developed a
transfer method, which was applied in this dissertation.
The research framework of business engineering is not tied to single research methods. In this dissertation project, case study research is applied as the primary research method. Case study research focuses on the analysis of social sciences phenomena where the unit of analysis and the role of the researcher cannot be entirely separated [Yin 2002b]. Therefore, case study research is well suited to information systems research [Benbasat et al. 1987], as the unit of analysis is exposed to numerous
influencing factors and cannot be separated from its context.
This research project uses a case study method based on Yin [Yin 2002b] and Eisenhardt [Eisenhardt 1989]. The central sources of insight are interviews with representatives from participating organizations [Miles/Huberman 1994, Yin 2002b]. Researchers often expand this information through analyzing project- and business documents.
The case descriptions resulting from case study analysis can be used for cross case
analysis [Miles/Huberman 1994]. Via cross case analysis, single phenomena can be
compared against the background of different contexts. Results from this approach can
be regarded as especially robust if they follow certain replication logic. Replication
occurs if different cases deliver the same or similar results (“literal replication”) or if
they deliver opposing results for predictable reasons (“theoretical replication”) [Yin
2002b].
The main criteria in qualitative empirical research are the validity of results and their
reliability [Eisenhardt 1989]. In this research, validity and reliability are ensured
through triangulation [Kaplan/Duchon 1988, Mingers 2001], i.e. through combining
the semi-structured interview data with the results of thoroughly conducted desk research, the analysis of corporate and annual reports as well as of company presentations and journals. The interpretations are confirmed in follow-up interviews and
cross-checked through further interviews with independent experts from research and
practice. Moreover, relevant insights obtained from an action research project
[Checkland/Holwell 1998, Gummesson 2000] at Audi AG will be used.
Structure
9
1.5 Structure
The dissertation is composed of the six chapters illustrated in Exhibit 4. A short introduction to each chapter is provided in the following.
Chapter 1
Introduction
Chapter 3
Relevant Investment Analysis Approaches
Chapter 2
Conceptual Foundations
Industrialized
Information
Management
Decision Theory
Sensitivity Analysis
IIM Cost
Accounting
SaaS Investment
Analysis
Softwareasa-Service
Manufacturing Resource Planning
Summary & Research Gap
Chapter 5
Chapter 4
Case Studies
Selection of Cases
Audi
Plantronics
Cross-Case Analysis
Method Introduction
Phase 1: Customer Requirements Analysis
Phase 2: Pre-Selection of In-House & SaaS Solutions
Phase 3: Manufacturing Specification of In-House & SaaS Solutions
h
Phase 4: Capacity Requirements Planning for In-House & SaaS Solutions
Phase 5: Cost Accounting of In-House & SaaS Solutions
ous
ti ti
Fic mple
Exa
Phase 6: Final Selection between In-House & SaaS Solutions
Conclusions
Chapter 6
Summary
Exhibit 4. Dissertation structure
Chapter 1 introduces the current trend of software-as-a-service as growing competition to the traditional in-house deployment of packaged software. Based on this observation, the need for more sophisticated investment analyses to pursue one of the two
IT solutions is identified. Furthermore, the chapter describes the objective and audience, the origin and framework, the research methodology, as well as the structure
of this thesis.
Chapter 2 illustrates the conceptual foundations of business engineering, industrialized information management, and software-as-a-service from which the requirements for the proposed method are derived.
Chapter 3 evaluates relevant approaches for investment analysis of in-house versus
SaaS deployment options. Therefore, decision theory, sensitivity analysis, SaaS investment analysis, IIM cost accounting approaches, as well as manufacturing resource
10
Introduction
planning are analyzed regarding their applicability for in-house versus SaaS decisionmaking.
Chapter 4 delivers insights of real-life in-house versus SaaS investment analysis.
From an analysis of nine SaaS customers from Europe and the US, two companies,
i.e., Audi AG and Plantronics Inc. were selected to serve as case studies in this dissertation.
Chapter 5 proposes the method of IT service-oriented investment analysis specified
for the comparison of in-house versus SaaS deployment options. The chapter, first,
provides foundational information necessary for the further reading of the method.
Afterwards, each phase of the method’s six phases is explained in detail. The chapter
concludes by evaluating the fulfillment of the defined requirements, by considering
limitations of the method, and by providing recommendations for its application.
Chapter 6 summarizes the key results of this dissertation.
11
2 Conceptual Foundations
This chapter elucidates the conceptual foundations for the development of a method to
support the investment analysis of in-house versus SaaS deployment solutions. The
following key topics define the reference framework for this dissertation:
1. Business Engineering. The fundamentals of business engineering represent the
analytical and academic framework. They offer an engineering approach to design
and modify organizations using the potentials of innovative IT. In particular, method engineering applied for the development of business engineering methods is
of high relevance for this thesis.
2. Industrialization of IT Management (IIM). IIM provides as novel sub-discipline of
information management the IT fundamentals for the proposed method. Thereby, a
particular focus is laid on a set of principles that aim at a more service- and less
technology-oriented IT management. For this thesis, the corresponding role models, as well as the IIM methods for managing the different areas of the IT value
chain are used.
3. Software-as-a-Service. Current online software delivery options form the SaaS
continuum. In the method, these options are compared with well-known in-house
deployment options, i.e., packaged software deployed internally. Therefore, the
still academically unexplored SaaS area is introduced. Its origin in IT outsourcing,
its predecessor ASP, and differentiating characteristics of SaaS options are explained.
Concluding, the chapter summarizes the previous topics and derives the research gap
that is addressed by the proposed method.
2.1 Business Engineering
In the following, the engineering science business engineering (BE) is explained. The
chapter is structured into three sub-chapters, i.e., characteristics of business engineering, method engineering, and contribution to this dissertation.
2.1.1 Characteristics of Business Engineering
Business engineering characterizes the method and model-oriented engineering
science for organization of the information age [Österle/Winter 2003, p.7]. Its object
of investigation is based on managerial economics. Being of interdisciplinary nature,
12
it covers the disciplines business computing, technology management, and organization theory [Österle/Winter 2003, pp.11-14].
Business engineering separates the transformation process into two dimensions
[Österle/Winter 2003, pp.11-12]: The political-cultural dimension covers guidelines
concerning human behavior, such as motivation, management, communication, and
power relationships. The functional dimension explains the organizational levels strategy, process, and information system. The focus of this dissertation is the functional
dimension, which is outlined in the following [Österle et al. 1995b, pp.3-6]:
• Strategy. The level strategy defines the market position of a company, as well as
basic decisions regarding the company and its business fields.
• Process. Based on the strategy, the level process determines company’s services,
procedures, IT support, managerial instruments, and organization structure.
• Information System. The level information system concretizes the process design
providing the requirements for the realization of organization and IT.
A fundamental characteristic of business engineering is furthermore a consistent customer orientation. Thus, the design of new business solutions must always aim at satisfying the customers’ needs [Österle et al. 1995a, p.53].
The three design levels of business engineering ensure a holistic approach for the improvement and redesign of business solutions [Brenner 1995, pp.16 et sqq., Österle
1995b]. Decisions and limitations of one level always influence the designs of the remaining two levels [Österle et al. 1995a, p.53].
In order to handle the complexity of the organizational transformation on all levels,
business engineering provides an approach based on engineering concepts [Brenner
1995, p.7]. Its deliverables are methods and models [Österle/Winter 2003, p.10].
2.1.2 Method Engineering
Findings in business engineering are often illustrated in form of methods and models
[e.g., Schulze 2000, Puschmann 2003, Kremer 2004, Schierholz 2007]. Thereby, the
findings document the business engineering process, create transparency, serve as basis for communication, and enable the division of labor [Österle/Winter 2003, p.88].
A model provides simple explanations for complex functionalities and circumstances.
In the context of business engineering, models are used to serve various purposes
[Winter 2003, p.89], e.g., for education, communication, analysis, design, and devel-
13
opment. The method proposed in this thesis is primarily created for design and development purposes.
As methods are focal in BE, Gutzwiller developed a meta model for the development
of methods, referenced as method engineering [Gutzwiller 1994, pp.11-39]. Method
engineering lays the foundation for the development and description of methods. In
the following, the components of a method are explained [Gutzwiller 1994,
Österle/Blessing 2003]:
• Meta Model. The meta model is the data model of the specified method. It describes the design elements and the relationships amongst each other. For instance,
Exhibit 5 illustrates the meta model of the method ‘Business Engineering’. In order to explain clearly a complex metal model, a meta model can be divided into
various views, which focus on specific aspects
structure of
design activities
meta
model
design output is
problem-oriented
view of model
design activity
creates output /
uses input
output
sequence of
design activities
activity
role performs
design activity
role
technique
output creates
stakeholder value
stakeholder
value
Exhibit 5. Meta model of method engineering
[Österle/Blessing 2003, p.80] adapted from [Gutzwiller 1994, p.13].
• Stakeholder Value. The primary criterion for a business solution is the stakeholder
value. It represents the value, which is perceived by all parties involved in the solution development, as well as the parties using the solution.
• Activities. Activities are actions, which are performed in order to attain a specified
goal. Activities can use the output of prior activities as input. The arrangement of
all activities is defined as a procedure model.
• Roles. The parties involved in the application of the method are assigned to different roles. Roles define required tasks, responsibilities and skills of a person.
• Output. Business Engineering is output-oriented. The output of activities is described in results, mainly documents in a defined form.
14
• Techniques. Techniques are guidelines for the development of activities and address the problems to be solved by the method.
2.1.3 Contribution to this Dissertation
Business engineering contributes to the dissertation as described in the following:
• Holistic Approach. The integrated view of the three BE levels, i.e., strategy,
process, and information system, combines managerial and technological knowledge.
• Customer-Orientation. Customer requirements form the starting point for every
transformation and determine actions in an organization.
• Engineering Approach. Based on standards in methods and guidelines, method
engineering provides a systematic approach to adopt new business solutions and to
transform organizations.
2.2 Industrialized Information Management
In recent years, the complexity and, with it, the relevance of IT management has increased. Thereby, likewise, academia and practitioners are engaged in the development of approaches to increase the efficiency and quality of IT service provider’s internal organization, as well as the management of their relationships to customers and
suppliers. In the context of business engineering, the framework of Industrialized Information Management (IIM) emerged. It provides the basis for the development of
the proposed method. In particular, its IT management principles, definition of IT services, and its role model provide significant input for this dissertation.
2.2.1 Origin and Principles
Industrialized information management is a novel approach in the discipline of information management (IM). As part of the corporate governance IM pursues the goal to
identify potentials of information technology and to implement compatible solutions
[Österle 1987, Brenner 1994]. Four traditional IM approaches exist [Krcmar 2005,
Übernickel 2008, pp.10-14]: The problem-oriented approach, which identifies fields
of actions focusing in particular on IT strategy [e.g., Henderson/Venkatraman 1993,
Appelgate et al. 2007]. The task-oriented approach, which defines management tasks
for the strategic, administrative and operative IM levels [e.g., Heinrich 1988, Brenner
1994]. The process-oriented approach, which aims at designing and managing IM
processes [e.g., Österle et al. 1992, ISACA 2003]. And the architecture-oriented ap-
15
proach, which models a company’s information management from the viewpoints of
different stakeholders [e.g., Zachman 1987, Scheer 1998, OMG 2007, Winter/Fischer
2007].
Building on the strengths of the previous four approaches, IIM is a combined approach, developed by the Competence Center ‘Integrated Information Management’,
and its successor Competence Center ‘Industrialized Information Management’ (CC
IIM, see Chapter 1.3). Its research results have been generated based on a tight collaboration with industry partners, i.e., internal and external IT service providers, as well
as their customers. Thus, the focus is laid on the interface between IT service provider
and business units as contractor and end-user of IT. The IIM framework, in particular,
strives to improve the efficiency and efficacy of the production of IT services, as well
as to establish strong customer and supplier relationships. In analogy to the production
and distribution of industrial goods and services, the following principles are valid for
the industrialized information management [Zarnekow et al. 2005, Zarnekow et al.
2006, Zarnekow et al. 2007].
• Customer- & Market-Orientation. The relationship between the recipient and the
supplier of IT services is defined by a distinct customer-supplier relationship [Jakubczik/Skubch 1994, von Dobschütz 2000]. The value that IT services generate
for the business processes they support is the main focus of IT management and
the ultimate goal is not to deliver technology but to improve the efficiency and effectiveness of supported business processes [Böni et al. 1999, Bertleff 2001].
Based on future customer expectations and estimated IT demands, manufacturing
guidelines, regulations, and production plans can be derived for the IT service provider.
• Product- & Service-Orientation. The communication between the IT service provider and its customers is based on IT products, i.e., bundling of IT services [Wang
et al. 1998, Zarnekow 2006, p.39]. In traditional IM often, resources such as software licenses and hardware capacities are defined as the output of IT service organizations. However, IT support for business processes involves bundles of resource capacities configured in a way that predefined IT services are delivered to
the end-user. Two perspectives exist for IT services: the sales and the production
perspective. In the first perspective, IT services are defined in sales descriptions
including all information relevant for the customer (i.e., quality, performance,
functionality, and price of individual IT services). In the second perspective, all information relevant for the production of IT services is considered. This includes
the quantity (e.g., CPU time, bandwidth), the quality (e.g., availability, response
time), and the costs (costs per kilobytes, kilowatt, person day) of all resource ca-
16
pacities required for the manufacturing of an IT service. This information is
tracked on the level of individual IT services, enabling also controlling for services
and not only for resources.
• Production Process of IT Services. In analogy to industrial manufacturing, information processing can be compared to a production process, using production facilities for transforming a set of inputs into products that generate value for the
customer [Ortner 1991, Brogli 1996, Britzelmaier 1999]. This comparison enables
the transfer of established managerial concepts to IM with the goal to improve the
planning, engineering, management, and controlling of IT services [Übernickel
2008, p.15]. It is for example possible to transfer industrial methods for Production
Planning and Scheduling (PPS) to IT production or apply the principles of Activity-Based Costing (ABC) to the calculation of IT services.
• Product Lifecycle. The product-orientation of IT management implicates the need
to consider the entire life-cycle of an IT service [Übernickel 2008, p.15]. This includes not only the development, introduction, operation, and maintenance of the
resources, which produce the IT services of an IT product, but also their removal
and disinvestment. This enables the consideration of the full cost of a service, necessary for a complete investment analysis method.
2.2.2 Characteristics of IT Services and IT Products
As described in the IIM principles, a key characteristic of the IIM is its productorientation, i.e., the focus on individual IT services bundled to IT products instead of a
broad indistinct view of the entire IT landscape. According to this principle, customers order IT products based on the price, quality, and value of each individual IT service included in the IT product; whereas IT service providers produce IT services according to defined production requirements and costs per individual IT service. The
terms IT service and IT product are explained in more detail in the following.
The term IT service is based on the general definition of a service, which is according
to [Grönroos 2000] defined as
“…an activity or series of activities of more or less intangible nature that normally,
but not necessarily, take place in interactions between the customer and service employees, and/or physical resources or goods and/or systems of the service provider,
which are provided as solutions to customer problems”.
Thereby services in general and IT services in particular differentiate from industrial
goods in three aspects [Fähnrich 2003, pp.94-96, Zarnekow 2006, pp.41-42]:
17
• Intangibility. Services are mainly of intangible nature but can also include partially
tangible, i.e. physical, sub-components [Hentschel 1992, Corsten 2001, pp.27 et
sqq.], such as the documentation of results on paper or electronic media. The intangible character of an IT service results in a lack of transparency about the service value for the service recipient [Bieger 2002, p.8]. This is because the recipient
cannot test the service upfront. The service described by the service provider may
therefore distinguish from the service finally delivered to the recipient.
• Integration of the Customer as External Factor. The recipient who consumes the
service represents an external factor in the co-production process of a service [Maleri 1991, pp.105 et sqq., Spohrer/Maglio 2008, Brocke et al. 2009]. The customer
enters itself or its objects, e.g., information, into the process. Thus, the quality and
cycle time of the production process depends strongly on the customer. As a result,
the uncertainty regarding the fulfillment of the defined service goals increases.
• Simultaneity of Production and Consumption. The integration of the customer into
the service production process also means that no time difference between the production, the distribution and the consumption of a service exists [Zarnekow 2006,
p.43]. Thus, services must be produced just-in-time without any possibility to store
them. Furthermore, resources must be able to provide the maximum capacity
needed to produce IT services during average, as well as peak times.
In academia various models of services in general [e.g., Bullinger et al. 2003, Wimmer et al. 2003, Akkermans et al. 2004, Heiskala et al. 2005] and IT services in particular [e.g., Rodosek 2003, Übernickel et al. 2006a] have been developed. These
models provide the foundation for the service model underlying the IIM framework.
information
IT product
contractor
1…*
*
< buys
network
application
resource
hardware
1…*
contract
preliminary
IT services
< uses
IT service
consists >
1…*
has >
consists
1…*
end-user
1…*
1…*
< uses
*
1…*
has >
*
human
resource
access point
1…*
< access
resource
dimension
process
dimension
output
dimension
Exhibit 6. Meta model of IT services
[adapted from Übernickel et al. 2006a, Ebert et al. 2007b]
customer
dimension
18
Exhibit 6 depicts the key entities of the IIM service model that are most relevant for
this dissertation. The meta model of IT services is subdivided into the four dimensions
customer, output, process, and resource [i.e., Übernickel et al. 2006a, Ebert et al.
2007b].
The customer dimension represents the customer company in its two entities contractor and end-user. Applied to a company the role of the contractor and the role of the
end-user are usually occupied by different employees and/or departments. The enduser is a direct service consumer who uses the IT services to support business
processes. Thereby, the end-user is solely interested in the performance of the IT services, i.e., their functionality, quality, and value. The decision to procure IT products
is reached by the contractor. On the customer side, this role is responsible for negotiating and controlling the contract. The IT services must fulfill the needs of the contractor, as well as of the user.
The entities IT product, IT service, and access point form the output dimension. The
customer-oriented IT product consists of a bundle of often interdependent IT services
that are relevant for a defined end-user group [Wang et al. 1998, Zarnekow 2006,
p.39]. The concept of service bundling has its origins in the service industry as illustrated by the example below. The access point of the IT service is defined by the type
of interaction (i.e., human to machine, machine to machine, human to human), the
means of access (e.g., web browser, mobile device), as well as the location of access
(e.g., company, home).
In the banking industry, credit institutions often provide products based on a bundle
of services. A credit institution may, for instance, create a product, which addresses
the customer’s need “housing proprietary”. This product would bundle services,
such as banking services (e.g. building loan contract, mortgage loan), insurance services (e.g., property or life insurance), but also additional services (e.g., handyman
agency services).
In the process dimension, it is defined which preliminary IT services are used to produce the IT service to be delivered to the end-user [Übernickel et al. 2006a]. This service distinction is adopted from the manufacturing sector. IT services resemble end
products, whereas preliminary IT services are comparable with assemblies. Similar to
the decomposition of assemblies into sub-assemblies [Fogarty et al. 1991, 333-402,
Sheikh 2003, pp.387-421], preliminary IT services can be decomposed into further
pre-preliminary IT services [Hochstein et al. 2008d]. For instance, the IT service
‘view customer profile’ of the IT product ‘IT support for marketing’ is built of the
preliminary IT services ‘application service’, ‘database service’, ‘network transfer’,
19
and ‘desktop service’. The preliminary IT service ‘database service’ consists again of
pre-preliminary IT services, such as ‘query acceptance’, ‘query processing’, and
‘query result’. Manufacturing resource planning II (MRP II) uses Bill Of Materials
(BOM) to define the component list applied to manufacture the physical product [e.g.,
Sheikh 2003, p.390]. In analogy to the BOM in industry, the IIM uses the Bill Of Services (BOS) to list the preliminary IT services that are required to produce a particular
IT service [Übernickel et al. 2006a]. Preliminary IT services may be produced by the
IT service provider with internal resources, or procured as external services from suppliers (e.g., Internet providers, or SaaS providers).
The resource dimension contains resource entities, which provide the capacity required to manufacture preliminary IT services. As illustrated in Exhibit 6 (p.17), for
the production of IT services different types of resources are required [Ebert et al.
2007b]. Resources can be of type information (e.g., master data, transaction data), application (e.g., business applications, operating systems, middleware, databases), network (e.g., LAN, WAN, Internet), and hardware (e.g., client PC, server, storage devices). An additional resource type, which differentiates from the previously mentioned IT resources is the resource type human resource (e.g., project management,
change management, support).
Final IT services are built for numerous purposes consisting of various combinations
of preliminary IT services. Thus, IT services differ significantly in their characteristics, e.g., functionality, value to the customer, price, quality, used resources for production, etc.. The CC IIM defines the following three types of end-to-end IT services
[CC IIM Team 2007a].
1. Core Functions (in this thesis referred to as Core Services) are IT services which
support the customer’s business processes [Zarnekow 2005]. Core services can either be linked exclusively to one business process (e.g., CRM, payroll accounting,
financial accounting, goods receipt booking), or several business processes (desktop services, such as calendar, mail, or printing) [Übernickel et al. 2006a]. They
are highly technical and mainly based on IT resources. Typically, less human resources are involved in this type of service.
2. End-User Services are IT services consumed by the end user in order to support
him in the use of core services [CC IIM Team 2007a, pp.13-15]. They may be
based equally on IT resources (e.g., self service portal, online training), as well as
on human resources (e.g., service desk, software upgrade).
3. Management Services are IT services to enable the customer to use and to maintain his core services. Examples for this IT service group include the preparation
20
and termination of service availability for a location, the creation and cancellation
of a user account, or the preparation of a workplace. Characteristics of management services are a high involvement of human labor, and tight human interaction
between supplier and customer.
For simplicity reasons, in this dissertation end-user services and management services
are combined to one IT service group.This group is referred to as Support Services. It
addresses the IT services that enable, support and manage core services. Depending on
the value proposition of the support services, it can be used by differing customer
groups, e.g., end-user, business units, or organizations.
2.2.3 Role Model of IT Service Providers
The IIM considers the IT service provider to be one part of a value chain consisting of
the supplier, the IT service provider and the customer company [Hochstein et al. 2006,
Übernickel et al. 2007a]. The IT service provider sources preliminary IT services and
resources from external suppliers. The preliminary IT services and capacities of resources are then used to produce IT services, which the provider delivers to the customer. Based on this assumption a role model has been developed for the IIM.
The IIM role model defines the functional areas of an IT service provider adopting
concepts from industrial manufacturing. In particular, the reference models created by
the Supply-Chain-Council, such as SCOR (supply chain operations reference), DCOR
(design chain operations reference), and CCOR (customer chain operations reference),
contributed largely to the IIM role model [Supply-Chain-Council 2004, SupplyChain-Council 2006b, Supply-Chain-Council 2006a]. Exhibit 7 presents the IIM role
model of an industrialized IT service provider. It illustrates the functional areas and
roles required to manage IT in an industrialized way.
IT service provider
customer
company
management
general
management
human resource
supplier
product / production
plant configuration
production
engineering
IT production
source
sourcing
quality
management
controlling
contractor
management of
markets and customer relationships
product
engineering
product
management
account
management
end-user
make
resource
management
deliver
production
management
delivery
management
Exhibit 7. Role model of an industrialized IT service provider [Übernickel 2008]
21
In the following, the five functional areas of the IT service provider are explained in
more detail as defined by the IIM [Ebert et al. 2007a, Übernickel 2008, p.17].
The functional area Management contains four roles for the overall management of
the company.
• General Management. Activities of this role include the leadership and management of the enterprise as a whole (e.g., the development of the corporate vision
strategy, and objectives, communication of the company’s philosophies and values, as well as the establishment of its external reputation).
• Human Resource Management. This role is responsible for the management of
employee related fields. It includes activities, such as, recruitment, staff appraisals,
incentive system design, and personnel developments.
• Quality Management. The role quality management plans, controls, assures, and
improves the quality of all activities related to IT services (e.g., design, sourcing,
production, as well as the delivery of the IT services).
• Controlling. The role controlling is responsible for the development and maintenance of regulating mechanisms for the planning, management, and control of the
corporate finances. It creates the internal reporting system and manages cost accounting.
The functional area Management of Markets and Customer Relationships provides
two roles.
• Account Management. This role manages the relationships between the IT service
provider and its customers. Its main activities are sales and marketing. Furthermore, it identifies market potentials and develops marketing strategies.
• Product Management. The role product management develops the corporate objectives in the field of information management. It is responsible for the maintenance
and development of the IT service portfolio. In collaboration with other roles, it
defines IT products and IT services including functional requirements, service levels, prices and conditions. Furthermore, the role product management instructs
other roles to design, to develop and to manufacture IT products. For this, it determines and controls the commitments of other roles regarding quantity, costs,
and quality.
The functional area Product / Production Plant Configuration consists of two roles.
• Product Engineering. In relationship with the role production engineering, this
role likewise engineers new IT services, and modifies the design of existing IT
22
products. Thereby, the production design of the IT product is aligned with the
sales description provided by the role product management. Further activities of
this role include the planning and execution of development projects, as well as
last level support.
• Production Engineering. The role production engineering is responsible for the
design of the production process. For this, it defines the production line, the activities and the resources necessary to fulfill the quality and cost requirements of the
IT products to be manufactured.
The functional area IT Production represents the four roles related to the final production and delivery of IT products. The roles are compliant with the functions source,
make, and deliver of the Supply Chain Operations Reference (SCOR) model.
• Production Management. This role is responsible for the manufacturing of IT services according to the production plan. For this, it manages internal resources that
provide the capacities for the creation of core services and support services, as
well as for the management of the production line. In addition to the capacity provided by internal resources, the IT service provider also uses external IT services
for the manufacturing of IT products.
• Resource Management. Activities of the role resource management include the
planning, controlling and documentation of the demand, procurement, installation,
provision, maintenance and disposal of resources. For each activity the roles resource strives for efficiency and quality. Resources are raw material, as well as the
equipment, which manufactures the final IT product based on the raw material.
• Sourcing. The role sourcing procures the entire demand of resources, as well as
external IT services necessary to operate and manage all functional areas of the IT
service provider. The role either purchases the required resources, or creates the
interface to the purchasing department if one exists.
• Delivery Management. This role manages the relationship to the end-users. Activities necessary to manage these relationships on the supplier’s side include management of customer satisfaction, initial customer shipment and rollout projects
for new or adjusted IT products, exception handling, problem management, and
responsibility for the delivery management process.
In the relationship between the internal IT service provider and its suppliers, the internal IT service provider adopts the role of the customer. In this relationship, the supplier provides IT services to the internal IT service provider similar to the relationship
23
between the IT service provider and its customers. Thus, the functional areas of the
suppliers resemble the ones of the IT service provider.
The IIM contributes to the proposed method of IT service-oriented investment analysis in the following way:
• Transfer of Industrial Concepts to IT Management. The IIM compares IT management to the manufacturing of industrial goods, i.e., IT services are produced in
analogy to industrial production processes. Based on this analogy, the IIM transfers established managerial concepts to IT in order to increase the efficiency and
quality of IT management. The proposed method builds on these methods and extends them for the purpose of investment analysis.
• Service-Orientation. The output of an IT service provider is offered to the customer in the form of distinct IT outputs, i.e., IT services. Thereby, IT services are defined in two ways: first, in the language of the customer containing only the information relevant for the end-user and contractor; second, in the terminology understandable for the IT service provider including information about the resources and
preliminary IT services used to produce IT services. IIM defines corresponding
methods, enabling IT management to cope with this distinct view on IT services.
By applying this viewpoint, it is possible to use the service-oriented IIM methods
in order to get service-based data for investment analyses.
• Core & Support Services. IT services can be classified into two types: core services, which provide a direct value to one or several business processes, and support
services, which enable, support and manage the customers’ use of core services.
This distinction is essential for the proposed method for investment analysis because of the fact that core and support services are created with different resource
capacities and thus need to be treated differently.
• Role Model of IT Service Providers. The IT service provider can be seen as a part
of a value chain consisting of customers, the IT service provider, and suppliers. In
order to manage the IT service provider internally, as well as to manage its relationship to customers and suppliers, a distinct definition of roles with clearly defined task assignments are crucial. In this thesis, the roles of the IIM are adopted
and thus, activities of investment analysis can be assigned to corresponding roles.
24
2.3 Software-as-a-Service
This chapter introduces traditional IT outsourcing as the origin of Software-as-aService (SaaS). Furthermore, it explains the emergence of the initial model of online
software delivery (i.e., Application Service Provision, ASP) with its abrupt ending in
the early 21st century. Finally, the chapter illustrates the broad continuum of online
software delivery, which visualizes the current variety of online software delivery options between the two ends, ASP and pure SaaS. In this dissertation, the term Software-as-a-Service refers to all possible options in this continuum.
2.3.1 IT Outsourcing
In 1988 after Eastman Kodak first published that it outsourced software to IBM, DEC,
and Businessland, numerous large companies followed [Lacity/Hirschheim 1995, p.I].
The expectations of these companies were high as they projected advantages, such as,
a better focus on core competencies, increased flexibility, reduced costs, and access to
newest technology [Loh/Venkatraman 1995, Slaughter/Ang 1996, Smith et al. 1998].
Since then, academia and practitioners have been largely engaged in the field of IT
outsourcing. Thereby, the term outsourcing has been manifold defined. In the most
cited definitions, IT outsourcing is described as follows:
• "Commissioning of a third party (or a number of third parties) to manage a client
organization's IT assets, people and/or activities (or part thereof) to required results" [Fitzgerald/Willcocks 1994, p.92];
• "Decision taken by an organization to contract-out or sell the organization's IT assets, people, and/or activities to a third party vendor, who in exchange provides
and manages assets and services for monetary returns over an agreed time period"
[Kern 1997, p.37]; or
• "Significant contribution by external vendors in the physical and/or human resources associated with the entire or specific components of the IT infrastructure in
the user organization" [Loh/Loh 1992, p.9].
All three outsourcing definitions emphasize the two parties involved in the outsourcing process (i.e., the IT service provider and the customer), as well as their relationship to each other. This relationship can be further classified into three maturity levels
[Dous 2007, pp.24-27].
In the first level, the IT department is presented as cost or as investment center in the
company. Its services are delivered to the business units through the completion of IT
projects. Costs are allocated to business units based on internal prices.
25
In the second level, the internal IT service provider is characterized by a distinct customer-supplier relationship. In general, 80-100% of the company belongs to the parent
company to which the provider delivers more than 50% of its services [SchulteCroonenberg et al. 2004]. Three classes of interaction may occur in this relationship:
In the 1:1 interaction, the customer purchases its entire IT services from one provider,
which offers its services only to this specific customer. Consequently, customer requirements and supplier’s costs and performance are highly transparent to both parties. In the 1:n interaction, the customer sources its IT services from multiple providers, but its subsidiary is its preferred choice. Finally, in the n:m interaction the IT provider serves as profit center. Its customers are its parent company or other companies.
Similarly, the parent company can purchase IT services from its subsidiary and from
the external IT market.
In the third level, total Outsourcing, companies outsource their entire IT to external
providers. One example is a take-over of the internal IT provider by an external competitor. However, in most cases only certain areas of the internal IT are affected. The
corporate IT center and the departmental IT units often remain in the company, as
they serve as interface to external outsourcing partners [Earl 1998].
In the context of this dissertation, the focus is laid on the 1:1 interaction between internal IT service providers and internal customers. Exhibit 8 illustrates the structures
and relationships between these two parties, as well as their relationships with external
IT service providers and external customers.
suppliers
external
market
internal
IT service
provider
internal
market
internal
customers
(business
departments)
external
customers
Exhibit 8. Structures and relationships of service-oriented IM [Zarnekow 2005, p.11]
According to the IIM model, these relationships function in a market-oriented way,
whereby the internal IT service providers are situated in two markets [Zarnekow 2005,
p.11]. In the internal market, internal IT service providers offer IT products to internal
customers. In the external market, internal IT service providers procure IT services
(e.g., SaaS services, web services, Internet services, consultant services), and resources (e.g., software, hardware) from external IT service providers in order to manufacture proprietary IT services and IT products. The extent to which internal IT ser-
26
vice providers generate internal IT services and IT products, or to which extent they
source them from external IT service providers is company-specific.
In the majority of cases respectively companies or internal IT service providers source
only selected IT functions from external IT service providers, also referred to as selective sourcing, [Willcocks et al. 1995, Lacity et al. 1996]. The subsequent selective
outsourcing options are available to the sourcing party (adapted from [de Loof 1997,
p.31]):
1. Outsourcing of IT Services but not Resources. This approach includes examples,
such as a company, which for data security reasons retains its servers in-house but
contracts a provider to maintain them; or a company, which hires IT consultants to
configure the software installed on the company’s computers.
2. Outsourcing of Resources and IT Services. The case of a company employing a
data center best demonstrates this selective outsourcing type. The data center as
external IT service provider offers resources (e.g., servers, databases, information
systems) and IT services (e.g., maintenance of servers and software, back-up services, or recovery services). The company as plain user applies the information
systems provided by the supplier over the Internet / Intranet.
3. Outsourcing of Resources but not IT Services. Following situation visualizes the
characteristics of this outsourcing type. A company, which due to the lack of office
space stores its servers at a provider’s facilities but its IT employees still maintain
these servers remotely.
Depending on numerous factors, e.g., a company’s initial situation or application area,
different options of selective outsourcing are adequate for specific companies. Thus,
Lacity et al. associate selective sourcing with a portfolio of IS functions from which
the company has to “rightsource” the most suitable combination of IT services and/or
resources [Lacity/Hirschheim 1995, p.XVIII].
The method proposed in this dissertation, aims at providing guidelines to support the
company in the rightsourcing of IT services. The options to be compared are in-house
and SaaS. A brief introduction to these two options is provided in the following, a
more detailed differentiation is elucidated in Chapter 5.
1. In-House. In this option internal IT service providers source relatively few IT services from external providers. Instead, they manufacture most IT services with internal resources. Only some IT services are procured from external providers (e.g.,
SW support services, consultant services, or Internet services). This sourcing can
be compared to the first selective outsourcing type.
27
2. Software-as-a-Service. The SaaS option is for the most part equivalent to the
second type of selective outsourcing. The internal IT service provider sources the
SaaS service from a SaaS provider. The SaaS provider manufactures IT products
with its own resources (i.e., IT resources and human resources) and performs all
necessary IT services required for the manufacturing of IT products (i.e., operation
of the IT resources, security, back up, and maintenance services). In addition to the
sourcing of the SaaS product, the internal IT service provider consumes Internet
services from an Internet provider (compare to the first selective outsourcing type).
However, in order to provide a complete end-to-end solution to its customers, the
internal IT service provider also owns resources (e.g., PCs, operating systems,
LAN) and performs IT services, which are not provided by the SaaS provider (e.g.,
maintenance services for PCs, OS, or LAN).
These definitions are only valid for this dissertation in order to provide comparable
reference examples. In real-life, numerous variations of these two options exist.
2.3.2 Application Service Provision
The Application Service Provision (ASP) model emerged in 1999 due to rapid advancements and decreasing prices in networking technologies, as well as the Small
and Medium-sized Enterprises’ (SMEs’) increasing demand for affordable enterprise
applications [Tebboune 2003]. ASP originated from the areas of selective outsourcing,
application outsourcing, and, browser-based computing [Jayatilaka 2003, Tebboune
2003].
The first definition of the term ASP was given by the ASP Industry Consortium. It
defined ASP as an organization which “manages and delivers application capabilities
to multiple entities from a data center across a wide area network (WAN)” [Susarla et
al. 2003]. In the course of time, the term ASP has been defined in more detail. According to various researchers, ASP provides a new pricing model, which does not
require any up-front costs from the customer. Instead, the customer rents the application as a service on a subscription basis [Currie/Seltsikas 2001, Jayatilaka 2003]. Users access the provided service via a web browser over a private network or the Internet [Lee 2003b, Walsh 2003]. The available packaged software, which is remotely
hosted and managed by the provider, ranges from simple stand-alone applications
(e.g., word processing software) to integrated enterprise software suites (e.g., ERP,
CRM, SCM) [Bennett/Timbrell 2000, Jayatilaka 2003, Lee 2003b].
In its initial phase, the ASP model was often compared to the traditional IT outsourcing model. As illustrated in Exhibit 9, the comparison between the two models reveals
large differences.
28
aspects
traditional IT outsourcing model
ASP model
relationship
One-to-one
One-to-many
costs
Significant up-front costs
No up-front costs
application
location
Located at customer site or sometimes
with third party
Application located at ASP, third party or at customer site
target markets
Large clients with IT departments
SMEs with low IT expertise
vendor
characteristics
“Name” vendors, with potential global span
Entrepreneurs and start-ups
contract types
Long, broad, strategic
Short, standard, usage-based, non strategic
available
functions
Services from application development to
infrastructure operation
Web-based application services
customization
Tailored or client-determined
Standard packages with one size fits all
resource
ownership
Application owned by customer
Mixed bag
Application owned by ASP
Vendor server hardware and application ownership
Exhibit 9. Comparison of conventional IT outsourcing and ASP model
(adapted from [Currie 2001, Ma 2005])
Besides typical benefits of traditional outsourcing, such as increased focus on core
competencies, higher flexibility, and cost reduction, ASP’s pay per-seat, per month
pricing model relieved customers off large up-front investments (e.g., hiring and training of IT staff, purchase of expensive servers). The novel payment model also created
a better transparency of IT expenditures and enabled customers to tailor their IT requirements as demand increased or decreased [Currie 2004b]. Another often promised
benefit were economies of scale resulting from the provider’s ability to standardize
their IT services, which were offered to a large customer base (“same to all”). [Kern et
al. 2002, Currie 2004b]. A key selling point was also a shorter time period for enabling the ASP service [Susarla et al. 2003]. The assurance of 24x7 availability of software and of technical support attracted many SMEs which were not able to create the
same service in a cost-effective way by themselves [Currie 2004a]. ASP also promised to provide access to newest technology. Because of its simplicity and low costs,
ASP was mainly applied by small companies, which before could not effort to deploy
information systems by themselves, nor could they host the systems with large IT outsourcing partners [Currie/Seltsikas 2001]. However, the initial ASP model attracted
fewer large enterprises with complex business processes [Desai 2005].
The initial ASP model presents a synthesis of various IT services including software
deployment, application upgrades, virus protection, data security, web hosting, connectivity provision, network and application monitoring, staff training, extended support and help desk, consulting and integration [Lee 2003a, Ma 2005]. In order to manufacture the final IT products for the customer, the pure ASP provider allies with other
29
companies in an ecosystem as depicted in Exhibit 10. In this ecosystem, the provider
procures IT services and resources from its partners.
independent
software vendors
hardware vendors
pure-play
ASPs
network providers
system integrators
Exhibit 10. Partners in the ASP ecosystems [adapted from Lee 2003b]
Currie exemplarily described the ASP ecosystem as follows [Currie 2004b]. The ASP
provider “delivering a hosted software application to the end customer, may subcontract data centre services, billing, help desk, and other support services to additional
firms.” Moreover the ASP provider “… may not even own or have developed the
software, as this may be the intellectual property of an independent software vendor.”
According to [Lee 2003b] the following five major players are part of the ecosystem.
• Hardware Vendors. Hardware vendors provide IT production equipment (servers,
storage, etc.) to the ASP provider. The resources can be characterized as commodities of a tangible nature. In particular, data centre vendors, such as IBM, Compaq,
Sun, Dell and HP, belong to this group.
• Independent Software Vendors (ISVs). ISVs offer enterprise applications to the
ASP providers. Traditional ISVs include in particular large ERP vendors, such as
Oracle, SAP, Peoplesoft, and CRM vendors, such as, Microsoft and SAP.
• Network Providers. This group of key players provides bandwidth or network
access as an IT service to the ASP provider. Internet service providers, telecommunications companies, wireless communications providers, data carriers, and cable television are defined as network providers.
• System Integrators. System integrators provide IT services, which help ASP customers to adjust the software to their specific needs and to integrate it into the customers’ existing IT infrastructure. System integrators may also provide services to
support the software, such as help desk services.
• Pure-Play ASP Providers. According to their customers’ needs, ASP providers
purchase IT services from the above key players and bundle them as final products, which they then sell to the end customer. In the ideal case, the ASP interacts
with the customer as a single point of contact, from which the customer sources all
IT services enabling him to use the software as a service.
30
A similar classification of ASP key players is also given by [Currie 2001]. Currie differentiates between pure ASPs, ISVs, software infrastructure partners, and software
and complementary technology partners. In recent years, a general trend towards a
merging of the described key players is observable [Currie 2001]. For instance, Salesforce.com develops software, deploys it in its own data centers, and may even configure the software for its customers.
2.3.3 Software-as-a-Service Continuum
Since its emergence, ASP has been often associated with the terms Software-as-aService, SaaS, or software delivered as a service (e.g., [Seltsikas 2002, Lee 2003b,
Tebboune 2003, Currie 2004b]). Other terms which have been linked to ASP include
on-demand computing or utility computing, which in analogy to the provision of electricity or water imply the offering of computer processing power and related IT services on an as-needed basis [Currie 2004b, Ross 2004]. Today, the term ASP, which
carries a rather negative meaning because of the initial ASP failure, has been increasingly suppressed by the aforementioned terms. As will be elucidated in the following
paragraphs, the terms ASP and SaaS are built on a common basis forming the two
ends of a continuum. The continuum visualizes all options of online-delivered software, which have been developed since the beginning of ASP [Carraro/Chong 2006].
In this dissertation, the variety of current software delivery options is referred to as
Software-as-a-Service or SaaS.
advances that have enabled the growth in SaaS:
• security
• clustering
• network storage • grid computing
• broadband
• multi-tenant architecture
• low cost servers
• J2EE
• hosted platforms • service oriented architecture
burst of dot-com bubble
SaaS
ASP
1995
2000
2005
2010
Exhibit 11. Development of ASP and SaaS
After the dot-com bubble burst in 2001, the Internet recovered in the subsequent
years, reaching recently a new peak with web 2.0 technologies [McAffee 2006,
O'Reilly 2007]. Reasons for this development are manifold and include various technological advances regarding, for instance, security, network storage, broadband, grid
computing, multi-tenant architecture, or service oriented architecture [Rangan et al.
2006, p.18, Dubey/Wagle 2007]. Concurrently, profiting from the same advances, the
interest in online-delivered software increased again under the term SaaS. Against the
31
initial ASP model, the new online-delivered software options showed improvements
in their business models, as well as in their technology (see Exhibit 11, p.30).
SaaS and ASP have various characteristics in common. Both online-delivered software options provide IT services, which enable customers to use a software application over the Internet on a pay-as-you go basis. Thereby, the external IT service provider operates and maintains the IT resources. In contrast to traditional IT outsourcing,
which allows the customer to determine the IT services to be outsourced, ASP and
SaaS providers offer rather a standard bundle of IT services. In both options, the production process is based on IT services, created by the provider with standardized procedures, and/or on IT services sourced from the provider’s long-term strategic partners. Customers interact in a single-point-of-contact with the provider of the final IT
products, which are then consumed by the end-users.
The major goal of SaaS providers is to offer cost-efficient high quality IT services. As
SaaS providers operate software for multiple customers, they can attain economies of
scale and therefore reduce their average costs [Walsh 2003, Gupta/Herath 2005]. Thereby, SaaS providers standardize, specialize, repeat, and finally automate their key IT
processes, i.e., availability, security, performance, problem, and change management
processes [Chou 2004, pp.17-28, Chou 2008, pp.41-62]. However, as market observations reveal, not all providers have been able to gain full economies of scale [Carraro/Chong 2006, 49, Chou 2008]. Instead, providers show variations of a continuum of
different maturity levels.
In order to determine SaaS providers’ maturity, research analysts and software companies, such as, Forrester, Gartner, and Microsoft, defined lists of differentiating
attributes. Forrester classifies SaaS, ASP, and application outsourcing offerings based
on the attributes tenancy, upgrades, payment model, and responsibility for managing
the application [Herbert/Martorelli 2008]. Gartner identified four maturity levels: (1)
basic competence, (2) functional effectiveness, (3) intra-enterprise integration, and (4)
business “ecosystem” [Maoz/Desisto 2006]. The maturity is determined according to
the provider’s strategy and technology. Finally, Microsoft developed a maturity continuum with traditional software deployment at the one end, and “pure” SaaS at the other [Carraro/Chong 2006]. Differentiating factors in this continuum are licensing, location, and management.
In the context of this dissertation, a SaaS continuum was created covering the variety
of SaaS options addressed in the proposed method. It is based on the previously introduced differentiating attributes and current SaaS literature. The attributes for this continuum were selected according to their impact on the economies of scale of SaaS
providers, as well as their impact on costs, benefits and risks of their customers. The
32
one end of this continuum resembles the initial ASP model, referred to as pure ASP;
the other end represents the pure SaaS model, i.e. values resulting in maximum economies of scale. Exhibit 12 illustrates the continuum, which is according to the IIM
model categorized into key sales and production attributes of SaaS providers.
pure SaaS
pure ASP
production view of SaaS provider
attributes
1.) SW development
& operation
economies of scale
values
independent IT provider
determined by customer
independent IT provider
determined by SaaS provider
SaaS provider
2.) tenancy
separated database
(single tenancy)
shared database
but separated schema
shared database
and shared schema
(multi tenancy)
3.) virtualization
dedicated server
for each customer
dedicated or
shared server
shared server farm
data centers
in selected countries
one/few data center/s
in one country
4.) location
worldwide
data centers
sales view of SaaS provider
attributes
values
5.) price model
negotiable price
standard or
negotiable price
standard price
6.) registration
sales representative
sales representatives or
online
online
customization
configuration
none
7.) SW modification
Exhibit 12. Key attributes of the Software-as-a-Service continuum
(adapted from [Carraro/Chong 2006, Maoz/Desisto 2006, Chou 2008,
Herbert/Martorelli 2008])
The SaaS continuum defines four key production attributes:
1. Software Development & Operation. In the pure ASP model, the customer determines a provider, which deploys for the customer software from an independent
software vendor [Herbert/Martorelli 2008]. As, such providers often run software
from more than one SW vendor, they are less specialized in the deployment of
each individual application. Larger economies of scale can be reached if the provider is a strategic partner of one software vendor. In this case, the provider is
more familiar with the application and is in direct contact with the vendor. If the
provider develops and deploys its own software, further economies of scale can be
leveraged. Additionally, the provider will be able to decrease software research
costs, as it can improve the software based on its learning about customers’ online
consumption behavior.
33
2. Tenancy. As depicted in Exhibit 13, the pure SaaS model can reach compared to
the pure ASP model larger economies of scale due to differing database architectures [Chong 2006, Chou 2008, pp.46-51]. Pure ASP is based on a single-tenant
architecture, i.e., the provider deploys for each tenant individual application and
database instances. Contrarily, pure SaaS is based on a multi-tenant architecture,
i.e., the data of all tenants are stored in one shared database with shared schema.
The costs to deploy a shared database are significantly lower than to deploy individual instances. For example, in pure SaaS one upgrade must be conducted for all
customers, whereas in pure ASP for each customer one upgrade must be performed. Furthermore, only one software version must be supported in the SaaS
model. Between single- and multi-tenancy lays another database architecture type,
i.e., shared database but separate schema.
(1) separated database
tenant 132
(2) shared database,
separate schema
tenant 680
database
tenant 132
tenant 680
(3) shared database,
shared schema
tenant ID product ID product Na
tenant ID shipment date
132
328192
2008/08/12
3456
920004
2008/03/23
680
237541
2008/06/15
Exhibit 13. Database architecture (adapted from [Chong 2006])
3. Virtualization. Further economies of scale can be reached if the number of servers
dedicated for individual customers can be reduced, i.e., multiple application instances can run on one server or a shared server farm [Chou 2008, pp.48-49]. In
this case, hardware resources are more effectively used as the utilization rate of
one application instance on a dedicated server is often rather low.
4. Location. For SaaS providers it is most cost-efficient to operate their application in
one data center. However, due to customer requirements and data protective legislations companies may not be allowed to outsource their data to certain countries.
For this reason, some providers operate worldwide data centers. To further protect
their customers, providers also sign the so-called Safe-Harbor Agreement, which
protects against the European Union shutting down the network connection to the
US [Export.Gov 2008]. Providers also operate more than one data center in order
to decrease the transfer rate and to have a backup in case of outages [Chou 2004,
pp.29-40].
Besides characteristics in the production structures, SaaS providers also differ in the
interface to their customers, i.e., in their sales view.
34
5. Price Model. The pricing model differs largely between online software providers.
For instance, providers may charge a user per month subscription fee, or the number of transactions [Carraro/Chong 2006]. Additionally, providers may bill additional costs, such as data storage or support services [Pring et al. 2007]. Essential
for the creation of economies of scale is the degree to which prices are standardized. Providers that only provide standard prices and do not negotiate any price
conditions are able to reach the largest economies of scale.
6. Registration and Prototype. Software-as-a-Service is often assumed to be easy to
rent. The customer can register online for the SaaS service or a prototype, and then
start using it. However, this is often only the case for simple applications with little
need for modification (e.g., WebEx, Gmail). In these cases, the registration process
is fully online and does not require any human interaction. However, mostly, humans are heavily involved in the process especially if contracts for large enterprises must be bargained for, or if the business application is rather complex.
7. Software Modification. The modification capability of SaaS solutions is strongly
linked to the underlying database architecture [Chong 2006]. In a single-tenant architecture, changes can only affect one tenant. Therefore, a large flexibility to customize the application can be offered to the customer. Contrarily, in multi-tenant
architectures, customers must be more controlled in order to avoid the changes of
one customer becoming visible to others. For this reason, applications based on a
multi-tenant architecture allow customers to configure the application. However,
changes in the source code of an application are not possible.
Exhibit 14 (see p.35) presents selected SaaS providers to illustrate the broad variety of
online-delivered software in the SaaS continuum. SaaS providers vary largely in their
production and sales attributes. Thereby, many providers do not reach the maximum
economies of scale [Chou 2008]. The reasons for this are manifold. Customers may
require a dedicated server because of their risk averseness to store data in a shared
database. SaaS solutions may be single-tenant as they are built on already existing
software, which is often the case with traditional software vendors. Or, a high flexibility in customization may be needed to align a SaaS solution with companies’ complex
business processes.
The varieties of SaaS providers are also reflected in their prices and service levels.
Thus, potential customers must evaluate numerous factors, which often require them
to make trade-offs between benefits, costs, and risks [Herbert 2008b]. For instance, a
provider reaching large economies of scale can offer rather small prices, while at the
same time, it might restrict its customers in their SaaS consumption [Tebboune 2003].
In order to make a sound decision costs and benefits must be evaluated carefully.
35
classification
description of SaaS providers3
Oracle
Oracle offers its software as packaged SW, which can be deployed internally by the customer, and
as SaaS solution, referred to as Oracle onDemand. Oracle operates its onDemand SW in its own
data center in Austin, Texas. Outside the US, strategic partners host the application for Oracle.
For instance, in Germany, T-Systems hosts the Oracle on-demand applications. The applications
are based on a single-tenant architecture, offering each customer a new instance of the application. Thus, the customer can determine when and how often the application shall be upgraded to
a new release. Regarding the price models, Oracle offers standard prices, but may also negotiate
the prices with some customers. Oracle on-demand’s registration process requires human interaction between customer and Oracle’s salespersons. The application can be configured to better
meet customer-specific business requirements.
1
2
3
4
5
6
7








RightNow
1
2
3
4

5
6
7







Salesforce.com
1
2
3
4
5
6
7








SAP
1
2
3
4




5
6
7



Taleo
1
2
3
4
5
6
7







Established in 1997, RightNow Technologies is one of the pioneers in the SaaS business. The
provider offers its customer relationship management (CRM) suite as SaaS solution. Thereby, the
customer can choose from three deployment options: deployment of the application in the US
data center of the SaaS provider; in the data center of the customer; or in the data center of an
independent provider. If the application is deployed by RightNow, for each customer a new SW
instance is created, whereby the customer’s data is stored in separate databases. The customer
can be charged based on performed transactions, or on a user per month basis. To register for
the service, the customer must always contact the SaaS provider. Finally, the SaaS solution provides a high flexibility regarding customization and integration.
Founded in 1999, Salesforce.com belongs to the first SaaS providers. It provides software functionality to support companies’ marketing, sales and service processes. The SaaS provider develops
and operates its CRM suite by itself. Four of its data centers are located in the US and one in
Singapore. Salesforce.com runs several regional instances on complex multi-tenant architecture.
The customer pays a user per month subscription fee, whereby several different price models are
available. Although, Salesforce.com officially provides standard prices, it also negotiates the
prices with certain customers. Depending on the complexity of the requirements, customers
register online or contact sales representatives. Customers can configure the application, or they
can add new functionality based on the company’s proprietary platform AppExchange. [Weissman 2007, Salesforce.com 2008]
Business ByDesign (BYD) is SAP’s first software-as-a-service suite, which was announced in September 2007 with a planned rollout for 2009. The application will offer a broad variety of SW
functionality most relevant business processes of midsized companies (e.g., ERP, CRM, SCM,
HCM, or project management). Strategic partners will be hosting BYD in numerous worldwide
data centers. Thereby, the application is based on single tenant architecture. The traditional
software vendor offers BYD on a user per month subscription basis with different price categories. Customers can register online, test and configure their prototype, and then automatically
transfer the prototype into a run-time application. With this approach, SAP follows its strategy to
keep the human interaction on customer and supplier side as small as possible.
Taleo delivers talent management software as a service to its customers. The application is developed by Taleo. However, the application is deployed on data centers of Taleo’s strategic partners. The underlying architecture is single-tenant, i.e., each customer uses a single instance of the
application. In general, all instances run on a shared server farm. However, on customer request
Taleo also deploys the application on a dedicated server. To be cost-efficient, Taleo requires from
its customer to change to the newest upgrade one year after the release date of the newest SW
version. For its service offerings, Taleo provides standard, as well as, negotiable prices. In order to
register for the service customers must contact the company’s sales persons. Taleo conducts
most configurations for its customers. Simple changes can be made by the customer.
Exhibit 14. Classification of selected SaaS providers
3
Information is based on literature, as well as on interviews with SaaS providers: Oracle: Timothy Chou,
RightNow Technologies: Frank Prenninger, Siegfried Radspieler; SAP: Scott Bolick, Tim Stuck, Jai Das, Michael Beutler, Michael Mankowski; and Taleo: Michael Gregoire.
36
The complexity of companies’ decision-making processes increases if also packaged
software deployed internally is considered as possible solutions [Jayatilaka et al. 2003,
Band/Marston 2008, Herbert/Martorelli 2008]. In these cases, not only must a company analyze SaaS characteristics but it must also compare them to different characteristics of in-house solutions. For instance, the response rate of a SaaS offering is often
published by the provider, whereas the response rate of an in-house solution must be
calculated based on the availability and utilization rate of companies’ IT resources.
Because of the differences between SaaS and in-house solutions, companies often fail
or avoid making sound decisions [Band/Marston 2008]. Furthermore, recommendations and guidelines by well-known research analysts do not cover completely in a
holistic way the aspects that need to be considered in the decision process (see Chapter 3.2).
This subchapter contributes to the dissertation as follows:
• Distinct Customer-Supplier Relationship. The relationship between the corporate
IT unit and the business units is characterized by its maturity level. The proposed
method is developed to support the maturity level of a 1:1 relationship between an
internal IT service provider and its customers. The two deployment options to be
compared, i.e., in-house and SaaS, are selective outsourcing types distinguished by
the extent to which IT services and resources are sourced from suppliers.
• Application Service Provision. The initial ASP model provided for small enterprises various benefits against the traditional IT outsourcing model, which was more
relevant for large companies. Application service providers created the IT products, which they offered to their customers, based on IT services and resources
procured from their key strategic partners.
• Software-as-a-Service Continuum. Since its emergence, the initial ASP model has
been further developed. Thus, today a broad continuum of numerous software online delivery options exists. The available options attract small, medium, and large
enterprises and compete increasingly with packaged software deployed in-house.
Therefore, companies face the challenge to compare complex SaaS options
amongst each other, as well as with in-house deployment solutions.
2.4 Summary & Research Gap
Software-as-a-Service has its origin in IT outsourcing and application service provision. Thus, current knowledge on SaaS is mainly based on the principles of IT outsourcing, and the extensive research on ASP conducted in the early 21st century.
Summary & Research Gap
37
However, whereas the initial ASP model was in particular applied by SMEs, the numerous options in the SaaS continuum attract small, medium, and large enterprises.
Consequently, SaaS increasingly competes with packaged software deployed internally. Therefore, companies evaluate more often SaaS options and compare them to inhouse solutions. The comparison is rather complex as the two deployment options differ in costs and benefits. Existing methods do not support companies adequately in
their decision-making process. For this reason, the dissertation aims at developing a
method for the comparison of in-house versus SaaS deployment options. Based on the
conceptual foundations described in Chapters 2.1 to 2.3 subsequent requirements were
derived for the method.
• Methodic Approach. A methodic approach is necessary to reach efficiently and
effectively the decision whether to deploy an in-house or a SaaS solution. Business
Engineering provides with Method Engineering any technique to construct and
document methodic procedure model.
• Customer-Orientation. Focal point of the decision-making process should be the
internal IT customer. The main goal of the introduction of IT in a company is the
improvement of its business processes. Thus, the selected solution should fulfill
the requirements of the customer.
•
Product-and Service-Orientation. The comparison of in-house and SaaS deployment solutions requires a detailed evaluation. The consideration of product-and
service level, which is postulated by the IIM framework, allows the analysis of the
output of the various IT services included in an IT product.
• SaaS Characteristics. Current SaaS offerings have evolved from the initial ASP
model. Online-delivered software options of SaaS providers can be classified into
a SaaS continuum with different prices and service levels. Therefore, the proposed
method must consider the variety of SaaS offerings.
• Costs Analysis. Costs are important criteria in the in-house versus SaaS decision
process. SaaS solutions vary largely in their prices due to the provider’s different
fulfillment of economies of scale. Furthermore, if the costs of SaaS solutions are
compared to costs of in-house solutions, different cost structured must be considered. A simple apple-to-apple comparison is not possible.
• Benefit Analysis. As a less expensive SaaS solution might also result in fewer benefits for the customer, it is important to analyze costs, as well as benefits. Often
customers must make trade-offs in order to find the optimal solution with the maximum cost-benefit ratio for their specific company situation.
38
3 Relevant Investment Analysis Approaches
As emphasized in Chapter 2.1.2, methods serve as the basis for engineering. In business engineering, methods support, for instance, the design of business areas, business
units, business processes, as well as information systems. Methods structure problem
spaces and provide procedure models to solve problems.
The proposal of a new method that intends to offer a solution to a specified problem is
only suggestive, if no method exists that already solves the problem, or if the existing
methods do not completely fulfill the defined requirements. Thus, to justify the development of a new method for the decision-making between in-house and SaaS, an extensive literature review on relevant decision-making approaches was conducted. So
far, no published approaches completely satisfy the requirements specified in Chapter
2.4. However, several approaches were identified that address related problems. As
these approaches fulfill rudimentarily the requirements, helpful leads and suggestions
can be derived for the development of the proposed method. In the context of this dissertation, the approaches were evaluated with regard to their degree of fulfillment of
the defined requirements. Exhibit 15 outlines the results of this evaluation.
requirements
methodic
approach
customer orientation
product-/serviceorientation
SaaS
characteristics
cost
analysis
benefit
analysis






sensitivity analysis






SaaS decision-making






IIM cost accounting






MRP II






relevant approaches
decision theory
legend:
 not fulfilled
 partially fulfilled
 completely fulfilled
Exhibit 15. Evaluation of relevant decision-making approaches
The following subchapters introduce the approaches relevant for the specified problem, and explain their input for the proposed method.
3.1 Decision Theory
The theory of decision-making deals with the process of “how people (and other organisms and machines) combine desires (utilities, personal values, goals, ends, etc.)
and believes (expectations, knowledge, means etc.) to choose a course of action”
[Hastie 2001]. Decision theory is as an interdisciplinary research discipline a focal
point in various academic areas, in particular in economics [Simon 1959, Smith/Von
Winterfeldt 2004, Laux 2005, p.1].
Decision Theory
39
The purpose of decision theory is either of normative or descriptive nature [e.g., Einhorn/Hogarth 1981, Smith/Von Winterfeldt 2004, Starmer 2005]. Based on the analysis of previous decisions, descriptive decision theory forms the hypothesis on decision-makers’ behavior in order to predict or to manage their future decisions. Contrarily, normative decision theory, which is applied for the proposed method, aims at
providing rational guidelines to decision-makers supporting them in resolving their
decision problems.
3.1.1 Elements of Decision Models
Deliverables of normative decision theory are decision models. A decision model is
the definition of a formal language, consisting of elements and relationships of a specific problem, from which a solution can be implied [Bretzke 1980, 8, Tsoukiàs 2008].
The decision model’s nature is abstract, i.e., it addresses a specific type of problem,
instead of a concrete problem situation [Bretzke 1980, p.10]. However, in order to
solve concrete problem situations, practitioners can transfer abstract models into concrete models. Thereby, practitioners instantiate the parameters of the abstract model
with concrete values, and make use of the logical methods (e.g., statistics, algorithms,
mathematical modeling) recommended by the abstract model. Abstract models may
reference logical methods, but the development of these methods is not in the scope of
decision theory. Exhibit 16 illustrates the core elements of a decision model.
core elements of
a decision model
objective
function
decision field
action
alternatives
results
environmental
states
Exhibit 16. Core elements of a decision model
(adapted from the German [Laux 2005, p.20])
The element, objective function, provides the logic to evaluate all possible alternatives, and to select the best alternative [Laux 2005, pp.32-31]. In case of a single goal
variable (i.e., a variable, which describes the desired state), the decision is rather simple: the variable must be minimized, maximized, or a specific minimum or maximum
value must be reached. Nevertheless, if several goal variables exist, the objective
function is more complex. Then, trade-offs between the goal variables must be accepted in order to determine the optimal alternative.
40
The decision field consists of three elements [Laux 2005, pp.20-23]. The first element,
action alternatives, characterizes possible solutions to a specified problem. Thereby,
each alternative consists of a tuple of decision variables. The values of these variables
are determined by the decision-maker in order to design an alternative. The second
element, results, represents the consequences if an alternative would be realized. Calculated for a specific alternative, a result contains values of the defined goal variables.
The third element, environmental states, embodies the data, which influences the results but cannot be defined by the decision-maker. This data is also referred to as decision-relevant data. Whether, the parameters in a decision model are decision variables
or decision-relevant data depend in general on the decision situation.
3.1.2 Decision Process
In a decision model, the guidelines for reaching a decision are provided in the form of
a decision process [e.g., Simon 1959, Saaty 1994, Tsoukiàs 2008]. In the following
example, the five interdependent phases of a decision process described by Laux are
outlined [Laux 2005]:
1. Problem Formulation. A decision process is always triggered by a situation that
the decision-maker perceives as unsatisfactory, and that can or even needs to be
improved. The specification of this problem initiates the decision process.
2. Goal Specification. Based on the problem specification, a clear goal is then defined. The goal serves as basis to reach a rational decision. Thus, it must be precise
enough to provide indications for the alternative design, and to serve as evaluation
criterion for the results of the alternatives.
3. Exploration of Feasible Alternatives. This phase includes three activities. First,
restrictions of possible alternatives are identified. This is advisable as it excludes
infeasible alternatives from the decision process. Second, the alternatives are designed. The quality of the alternatives strongly depends on the available information and the creativity of the decision-maker. In order to continue the decision
process at least two mutually exclusive alternatives must exist. Finally, the consequences of each alternative and its probability of occurrence are predicted.
4. Selection of one Alternative. An alternative is selected based on the degree to
which it reaches the defined goal. If multiple goal variables exist, the definition of
preferences facilitates the determination of the best possible alternative.
5. Decisions during Realization. Often the selected alternative must be further specified during realization. Thus, decision-making remains necessary. However, in
Decision Theory
41
contrast to the previously described phases, this phase is irrelevant for the scope of
the proposed method.
3.1.3 Evaluation for this Dissertation
Decision theory provides for the proposed method a systematic decision-making
framework. As explained in the following, the elements of the abstract decision model
can be directly applied to the problem type of in-house versus SaaS decision-making.
Like the first phase of the decision process, problem formulation, problems of internal
customers trigger the need for a new IT solution, which then initiate the decision
process. The two deployment options in-house and SaaS represent the available action
alternatives, the environmental situation considers the company situation including
factors, such as, the planned sales volume of IT products, availability of human and IT
resources, or the IT strategy. The results of the two defined action alternatives is
represented in a tuple of cost and benefit numbers, risk likelihood, as well as the degree of flexibility and control. Furthermore, the results illustrate to which extent the
goal variables, i.e., the IT product definitions, are fulfilled. The objective function,
implies how the decision between in-house and SaaS can be reached systematically,
i.e., how the complex consequences deriving from deployment options are analyzed.
Moreover, the decision process can be integrated with the components of method engineering explained in Chapter 2.1.2. Thus, the phases of the decision process resemble the activities in method engineering, which require inputs and outputs, as well as
the assignment of roles. The techniques applied in an activity to create output can be
described by the decision parameters gathered throughout the decision process (i.e.,
goal variables, decision variables, and decision relevant data), as well as references to
logical methods.
To conclude, decision theory provides strong input for the creation of methodic customer-oriented approach. However, it does not offer any information on product/service orientation, SaaS characteristics, cost or benefit analysis.
3.2 Sensitivity Analysis
In investment analyses, sensitivity analysis is conducted in order to understand the
impact of possible future changes on the outcome of competing alternatives [Saltelli et
al. 2004, pp.42-46]. Thereby, sensitivity analysis evaluates the impact of one or
several input factors on a defined output factor. Its objective is to determine when a
certain goal variable (e.g., net present value, break-even point) is the first time above
42
or below a specified target value. In the context of this thesis, the approach of risk
assessment and the risk assessment technoloyg monte carlo analysis are relevant.
3.2.1 Risk Assessment
Risk assessment is used to study systematically the uncertainties and risks of a specific alternative. A risk can be defined as a pertinent event with a probability of occurrence of a threat and an impact or consequence of the occurrence [Wolke 2007, pp.15
et sqq.]. Uncertainty is related to the probability and impact of a risk. Typically, uncertainties are represented as a range of parameters that affect the range of possibilities. The results of a risk assessment are used in risk management to take controlling
actions that will mitigate or hedge the identified risks.
Uncertainties and risks can be illustrated in various ways. A common approach, which
often serves as basis for quantitative risk analysis, is the Contributing Factor Diagram
(CFD, see Exhibit 17). The CFD delineates the mathematical and logical relationships
between the risk variables [Koller 2005, pp.109-123]. It includes situational variables,
decision variables, and goal variables. Situational variables (e.g., corporate tax rate)
cannot be controlled by the decision-makers, whereas decision variables (e.g., hourly
wage, number of workers) can be fully or to a certain extent influenced by the decision-makers. Situational and decision variables affect the outcome of the goal variables.
compressors
steel
concrete
kilowatt hrs
per year
pipe
construction
costs yearly
exchangers
total costs per
year
hours per day
worked
utility
costs/year
labor
costs
NPV and IRR of
new plant
project
cents per
kilowatt hr
corp. tax
rate
number of
workers
days per
year
total income
per year
hourly wage
daily plant
income
dollars per ton
tons per
day
Exhibit 17. CFD example of construction cost model [Koller 2005, p.110]
The Exhibit above exemplifies the variables and their relationships affecting the net
present value (NPV) and the internal rate of return (IRR) of a new plant project.
Sensitivity Analysis
43
3.2.2 Monte Carlo Analysis
For the assessment of risks, several techniques, such as the Bayesian analysis, the discrimination-function analysis, the factor analysis, the neutral analysis, and the Monte
Carlo analysis, can be applied [Mooney 1997, p.2]. The Monte Carlo analysis is used
for “any procedure that uses distribution-based random sampling to approximate solutions to probabilistic or deterministic problems” [Koller 2005]. Thus, the Monte Carlo
analysis is particularly suitable when different variables of uncertainty exist that interact to generate a certain output [Wieske 2007]. It determines the probability that a
certain result (or event) will occur, as well as the magnitude of the consequence.
Monte Carlo analysis must be performed with the support of simulation software. Exemplarily, the following paragraph illustrates a simple Monte Carlo example.
labor costs
compressor costs
20%
30%
% of success cases
% of success cases
35%
25%
20%
15%
10%
15%
10%
5%
5%
0%
0%
mm dollars
mm dollars
Exhibit 18. Compressor cost and labor cost distribution used as input for construction
cost model [Koller 2005, p.293]
Exhibit 18 shows possible distributions of compressor and labor costs created in a
Monte Carlo simulation. In an iterative process, each value of the distribution diagrams is used as input to a risk model that analysis the NPV and IRR of a new plant
project (see Exhibit 17, previous page). Similarly, distributions of the remaining variables are determined and applied in the Monte Carlo simulation. The result of the
analysis will be the occurrence probabilities of the defined target values of the NPV
and IRR. Additionally, the variables’ impact on the NPV and IRR will be known.
Data sensitivity analysis provides comprehensive and well-established techniques to
determine possible future changes of an existing situation, and to analyze the consequences of these changes. In particular, for the analysis of long-term investments,
such as investments in in-house and SaaS solutions, data sensitivity can be used to
identify future uncertainties and potential risks.
44
In the proposed method, the CFD is applied to illustrate the situational, decision, and
goal variables relevant for the investment analysis of in-house and SaaS solutions.
Monte Carlo analysis is used to analyze various consequences of future changes. For
instance, which affect has a change in the sales volume of the IT services on the costs
of each IT solution?
3.3 SaaS Investment Analysis
As depicted in Chapter 2.3.3, companies face increasingly the challenge of evaluating
in-house versus SaaS deployment options. The comparison proves difficult for two
reasons. First, both options provide benefits and challenges that require customers to
make trade-offs; and second, the different characteristics and the inhomogeneous
availability of information counter simple ‘apples to apples’ comparisons. In order to
gain a better understanding of the strengths and weaknesses of current decisionmaking approaches in this field, findings from scholars and market analysts are evaluated in the subsequent paragraphs.
3.3.1 Academic Research
Research relating to investment analysis of online-delivered software has been mostly
conducted by academia in the early 2000s. Publications focus exclusively on the pure
ASP model, which was predominant at this time [e.g., Kakabadse/Kakabadse 2002,
Ekanayaka et al. 2003, Susarla et al. 2003, Tebboune 2003, Yao 2004]. The findings
are of a descriptive nature analyzing case studies of ASP providers and customers
(i.e., the expected and perceived benefits, costs, and challenges of the ASP model).
The findings from these studies are compared with traditional IT outsourcing, and the
internal deployment of IT. Based on existing outsourcing theories, normative but rather simple decision-making approaches have been developed. Examples are Chen’s
make or buy decision tree [Chen/Soliman 2002], or Jayatilaka et al.’s integrated model
of ASP choice [Jayatilaka et al. 2003]. The latter approach is illustrated in Exhibit 19
and explained in more detail below.
IT knowledge
for application
other
resources
integration
requirement
resource
requirement
knowledge risk
competiveness
knowledge specific
resources
economic costs
task
environment
ASP
resource dependence
transaction
Exhibit 19. Integrated model of ASP choice [Jayatilaka et al. 2003]
SaaS Investment Analysis
45
The integrated model of ASP choice is based on four outsourcing theories.
• Knowledge Specific Theory. This theory argues that a company creates competitive
advantage with the creation, storage and application of knowledge [Grant 1996]. In
the ASP decision, this knowledge refers to the development and operation of IT.
Additionally, a company’s competitive advantage increases if information can be
exchanged, e.g., through integration [Nonaka et al. 2000]. As a result, a company
will more likely use an ASP if a gap exists between the available and the required
knowledge in a company, or if the ASP provider can fulfill the integration requirements [Jayatilaka et al. 2003]. Furthermore, a company will outsource information if the risks to outsource data are justifiable.
• Resource-Based Theory. Resource-based theory recognizes that an organization is
a set of resources, classified into human, physical, organizational, and financial resources [Barney 1991]. The heterogeneity and immobility of these resources create
competitive advantage for a company. Thereby, a company can create competitive
advantage with IT through product differentiation and cost reduction. As a result, a
company is more likely to adopt ASP if internal resources are not available, or if
time restrictions exist [Jayatilaka et al. 2003].
• Resource-Dependence Theory. This theory argues that all companies rely on external resources for production [Pfeffer/Salancik 1978]. It therefore develops strategies in order obtain critical resources. A company’s decision whether to increase
the dependency on an ASP provider requires the consideration of three environmental factors [Jayatilaka et al. 2003]: the number of alternatives, the relevance of
the application, and the extent to which the ASP company has control over the
provider.
• Transaction Cost Theory. This theory compares transaction costs to internal production costs [Williamson 1975, Williamson 1985]. Transaction costs refer to organizations costs’ from initializing, negotiating, and maintaining a relationship
with a provider. Production costs are incurred when products are manufactured inhouse. A company is more likely to outsource an application to a provider if the
production costs would exceed transaction costs. In the case of ASP, these costs
can be determined based on the need of customization, the frequency an application is used, and the degree of uncertainty regarding future usage.
Concluding, as illustrated above extensive research on decision-making addressing the
pure ASP model has been conducted in the past. However, no academic research exists, which particularly covers the various options of online-delivered software included in the SaaS continuum.
46
3.3.2 Market Analysts
Research conducted by market analysts, such as, Gartner, Forrester, McKinsey, or
IDC is based on the early academic findings introduced in the previous chapter. Like
academia, market analysts inform about benefits, costs and challenges of onlinedelivered software. Nevertheless, in contrast to the descriptive ASP findings of academia, the results of these research groups are rather of normative nature. Their current publications aim at providing concrete guidelines to aid companies in their decision-making between in-house and SaaS deployment options. Thereby, the entire continuum of online software delivery is considered. In the following, the most relevant
decision-making approaches for the proposed method are introduced.
One often applied approach is the SaaS questionnaire developed by Gartner (see Exhibit 20 below, [Pring 2006]). The questionnaire provides a list of 20 questions, which
enables companies to self-evaluate their likelihood of a successful SaaS adoption. The
questions consider topics, such as, trust in outsourcing, need for customization and
integration, availability of IT, human and financial resources, SaaS functionality, or a
SaaS solution’s capability to customize and integrate. Gartner recommends companies
with a high score to consider a SaaS adoption, and companies with a low score to be
careful introducing SaaS in the organization.
self-score
the scale of 1-5
in-house
SaaS
The required application / process functionality is
not available via SaaS.
1
2
3
4
5
The required application / process functionality is
available via SaaS.
There are company policies or industry regulations that prevent data from being held physically
outside our company.
1
2
3
4
5
There are no company policies or industry regulations that prevent data from being held physically
outside our company.
We have IT skills available to develop / manage
this application / process.
1
2
3
4
5
We do have IT skills available to develop / manage
this application / process.
We have IT/physical infrastructures available to
develop/manage this application/process
1
2
3
4
5
We do not have IT/physical infrastructures available
to develop/manage this application/process
We want to develop/manage this application/process from our capital expenditures budget
1
2
3
4
5
We want to develop/manage this application/process
from our operating expenditures budget
We do not have an urgent need for this application/process
1
2
3
4
5
We have an urgent need for this application/process
We have a low level of risk tolerance
1
2
3
4
5
We have a high relevance of risk tolerance
We are conscious about becoming dependent on
(an) IT vendor(s).
1
2
3
4
5
We are comfortable working in partnership with (an)
IT vendor(s).
…
1
2
3
4
5
…
Exhibit 20. Scoring of in-house & SaaS solutions [extracted from Pring 2006]
Besides this rather qualitative approach, recently research analysts have increased
their effort in creating decision-making methods that include cost estimates, such as
the Total Cost of Ownership (TCO) comparison by McKinsey illustrated in Exhibit
21. Originally developed by Gartner, the TCO estimates the costs, which occur during
SaaS Investment Analysis
47
the entire lifetime of an application. In addition to this approach, also the provision of
information on hidden costs and factors to identify the return on investment supports
companies developing cost figures for company-specific evaluations [e.g., Bona 2006,
Bona/Thompson 2007, Desisto 2007].
In addition to costs, Forrester accentuates the importance to compare the business values, flexibility, and risk of each solution [Herbert 2006, Wang 2006]. In their Total
Cost of Economics (TEI), Forrester researchers consider the previous four factors and
illustrate based on four scenarios that the outcome of a decision may differ significantly depending which approach, i.e., TCO or TEI, is applied.
Total cost of ownership, $ thousand
in-house
SaaS
customization, integration
108
72
basic infrastructure testing, deployment
54
0
application infrastructure testing, deployment
30
0
• does not require infrastructure and
application testing
101
34
• lowers training requirements through
- simpler user interfaces
- self-training, service capabilities
management, customization of business
process change
94
0
Data center facilities rental, operations;
security, compliance; monitoring of incident resolution
750
0
Implementation
Deployment
training
Software
User licenses, subscriptions, maintenance
480
1,500
308
92
0
0
2,298
1,640
Other
Unscheduled downtime
Unused licenses
Total costs
(including those not shown here)
Sources of savings with SaaS
• reduced deployment time, limited
customization, self-service through onboarding scripts
• does not require ongoing business
process change management
- vendors monitor customer usage to
enhance offering
- customers provide feedback to influence feature functionality
• includes vendor’s costs to serve in
subscription price (ongoing operations, back-end hardware and software)
• provides 99.9% general-server availability vs. 99%
• reduces unused licenses by 20%, users
added as needed
Exhibit 21. TCO comparison between in-house and SaaS [Dubey/Wagle 2007]
Besides the guidelines for the comparison of in-house and SaaS solutions, market analysts also explain how to compare SaaS providers amongst each other. Thereby, important factors are the differing service offerings and service levels [e.g., Herbert et al.
2007a, Pescatore 2007, Band/Marston 2008] .
48
Early academic research in the area of ASP decision-making provides a solid basis for
the development of the proposed method. Various assumptions about benefits, costs,
and challenges of a client’s ASP adoption still apply to the current variety of onlinedelivered software in the SaaS continuum. The explanation attempts for these assumptions based on outsourcing theories explain findings in real-life decisions of SaaS
clients (see Chapter 4), and lay an established IS outsourcing foundation for the proposed method (see Chapter 5). Nevertheless, the findings in ASP decision-making had
to be carefully analyzed with regard to their compliance with current requirements’ of
SaaS investment analyses. The existing research addresses only the ASP side of the
online software delivery continuum (see SaaS continuum in Exhibit 12), and therefore, does not examine the recent advancements of SaaS. Finally, the academic research is mainly of descriptive nature and provides only few explicit guidelines for the
decision process of the pure ASP model.
Contrarily, recent publications by market analysts, such as, Forrester, Gartner,
McKinsey and IDC, consider the entire continuum of online software delivery. Moreover, they provide guidelines for the decision-making between in-house and SaaS deployment solutions. Thereby, cost comparison based on ROI, TCO, and TEI approaches is a particular focus. Furthermore, market analysts offer recommendations for the
comparison of SaaS providers (e.g., based on service levels and hidden costs). Although, various valuable insights can be derived from market analysts’ contributions,
the requirements defined for the proposed method are not fully met. For instance, the
provided guidelines are rather qualitative, only applicable for simple decision problems. Determinants are presented individually with little, only textual, information on
impacts on other influencing factors. Thus, an integrated view of all determinants exists only implicitly. Finally, financial numbers are based on broad assumptions and
thus do not allow the evaluation of future developments of a company.
3.4 IIM Cost Accounting
Since its foundation in 2002, the CC IIM has been engaged in the development of
concepts to increase the efficiency and efficacy of IT service providers (see Chapter
2.2). To overcome the limitations of existing IT controlling approaches (e.g., lack of
transparency, missing customer orientation, and insufficient planning and decisionmaking capabilities [Scheeg 2005, pp.112-118, Übernickel 2008, pp.32-38]) one particular research focus of the competence center is the industrialization of IT cost accounting. In the following, the two approaches ‘integrated IT cost tables’ and ‘IT
product-oriented cost accounting’, which both belong to the IIM framework, are introduced.
IIM Cost Accounting
49
3.4.1 Integrated IT Cost Tables
Integrated IT cost tables provide an IT controlling technique that aims at enabling the
efficient provision of IT services [Scheeg 2005]. It is built on an integrated view of IT
development and IT production costs. In contrast to conventional IT controlling approaches, which decide between IT solutions solely based on a rough-cut planning and
broad cost estimates, the approach of integrated IT cost tables requests, before reaching a final decision, the specification of each IT-development alternative including
detailed cost estimates. The more expensive procedure is justifiable as 80% of the IT
production costs are not determined until the early development phases [Baumöl 1999,
p.145]. According to the IIM principles of product and customer orientation, the granularity level of integrated IT cost tables is IT products and IT services, respectively.
Exhibit 22 illustrates the system requirements for integrated cost tables.
IT-solutions
resource
4
management
(standardized capacities)
cost
5
management
(planning /actual costs)
9
10
11
IT product
IT production
parameters
18
pricing
17
3
2
IT product costs
8
12
performance
6
monitoring
(actual utilization)
IT development
parameters
sales
7
planning
(planned utilization)
configuration
standardized and assessed
resource basis
(costs per standardized service category
1
13
15
14
IT production
costs for
each IT solution
integrated 16
IT cost tables
(development and
production costs)
Exhibit 22. System requirements for integrated cost tables
[Scheeg 2005, p.187, translated from the German]
The system requirements can be summarized as follows [Scheeg 2005, pp.179-189]:
Based on the specification of IT products, all possible IT development and IT production alternatives are specified. The IT development solution, i.e., feasible combinations of one IT development and one IT production alternative are then further analyzed regarding their cost behavior. The production costs of each IT solution are determined based on budgeted resource costs, derived from resource management, capacity management, sales planning, and performance monitoring. In order to identify
the total costs of each IT solution, IT development and IT production costs are combined in integrated cost tables. The total costs are then assigned to IT products. Finally, sales prices for each IT product can be defined.
50
3.4.2 IT Product-Oriented Cost Accounting
Like the previous approach, IT product-oriented cost accounting aims at overcoming
the burdens of existing IT controlling techniques [Hochstein et al. 2008b, Übernickel
2008]. It addresses the question how cost transparency can be created on the level of
IT products. The approach is based on the managerial concept of activity-basedcosting (ABC), which provides accurate cost accounting techniques for diverse product portfolios (i.e., products with different resource consumption) [Hansen/Mowen
2006, p.121]. In the following, two ABC concepts incorporated in the second IIM accounting approach are outlined.
The first concept of cost hierarchies requires, in proportion to their actual utilization
of resources, the accurate allocation of IT costs to cost centers and cost objects[Hochstein et al. 2008b]. Thus, IT costs are assigned to different cost levels. In
the IIM framework, four cost levels have been identified, i.e., IT product units, IT
products, customers, and IT service providers. The concept of cost hierarchies differs
from the common procedures of other IT controlling approaches, which allocate cost
solely based on IT product units.
The second concept of a value flow model builds on the concept of cost hierarchies
[Hochstein et al. 2008b, Übernickel 2008, pp.52-66]. Exhibit 23 (see p.51) illustrates
the value flow model, which distinguishes three cost center categories:
• Resource costs consists of primary resource costs (i.e., IT resources, which create
IT services and IT products), secondary resource costs (i.e., human resources responsible for the maintenance of IT resources), as well as management costs.
• IT support costs include long-term planning and decision costs regarding the product portfolio, and customer structure, such as account management and product
management costs.
• Overhead costs represent the cost centers, which provide basic services to the production execution and support. Based on these cost centers, IT costs can be allocated, in particular, to IT products or customers. This accurate allocation of costs
enables a profitability analysis on similar level of granularity to determine the
margins per IT product or per customer.
revenue accounting
consumption
cost accounting
overhead
costs
power
IT supplies
rent for IT
department
insurance
for IT
department
…
production of IT products
time
applications
network
storage
server
IT production equipment
primary cost
centers
secondary
cost centers
operations
monitoring
maintenance
field service
desktops
management of IT production
cost centers supporting IT production
IT product management
account management
general management
work
order
revenue of IT product
product/component/assembly
IT production costs
contribution margin I
fix costs of IT products /
product groups
contribution margin II / III
fix costs of business
units
contribution margin IV
cost center differences /
other costs
balance by
accounting period
CM II
P2
CM II
P3
customer contribution
margin accounting
CM II
P1
customer-related costs
customer contribution
margin
CM II
P3
total contribution
margin accounting
CM II
P2
CM II
P1
contribution margin III
productrelated costs
other overhead costs
other overhead
balance by
accounting period
Exhibit 23. Value chain model of IT cost accounting
[Hochstein et al. 2008b, p.11, Übernickel 2008, p.54 translated from the German]
51
IIM Cost Accounting
52
The concept of integrated cost tables is compliant with the requirement of a methodic
approach. IT product definitions describing customer needs represent the goals (see
Chapter 5.2), which must be met by the defined IT solutions, i.e. in-house and SaaS.
Hence, the requirement of customer-orientation is satisfied. The integrated view of IT
production and IT development alternatives is apparent throughout the entire manufacturing view of the proposed method. The requirement of cost analysis and IT product-/service-orientation is fulfilled as a particular focus of integrated cost tables is laid
on cost estimation of the level of individual IT products. Besides the consensus with
various defined requirements, the approach does not comply with the requirement of a
benefit analysis, or SaaS characteristics.
The second concept of IT product-oriented cost accounting builds on the previous
concept. Thus, it is compliant with the same requirements as the concept of integrated
cost tables. However, its methodic approach is less comprehensive with regard to the
entire decision-making process aimed in the proposed method. Instead, it focuses particularly on the decision-making and planning of already implemented IT solutions.
Thus, its applied approaches of cost hierarchy and activity based costing provides valuable insights for the estimation of costs (see Chapter 5.6), as well as, the development of scenarios (see Chapter 5.7)
.
3.5 Manufacturing Resource Planning
Originated in the industrial revolution, Operations Management (OM) aims at the efficient and effective production of goods and services [Davis et al. 2003, pp.4-9, Heizer/Render 2006, p.4]. It provides concepts for production, materials management, inventory, purchasing, logistics, and supply chain. Because of its relevancy for the proposed method, the OM approach Manufacturing Resource Planning II (MRP II) is explained in more detail in this chapter.
3.5.1 Functions
MRP II is a method to manage planning, execution, and control of the manufacturing
of physical products [Sheik 2003, p.64]. “Ideally, it addresses operational planning in
units, financial planning in dollars, and has a simulation capability to answer “what if”
questions” [Fogarty et al. 1991, p.829]. As depicted in Exhibit 24 MRP II is built on
Material requirements planning (MRP I), as well as a variety of further interlinked
functions.
Manufacturing Resource Planning
53
Strategic and Business
Planning
• Rough-Cut
Capacity Planning
• Vendor /
Material
Limitations
• Management
Decisions
Sales a & Operations
Planning (S&OP)
Demand
Management
Master Production
Scheduling (MPS)
Material Requirements
Planning (MRP I)
Capacity Requirements
Planning (CRP)
no
realistic?
yes
Shop Floor Control
(SFC)
Vendor Requirements
Planning (VRP)
realistic?
no
yes
Purchase Planning and
Control
Exhibit 24. MRP II framework [Sheik 2003, p.63]
The strategic and business planning function of a company provides the fundamental
input to MRP II. Strategic planning defines the long-term strategies, such as types of
products, target market, and manufacturing practices. In contrast, business planning
focuses on short-term strategies. It determines plans to drive the manufacturing, sales,
and financial activities of an enterprise.
In the sales and operations planning, a company determines in production plans the
product numbers it anticipates to manufacture each period [Sheik 2003, pp.255-276].
An important input for this function is the product demand (e.g., sales forecasts, sales
variations).
The subsequent function, master production scheduling (MPS) concretizes the projected production plans, i.e., it defines exact dates and quantities for the product production [Fontanari 1996, Sheik 2003, pp.328-386]. Thereby, it considers the capacity
of critical resources, planning, vendor/material limitations, and management decisions.
Material Requirements Planning (MRP I) represents a central function in the MRP II
framework [Plossle 1995, Sheik 2003, pp.87-174]. Based on the MPS and parts lists,
so-called bills of materials, this function breaks up products into components, and determines their demand.
54
Based on the information provided by MRP I, Capacity Requirements Planning (CRP)
aims at creating an efficient load of the resources involved in the production process
[Fogarty et al. 1991, pp.403-446, Oden et al. 1993, pp.178-211]. Output of this function is load profiles, which show the capacity required by work center and by time
period. The availability of resources purchased from vendors is assured by the function Vendor Requirement Analysis. It includes the supplier selection, contract negotiation, and availability of purchased material [Sheikh 2003].
MRP II concludes with the function shop floor control and purchase planning and
control [Sheik 2003, pp.179-188]. As these functions are developed for the final execution of the production plan, they are irrelevant for the proposed method.
As explained in the previous paragraphs, MRP II offers a systematic approach to reach
decisions for the manufacturing of physical products. It fulfills the requirement of customer-orientation as it plans the production output based on sales forecasts. The requirement of product-/service-orientation is also satisfied, since the efficient and effective manufacturing of products is the main goal of this approach. Furthermore,
MRP II considers, even if only marginally, cost and benefit analysis. Concluding,
SaaS characteristics are not covered in MRP II.
For the proposed method, it was necessary to extend the IIM framework in more detail
with concepts transferred from manufacturing resource planning II. As explained before MRP II meets most of the defined requirements. Furthermore, the conduction of a
transfer analysis revealed that MRP II is highly qualified to be adopted by the method.
According to Zarnekow’s transfer-oriented method, an initial discipline can be transferred to a goal discipline if both disciplines address the same problem, and if the initial discipline is more advanced than the goal discipline [Zarnekow et al. 2005]. MRP
II’s procedure model with its interlinked functions provides valuable insights for the
proposed method. In particular, the documents that are created in each function were
of high relevance and could be directly transferred to the method.
Selection of Cases
55
4 Case Studies
As well as the evaluation of relevant investment analysis approaches, the real life experiences of selected SaaS customers represent a further foundation for the creation of
the proposed method. The orientation on companies’ problems and developed solution
approaches ensure the relevance of the findings in this dissertation.
In the following, the process and criteria, which were applied to select companies for a
further analysis, are explained. Afterwards, from the nine companies evaluated for this
dissertation, the cases of two companies, i.e., Audi AG and Plantronics, Inc., are exemplarily presented in more detail. The chapter concludes with cross-case analyses.
4.1 Selection of Cases
The objective of this case study analysis is the presentation of solution approaches of
companies’ investment analysis of in-house and SaaS solutions. In contrast to quantitative research, which is based on random, representative samples from a basic population, qualitative case study research selects purposefully the objects of investigation
[Eisenhardt 1989, Perry 1998]. The companies analyzed in this dissertation have been
chosen based on the following selection criteria:
• Investment Analysis and Deployment of SaaS Solutions. The company has thoroughly evaluated in-house versus SaaS deployment options, or the company has
gained extensive experience in the deployment of a SaaS solution. Thus, the case
provides initial or advanced solution approaches that can be defined as “good”
practice.
• Complexity. In order to understand in particular ambiguous in-house versus SaaS
decisions, the focus was laid on complex situations. These situations are likely to
emerge when the SaaS solution, for instance, supports a considerable number of
users, large enterprises, or complex business processes.
• Collaboration between Business and IT Units. The decision for or against a SaaS
solution is reached collaboratively between the business and IT units. Both parties
provide necessary information for the evaluation process and are involved in the
final selection of a solution.
• Trust. A mutual trust exists between the analyzed companies and the IWI-HSG,
represented by the PhD candidate, that enables detailed insights based on in-depth
interviews and analysis of corporate documents to be attained.
legend:
Empirix
Plantronics
(see Chapter 4.3)
T-Systems
Unocal
Zurich
Versicherungen
focus of interview
• investment analysis
• development project
• deployment
• country in lead of
investment analysis
Deutsche Post
investment analysis
• application area
• number of users
• year of decision
• selected solution
Deutsche Bank
category
Business
Objectives
Case Studies
Audi
(see Chapter 4.2)
56
case
study
interview
interview
interview
interview
case
study
interview
interview
interview
CRM
6,000
2006
in-house
CRM
200
2003
SaaS
CRM
400
2006
SaaS
CRM
200
2006
SaaS
finance
20
2002
SaaS
CRM
350
2007
SaaS
CRM
500
2005
SaaS
finance
200
2002
SaaS
CRM
500
2007
SaaS



























GER
US
GER
GER
US
US
GER
US
CH
 not focused
 small focus
 strong focus
Exhibit 25. Overview of analyzed companies
Exhibit 25 outlines the nine US and European companies analyzed for the context of
this dissertation. The method proposed in Chapter 5 is based on the findings of all nine
cases. However, due to shortage of space, not all could be presented in individual case
studies. Instead, two cases, which provided particularly rich information, have been
chosen to illustrate the opposed outcome of an investment analysis of in-house and
SaaS solutions. The case of Audi AG results in the selection of an in-house solution,
whereas the case of Plantronics, Inc. illustrates the selection of a SaaS solution.
The two cases focus on the investment analysis of the two companies. However, in the
interviews with the nine companies the launch project and the final deployment of the
companies were also analyzed. This extended research scope is explainable as follows. In order to reduce the costs of investment analyses, it is common among companies to reach IT decisions based purely on high-level system requirements, without
any or only a few considerations of detailed system specifications (e.g., design of
modules, system and user interfaces, or data types) [Scheeg 2005, p.151]. But, as
[Baumöl 1999, p.145] identified, 80% of costs decisions are not made until the system
specification are completed. Thus, it was assumed that the additional detailed analysis
of companies’ project launches and final SaaS deployments would provide further
valuable detailed information for the proposed method. This assumption is compliant
with the IIM’s requirement for investment decisions, which postulates the evaluation
of IT development, as well as IT production alternatives (see Chapter 3.4.1).
Audi AG’s Selection of an In-House Solution
57
The case study research was undertaken in the following interrelated phases. First,
relevant SaaS customers were identified and contacted. Then, semi-structured face-toface interviews were conducted with project managers from business and/or IT units.
The interviewed managers were involved in the investment analysis of in-house and
SaaS solutions, in the SaaS development project, and/or in the final deployment of the
SaaS solution. Additionally, project- and business documents were analyzed. Concluding, the quality of the interviews was examined internally and clarified with the
interview partners. Two companies were selected to be presented as case studies in
this dissertation.
The case study research is based on the method PROMET BECS, which was developed by the IWI-HSG to describe business engineering projects [Senger/Österle
2002]. Following a consistent case study structure assures the comparability of the
cases:
• Company. In the first paragraph, key information on the company and its current
challenges are provided.
• Investment Analysis. This paragraph informs about the evaluated IT deployment
options, performed activities, analyzed information, and the roles involved in the
company’s investment analysis.
• Findings. Each case study concludes with a summary of the key findings.
4.2 Audi AG’s Selection of an In-House Solution
4.2.1 Company
Since its origin in 1899, Audi AG has developed into a reputable automotive manufacturer in the premium sector. The company successfully sells cars, such as the Audi
Q7, R8, TT or A4, to the whole world. In 2007 Audi AG sold in total 964.151 cars
achieving 33,617 Mio Euro in revenues. Thereby, only 26 % of its cars were bought in
Germany, where Audi and its parent company, Volkswagen AG, are headquartered.
While the company produces the cars, local independent dealerships are responsible
for the selling.
58
Case Studies
Audi AG
founding year
headquarters
industry Sector
homepage
1899 (A. Horch & Cie), since 1985 named Audi AG
Ingolstadt, Germany
Automotive
www.audi.com
financial facts 2007
employees
sold cars
sales revenue
53,347
worldwide 964,151 including Germany (254,041)
33,617 Mio Euro
Exhibit 26. Company Information of Audi AG [Audi 2008]
Although Audi AG had a constant growth in recent years, the company is in a continuous race against other automotive companies in the same price segment (e.g., BMW
AG, DaimlerChrysler, or Lexus). The companies compete not only with the quality of
the products, but also with the services, which they provide to their customers. This
situation embodies a great challenge for the automotive manufacturers as the services
around the cars are primarily provided by the independent dealerships, which are in
direct contact with the customers. The reason for this is that the services provided by
the dealerships are often not compliant with the companies’ defined CRM strategies.
This challenge even increases if the dealerships sell cars from more than one brand.
4.2.2 Investment Analysis
Since 2004, the department ‘Customer Relationship Management’ (I/VM-411) at Audi
AG has been engaged in the development and the worldwide introduction of Audi’s
international CRM strategies, processes, and system infrastructure. The division’s
overall goal is to globally establish services for the customer support during all stages
of the relationship with the Audi AG, i.e., from the initial product evaluation to the
repurchase of a car. In collaboration with Audi’s internal IT department, I/VM-41 performed the following investment analysis. Additionally, I/VM-41 assigned two external partners for further support, a local consulting company specialized on IT and
processes in the automotive industry, and the Competence Center ‘Customer Management’ (CC CM) at the IWI-HSG, which researches in the field of customer relationship management, i.e. strategy, processes, and IS.
Problem Formulation
Like other automotive manufacturers, Audi AG faces the challenge of aligning the
dealerships’ processes with the corporate CRM strategies. The CRM process to be
supported by a new IT solution was the lead management process. The process was of
particular interest for the division I/VM-41 since it aimed at the conversion of leads
(i.e., potential customers) into customers. Therefore, it was expected that the improvement of this process would entail an increase in the total number of customers.
59
The investment analysis for the new IT solution was initiated by the following problem in spring 2006.
Worldwide, each dealership conducted the lead management process in a different
way. As a result, the efficiency and effectiveness, as well as the quality of the provided customer services varied amongst the dealerships. Moreover, the process was
often not sufficiently supported by IT systems as the following example demonstrates.
For the Italian market, Audi AG frequently collected several thousand hot leads from
their corporate website and burned them on CDs, which were sent to all Italian dealerships. The dealerships then contacted the most interesting potential customers. But,
Audi AG could not manage the process anymore once the CDs were sent to the dealerships. As a result, potential customers were contacted by several dealerships, or not
contacted at all. In addition to the problem in the Italian market, in other markets dealerships did not use any IT systems for their lead management processes. Thus, Audi
AG missed further opportunities to increase their customer base.
Goal Specification
To solve the above stated problem, Audi AG aimed at introducing worldwide consistent, more efficient and effective lead management processes. This goal should be
achieved with the aid of new IT systems for the dealerships. In order to divide the goal
into more detailed goal variables, the division I/VM-41 developed in collaboration
with the local consulting company a criteria catalog to evaluate the system specifications of different SaaS providers and software vendors providing CRM software. The
catalogue included 243 questions with each of them having a priority level assigned
(see Exhibit 27, p.60). The questions were categorized into seven question types:
1. Company Profile. These questions addressed the general stability, financial situation and market position of the vendor or provider. Further questions were concerned with the software functionality, the possibility to deploy the software as an
ASP solution, and the SW vendor’s or SaaS provider’s experiences in CRM and
the automotive industry.
2. Functional Requirement. These questions addressed goals regarding the data model, the alignment between the system functionality and Audi’s key processes, business partner management, and the authorization model.
3. International Solution Requirements. As the system should be applied worldwide
by Audi’s dealerships, questions also addressed the international system support,
multiple languages, different currencies, and international data formats.
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Case Studies
Exhibit 27. Lead management: system evaluation criteria catalogue
61
4. Architecture. These questions addressed the system’s ability to fulfill Audi AG’s
objectives regarding the architecture concept, platform, and application scalability,
cycles of new software releases, graphical user interface, and usability.
5. Installation. Questions in this category were aimed at gaining knowledge about the
partner’s service offerings regarding implementation support, application management and user support, as well as training.
6. Investment model. Objectives regarding the investment model were addressed in
questions about the ROI, pricing model, and development costs.
Exploration of Feasible Alternatives
Restrictions of Alternatives. The restrictions of the alternatives mainly derived from
the relationship between the Audi AG and the dealerships. Because of the dealerships
independency, Audi AG could not instruct them to use a certain system. Thus, in order
to convince the dealerships to use a new system, the system had to be cost-efficient,
simple to install, and easy to use. The worldwide application of the system and the
need for user friendliness restricted Audi AG to systems, which were adjustable to the
specific customization and software deployment needs of each country. For instance,
the system had to provide various languages. Due to data sharing concerns, another
requirement of a few dealerships was to have the software deployed by an independent IT service provider.
Design of Alternatives. Audi identified two main groups of alternative IT solutions
(see below). Each solution in the two groups were discussed with the importers of the
different markets. In order to determine the performance of each solution, the providers were asked to provide software demos illustrating specific application scenarios.
• Software Deployed by an Independent Provider. In this group, two options based
on different software solutions were defined: mySAP CRM, and the internally developed solution KMT@web Financial Service.
•
SaaS Solution. Four SaaS solutions were identified and analyzed: Salesforce,
RightNow, Update, and Sage.
Consequences of Alternatives. The SaaS solutions differed in the fulfillment of the
defined goals. For the small markets, in particular the small prices of the SaaS solutions were attractive; for the larger markets the flexibility of the packaged software
was more appealing.
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Case Studies
Selection of One Alternative
For a short-term pilot project, Audi AG considered initially the provision of two IT
solutions: a SaaS solution (i.e., Salesforce.com) for the dealerships in the small markets, and a packaged software (i.e., mySAP CRM) deployed by an external IT service
provider, for the larger markets. However, the consideration of a SaaS solution was
dropped quickly due to increasing functionality requirements. In addition to the support of the lead management process, the IT solution had to manage sales tasks, such
as time management, car configuration, and automotive handling. Thus, in a second
evaluation for the long-term deployment of the IT solution, most IT solutions were
directly eliminated, as they did not meet the new minimum standards. Instead, the
previously selected IT solution for large markets was now also determined to be offered to Audi’s small markets as it best met the new functionality requirements. Additionally, the mySAP CRM solution was aligned with Audi’s IT requirement using
SAP software as standard for CRM. However, a disadvantage of the selected IT solution was that the standard price for software licenses (i.e., ca. 2,000 Euro per license)
was too expensive for the dealerships of the small markets. Thus, Audi AG negotiated
new prices with the software vendor based on their actual usage of functionality.
4.2.3 Findings
The following findings can be derived from the case study of Audi AG:
• Audi AG conducted a comprehensive investment analysis evaluating the provider’s company profile and investment mode, as well as the solutions’ ability to meet
requirements regarding functionality, international solution support, integration,
architecture, and installation. The SaaS solution was initially considered for a pilot
project, but was quickly rejected, as it did not meet Audi’s increasing requirements.
• Audi AG decided for a packaged software, i.e., MySAP CRM. The software was
selected as it amongst all analyzed solutions best fulfilled the defined requirements. Furthermore, synergy effects could be leveraged as SAP was Audi AG’s
standard software provider. The solution were planned to be deployed as Lead
Management light and as full solution with extensive functionality (e.g., sales,
time management, car configuration, etc.).
Plantronics, Inc.’s Selection of a SaaS Solution
63
4.3 Plantronics, Inc.’s Selection of a SaaS Solution
4.3.1 Company
Plantronics, Inc. was founded in 1961 in Santa Cruz, California. Initially, the company
provided headphones to airline pilots, air traffic controllers, NASA (National Aeronautics and Space Administration) astronauts, and operators of telephone companies.
Today, Plantronics offers a wide range of products for business-critical and missioncritical applications, entertainment and personal communications.
Plantronics, Inc
founding year
headquarters
industry Sector
homepage
1969
Santa Cruz, California, USA
Consumer electronics
http://www.plantronics.com/
financial facts 2007
employees
Partners
sold products
sales revenue
5,000 employees
offices in 20 countries in the Americas, EMEA, and Asia-Pacific
approximately 40 Mio.
$800.2
Exhibit 28. Plantronics, Inc. [Plantronics 2008]
Plantronics employs a multi tiered distribution scheme using master distributors, resellers and Telephone Carrier partners. The company provides product support via
worldwide customer care centers, i.e., in the Americas, EMEA, and Asia-Pacific. Although, the company has experienced a constant revenue growth, in recent years the
global competition in the PC and Telephone accessories industry increased. Thus,
Plantronics decided to enhance its investments in the development of its global relationships to partners and customers.
4.3.2 Investment Analysis
In Plantronic’s development strategy, the improvement of the company’s existing
CRM IT landscape was a focal point. The following decision process, which became
necessary in this context, was conducted by Plantronics’ CRM and IT department. In
Fall 2005, the decision process was initiated by the following problem.
Problem Formulation
In 2005, Plantronics deployed worldwide various tools to collect and manage data
from its customers. The customer data of the worldwide regions was stored in different repositories. For example, Asia-Pacific applied MS Excel sheets, the Americas and
EMEA used two different instances of iAvenue, a Saragota Systems CRM software,
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Case Studies
and Italy used the SaaS solution, Salesforce.com. Consequently, no global single view
on the customer was available.
In particular, Plantronics’ customer care departments complained that the system was
inefficient, expensive and too inflexible for global usage. The sales departments mentioned the cumbersome and time-consuming database synchronization, low system
performance, missing multi-language support, low usability, and inflexibility for fast
system adjustments. The existing system could not fulfill the department’s needs in
global account management, partner relationship management (lead processing and
reporting), automated lead management, and sales forecasting/pipeline management.
Furthermore, the marketing department emphasized its need of customer visibility
across various departments. With its existing system, the department was limited in
marketing campaigns, customers’ email and privacy preferences. Finally, the relationship to Plantronics’ partners was not managed by any system.
Goal Specification
In its initiative ‘harvesting customer knowledge’, Plantronics defined three goals,
which were specifically created to solve the above-described problems. The new system should establish a 360° customer view, it should support global operations, and it
should be compliant with the company structure.
The project team defined the required system functionalities summarized in Exhibit
29. The requirements were gathered by mixed teams across various functions and regions. In particular, the IT support for the account and lead management processes,
the ability for multi-language and –currency, and the flexibility to customize and to
integrate was of high relevance. Another crucial business requirement was a fast system response time. Regardless of location, all subsidiaries should have the same system response time, i.e., below one second.
The IT department was responsible for defining the goal variables for the IT deployment of the new CRM solution. The goal variables were aligned with the general corporate IT requirements for the implementation approach (i.e., customization vs. configuration), security issues, support and ongoing development of the vendor, and system
integration and conversion. As the costs for a new system were allocated to the IT department, the department required that the system should be deployable without the
support of any additional new IT employees.
Exploration of Alternatives
Restrictions of Alternatives. The possible IT solutions were mainly restricted by Plantronics’ corporate IT strategy. The corporate strategy instructed that if several IT solu-
65
tions meet the requirements, always the solutions from the company’s main software
vendor, i.e., Oracle, should be chosen. Furthermore, if the first regulation did not apply and both packaged software from other vendors and Software-as-a-Service solutions fulfilled the defined requirements then a SaaS solution had to be selected. At the
time of investment analysis, Plantronics already applied several SaaS solutions, such
as the one from RightNow Technology, which had been successfully used for customer interactions and knowledgebase management for approximately six years.
Requirements Overview
On a scale of 1-5, please score each general area
SUMMARY
1= lowest, 3 is neutral, 5 is best score
RightNow
SCORE
Salesforce.com
SCORE
IT
Implementation Approach (1.1)
Security (1.2)
Support & Ongoing Development (1.3)
System Integration & Conversion (1.4)
TOTAL SCORE:
Sales Requirements
Account Management (2.1)
Contact Management (2.2)
Task/Calendar Management (2.3)
Team Selling / Territory Management (2.4)
Planning/Forecasting/Pipeline Mgt (2.5)
Lead & Opportunity Management (2.6)
0
9
TOTAL SCORE:
TAC Requirements
Call Logging Features (3.1)
Queuing/Routing/Escalation (3.2)
Integration With Other Systems (3.3)
Reporting (3.4)
Customization Capabilities (3.5)
Management Requirements (3.6)
Vendor Requirements (3.7)
0
0
TOTAL SCORE:
Marketing Requirements
Partner and Channel Management (4.1)
Lead Management (4.2)
Campaign Management (4.3)
Email Management (4.4)
0
0
0
0
0
0
0
0
Integration with 3rd Party Applications (2.7)
Wireless Integration (2.8)
Analytic Tools (2.9)
Knowledge Base (2.10)
Language and Currency (2.11)
Other (4.5)
TOTAL SCORE:
Executive Requirements
Cost Summary (3.1)
Total Cost of Ownership (3.2)
Strategy & Vision (3.3)
TOTAL SCORE:
OVERALL TOTAL SCORE:
Exhibit 29. Plantronics’ Vendor Requirement List
In addition to the restrictions from the corporate IT strategy, the IT solutions were further restricted in time and costs. The new system should be deployed as fast as possi-
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Case Studies
ble, although no specific deadline was defined. Furthermore, the costs should not succeed a certain number.
Design of Alternatives. Plantronics identified three alternative categories: first, the
upgrade of the existing CRM solution; second, the in-house solution based on Oracle
CRM software; and third, a Software-as-a-Service solution, either RightNow Technologies, or Salesforce.com.
Consequences of Alternatives. Plantronics analyzed thoroughly the consequences of
each IT solution:
• Upgrade of existing packaged software, which was deployed internally. The upgrade and worldwide roll-out of the existing CRM system, i.e., Saragota Systems,
was identified as critical by the IT department. Plantronics needed a viable CRM
software vendor, which should not only meet its current but also its future global
needs. However, in the past Plantronics had experienced poor support from its current software vendor. Furthermore, the vendor’s customer growth had stagnated,
and no investments had been made into research and development in the previous
years. Thus, Plantronics expected the software vendor to be bought by another
company in the near future, which actually happened in April 2007 when CDC
Software acquired the company.
• New Packaged Software to be Deployed Internally. According to Plantronics’ IT
strategy (namely to choose first software of the company’s strategic SW partner),
it first investigated Oracle’s on-premise and on-demand CRM solutions. The company concluded that the solutions’ software functionality was too complex for their
needs. For this reason the company carried out no further analysis on either the
costs to purchase licenses, or the costs to procure the resources (i.e., hardware,
network, and IT employees) necessary for the replacement of the outdated technology.
• SaaS solutions. Plantronics selected two SaaS solutions (i.e., Right Now Technologies and Salesforce.com) for a more detailed analysis. Based on the software
vendor requirement list illustrated in Exhibit 29 (see p.65) the two solutions were
compared to each other. For each solution and requirement, a score was determined depending on the degree of requirement fulfillment. Additionally, the SaaS
providers gave in total 15 demos tailored to the specific needs of each business
function. Finally, the requirement of a sub second respond time was tested in several countries and could be provided by both solutions.
67
Selection of one Alternative
In a steering committee consisting of business and IT managers, Plantronics decided
against an upgrade of the existing CRM system, in particular, because of the vendor’s
unsure situation. Furthermore, the internal deployment of a packaged Oracle CRM
software was neglected because of its complexity. Although, Plantronics already deployed RightNow Technology in a different context, it decided against RightNow
Technologies and in favor of Salesforce.com, which achieved a higher score.
4.3.3 Findings
The following main factors influenced Plantronics in its decision to pursue a SaaS solution.
• Corporate IT Strategy. In the case of Plantronics, the corporate IT strategy had a
major impact on the decision process. In particular, the high preference for the
corporate standard software vendor Oracle, initially influenced the decision. But
finally, the second, corporate restriction, i.e., if feasible SaaS solutions existed one
of them had to be chosen, lead to the final decision and explains that no other
packaged software than Oracle CRM was evaluated.
• Alignment of Business and Software Functionality. The alignment of business and
software functionality represented a significant factor in the investment analysis.
Plantronics evaluated, in particular, if the required functionality was available by
default, by configuration, or by customization. The finally chosen SaaS solution,
Salesforce.com, already provided a wide range of the required functionality by default and by configuration. Missing functionality could be added through new features developed on the provider’s AppExchange platform.
• Costs. Costs became only relevant after Plantronics had narrowed the alternatives
to a few feasible IT solutions, which met the business and IT goals. In the final decision, development and production costs were an important evaluation criterion.
4.4 Cross-Case Analysis
In the following, the results of a cross case analysis are illustrated [Yin 2002b, Yin
2002a, pp.107 et sqq.]. Thereby, not only the results of the cases studies described in
this chapter, but also the findings of the interviews with the other six companies are
considered. The evaluations are based on the criteria identified to be relevant for the
proposed method (see Chapter 2.4). As shown in the following, none of the companies
applied an approach fully aligned with the defined requirements.
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Case Studies
Methodic Approach. Several companies analyzed methodically the alignment between
the software functionality and the business requirements. Thereby, a score model was
often used to compare the different IT solutions. However, compared to the software
analysis, the cost evaluation of the two IT solutions were elaborated in less detail,
mainly based on broad assumptions.
Customer-Orientation. All companies had a strong customer-orientation. The need for
a new IT solution was initiated by the end-users. The investment analysis of in-house
and SaaS solutions were conducted by the business departments, as well as the IT departments. The goal variables for the investment analysis were mainly derived from
the business processes in which the end-users intended to use the software. Thereby,
the goal variables laid a strong focus on the alignment of software functionality and
business processes. Furthermore, in most cases, prototypes were developed and used
to demonstrate the software capabilities to the end-users.
Service / Product Orientation. None of the companies applied a service/product orientated approach, as postulated by the IIM. As explained in the following, costs and
benefits were allocated to the entire IT solutions, instead to individual IT services.
SaaS characteristics. Most companies analyzed the risk factors often connected to
ASP and SaaS solutions. Thereby, in particular the SLAs of the SaaS providers were
evaluated and compared to the business requirements. Other factors, which were of
high relevance for the companies’ analysis of SaaS solutions, were the solutions’
ability to customize and to integrate. Furthermore, the reputation of the SaaS provider
was assessed.
Cost Analysis. In the companies’ investment analyses, costs of the competing IT alternatives were a crucial factor for the final decision-making. Thereby, most companies
laid a strong focus on the development costs of the IT solutions. In the in-house solution, the development costs included the labor costs of the development project, as
well as the HW and SW costs for the development and test environment. Additionally,
the costs of the final production environment (i.e., HW and SW costs of the server, as
well as the SW license costs of the end-users) were allocated to the development costs
of in-house solutions. Against this, in the SaaS solution, the costs of the development
projects contained mainly labor costs and in some cases the subscription fees for the
SaaS development and test environments. Due to the cost allocation of the final endusers licenses to the development costs, the development costs of the in-house solutions were for most companies significantly higher than the development costs of the
SaaS solutions. In most investment analyses of in-house solutions, the evaluation of
the production costs was less relevant for the decision-making. Although, some companies determined the annual costs of a new IT employee who was required to main-
Cross-Case Analysis
69
tain the in-house solution. Costs of future upgrade projects were often neglected. Contrarily, for the evaluation of the SaaS solutions all companies determined the production costs for a defined period. Thereby, the production costs were mainly composed
of the end-user subscription fees for the SaaS service. Seldom additional labor costs
were allocated to the production costs.
A large cost factor in the companies’ cost comparisons was in the in-house solutions
the SW licenses, and in the SaaS solutions the subscription fees. Thereby, all companies were able to reduce the standard license prices and subscription fees in negotiations with the software vendors and SaaS providers. The final costs of the IT solutions
were mostly allocated to the internal IT service provider. Only a few companies determined an individual price per end-user, which were used to trace the total costs to
each business unit. However, the costs per end-user were computed only based on the
total numbers of end-users, not on the actual consumption of IT services.
Benefit Analysis. Companies identified the packaged software’s great flexibility regarding customization and integration as the main advantage of in-house solutions.
Some companies perceived the SaaS solutions to be more limited in functionality provided. Nevertheless, two significant advantages were identified for the SaaS solutions.
First, the ability to pay regular monthly payments for subscription fees instead of one
initial large investment for software licenses. Second, the faster launching phases of
SaaS solutions. However, while the fast launching phase was mentioned as one advantage in the initial investment analysis, the evaluation of the companies’ development
projects did not show large time differences between the introduction of in-house and
SaaS solutions. In both IT solutions, the most time consuming activities were customization and testing. Small differences in the time of the development project derived
from the in-house solution’s need to procure and install the software and hardware of
the development, test, and production environments. Against this, the time expenses
for customization and testing were in many cases similar between the two IT solutions. Concluding, due to common difficulties to quantify benefits of IT solutions, all
analyzed companies defined the benefits qualitatively.
70
Method Proposal for IT Service-Oriented Investment Analysis
5 Method Proposal for IT Service-Oriented Investment Analysis
The proposal of a new method for IT service-oriented investment analysis is motivated by the recent increasing demand for Software-as-a-Service and its fast developments towards comprehensive IT solutions. Initially, the first version of SaaS, ASP,
was a simple outsourcing approach designed to meet the needs of small-sized enterprises. Today, the functionality and complexity of SaaS has increased. Several SaaS
solutions already compete with in-house deployment solutions of well-established
packaged enterprise software. Consequently, the decision-making between the two
competing solutions has become more difficult requiring more detailed costs and benefits analyses.
In this context, IT service-oriented investment analysis aims at providing transparency
of costs and benefits on the level of individual IT services. Thereby, the decision for
one IT solution is reached jointly by the internal IT service provider and the customer
company (see Exhibit 30). Based on customer requirements and manufacturing details, the internal IT service provider selects the IT solutions with the optimum ratio
between cost-efficiency and the fulfillment of SLAs. Against this, the customer company evaluates the prices and SLAs of the competing IT solutions. The customer
company will select the IT solution with the optimum ratio between prices and business impact of the IT services.
decision-making
by internal IT
service provider
based on
optimum ratio
between
cost-efficiency &
fulfillment of SLAs
prices and SLAs of IT product and IT services
consumption of IT service units
capacity need for production of IT services
availability and quality of IT resources
decision making by
customer company
based on
optimum ratio
between
price &
business impact
of IT services
unit costs of IT services and total costs of IT solutions
Exhibit 30. IT service-oriented investment analysis
The theoretical and practical findings of the previous chapters, i.e., Chapters 2, 3, and
4, provide the foundations of this novel approach. This chapter explains the proposed
method in detail. Its sub-chapters are structured as follows. Chapter 5.1 provides introductory information necessary for the further understanding of the method. Chapters 5.2 to 5.7 describe the six phases of the reference method. The last subchapter
elucidates the limitations of the method and provides recommendations for its application. Furthermore, it elucidates further research and trends in the context of the proposed method.
Method Introduction
71
5.1 Method Introduction
In the following, the objects of comparison, the requirements, the underlying meta
model, and the procedure model of the proposed method for IT service-oriented investment analysis are outlined. To conclude, the example of a fictitious company is
introduced. The example will be used for illustration purposes throughout Chapter 5.
5.1.1 Objects of Comparison
The method for IT service-oriented investment analysis is developed to support internal IT service providers in reaching a decision between different IT deployment solutions. The method provides guidelines to define customer requirements, to design
feasible IT solutions, and to evaluate the IT solutions regarding their costs and benefits. In this dissertation, an IT solution refers to a combination of IT services used to
realize an IT production and its corresponding IT development alternative (see Chapter 3.4.1). As the Information Communication Technology (ICT) value chain illustrates in Exhibit 31, IT services may be procured from suppliers (i.e., source), produced by the IT service provider with its own resources (i.e., make), or composed of a
combination of both (i.e., source & make). In addition to the procurement of IT services, the IT service provider also sources resources from its suppliers. Thereby, if
less than 80% of the resources and IT services are sourced from suppliers, the IT solution is defined as selective outsourcing (see Chapter 2.3.1).
SaaS provider
application vendor
hardware vendor
network provider
external
market
source
make
deliver
internal
market
source
consultants
other suppliers
supplier
internal IT service provider
customer company
Exhibit 31. ICT value chain – Source versus make of IT services
The two IT deployment options, which are compared in the proposed method, are both
selective outsourcing solutions. However, the extent to which IT services and resources are outsourced differs significantly between the two options as explained in
the following.
• IT Solution 1: In-House – Packaged software deployed internally
In this option the internal IT service provider sources relatively few IT services
from its suppliers. Instead, it manufactures most IT services with internal resources. However, the IT service provider still depends on suppliers when it pro-
72
cures IT services, such as software vendor support, consultant services, or Internet
services. In this option, the IT service provider faces the challenge to operate its
resource in a cost-efficient way while at the same time realizing the defined SLAs.
• IT Solution 2: Software-as-a-Service – Software sourced from a SaaS provider
In this option, the internal IT service provider sources the core software as a service from a SaaS provider. The SaaS provider manufactures this service with its
own resources (i.e., IT resources and human resources) and performs all activities
necessary for the manufacturing of the IT service (i.e., operation of the IT resources, security, backup, and maintenance services). Nevertheless, in order to
provide a complete end-to-end service, the IT service provider must still operate
and maintain some resources (e.g., PC, OS, LAN), not provided by the SaaS provider. Additionally, the IT service provider must procure IT services from other
suppliers, such as Internet services, and manage the relationship to its suppliers.
The method is in particular designed to support the investment analysis of more complex enterprise application software. Furthermore, it is assumed that in both IT solutions, customization is required before the end-users can use the service. On the SaaS
continuum the analyzed SaaS solution can be categorized between the middle and the
right side of the continuum (compare to Exhibit 12, 32). This focus were defined as
similar situations were observed in the findings of interviews with SaaS customers and
providers.
5.1.2 Requirements
Chapter 2.4 identified the research gap of a sufficient method for the comparison of
in-house versus SaaS deployment options. Based on this research gap, six requirements were derived. Each of them was used to evaluate various decision-making approaches used by academia and companies. For the proposed method, the requirements are re-used serving as design principles.
1. Methodic Approach. The proposed method for IT service-oriented investment
analysis must provide a systematic, efficient and feasible approach to guide the internal IT service provider through the decision-making process. The method must
inform the provider about the sequence of activities to be performed, the roles to
be fulfilled and the output to be achieved in each activity.
2. Customer-Orientation. The customer should only be involved in the businessoriented aspects of the decision process. Thus, when defining the requirements of
the new IT solution, only information about the planned usage, the needed SLAs,
the expected value, and the agreed costs should be acquired from the customer.
Method Introduction
73
The customer should not be informed about any technical specifics. Instead, the
customer company should know to which extent each IT solution will meet the
business-oriented requirements.
3. Service/Product-Orientation. In order to enable sound decision-making and scenario building, a high level of granularity must be assured. The concept of service/product orientation decomposes IT solutions into individual IT services generated of clearly defined resource capacities and preliminary IT services. Therefore, costs and benefits can be analyzed according to actual IT service consumption of different customer groups.
4. SaaS Characteristics. The proposed method shall depict similarities and differences between SaaS and in-house solutions. Thereby, the focus is particular on SaaS
solutions with more complex enterprise application software, which requires further customization (see Chapter 5.1.1). However, the method should be easy extendable to today’s numerous solutions included in the SaaS continuum.
5. Costs Analysis. Cost is a major factor in the evaluation of IT solutions. However,
in order to establish a sound understanding of the costs of an IT solution, an estimation purely based on a rough-cut design is not sufficient [Baumöl 1999, Scheeg
2005]. Instead, the costs of each IT solutions should be evaluated based on a mature design considering likewise development and production alternatives.
6. Benefit Analysis. The ability to reduce costs, often results in a decrease of benefits
that an IT solution may provide. Therefore, in addition to costs, the proposed method must also consider the benefits of each IT solution. Like the cost factor, benefits should be identified for the development as well as for the ongoing production
environment.
The method of IT service-oriented investment analysis was established in the context
of the Competence Center ‘Industrialized Information Management’ (CC IIM). Thus,
one of the objectives of this dissertation is to build the proposed method on existing
IIM concepts. Since 2002, the CC IIM has been developing comprehensive functional
specifications and sample descriptions for various areas in information management
[e.g., CC IIM Team 2007b, CC IIM Team 2007a]. The proposed method builds on
this previous work. However, in order to satisfy the specific requirements of the method, it was necessary to slightly modify some of the concepts. For example, in this
dissertation, the sales specifications of IT services include comparatively less information than the original IIM sample of a sales product description. This was necessary, in order to emphasize aspects most relevant for this method. Additionally, as the
research of the CC IIM is a comprehensive, on-going process not all IIM concepts are
74
fully developed. Therefore, for this dissertation the IIM framework had to be extended
by further managerial concepts.
5.1.3 Meta Model
As depicted in Chapter 2.1.2, the meta model represents the data model of a method. It
describes the design elements and the relationships between them. By applying the
method proposal for a specific company, values are assigned to the design elements of
the meta model. This procedure happens in the design activities of the method. The
sequence of these activities is described in the procedure model. For each activity, the
procedure model informs about input and output documents, and provides guidelines
explaining how to create them. The meta model of the proposed method for IT service-oriented investment analysis is illustrated in Exhibit 32 (p.75). It is based on the
original IT service models developed by the CC IIM (see Exhibit 6, p.17). In order to
represent the more complex data model of the proposed method, the original model
has been further extended. Thereby, Exhibit 32 provides an overview of the key
entitities. A complete, detailded view of the model is presented in interconnected,
individual sub-views in the Chapters 5.2 and 5.7. Each phase of the six phases of the
proposed method, presents one view of the meta model focusing on the relevant
aspects of the particular phase.
The focal point of the meta model is the IT service, which connects the sales and production view in IT management. Similar to a car model (e.g., Audi A4, BMW Touring, etc.), the entity IT service represents solely the conceptual view of an IT service.
It can be of type core service, representing a direct impact on the business processes,
or of type support service, enabling, managing and supporting the core services.
IT services are provided by IT service portfolios. Thereby, IT services can be used to
create IT products for a specific customer. One IT service can be reused in several IT
products. For instance, the IT service portfolio ‘IT support for CRM activities’ provides IT services, which are used to create the IT products ‘IT support for marketing
activities’, ‘IT support for sales activities’, and ‘IT support for service actives’. All
three IT products include the core service ‘login’ and ‘view customer profile’, as well
as the support services ‘enable end-user’, ‘train end-user’, and ‘setup business unit’.
However, in order to meet the specific needs of the marketing department, the IT
product ‘IT support for marketing activities’ also contains the core service ‘perform
email campaign’, which is not included in the other two IT products. The conditions
and terms (e.g., pricing, SLAs, purchase quantity, end-user numbers) of an IT product
are documented in an IT product contract. The contract also references the sales specifications of the IT services included in the IT product, as well as the sales plans,
which are defined for each IT service in an IT product.
Method Introduction
production
sales
IT product
contract
describes
agrees to
orders
IT product
customer
has
consumes
bundles
sales
specification
describes
core
demand
support
IT service
instantiates
provides
IT service
portfolio
composed
of
composed
of
developed
for
IT service
unit
schedules
production of
meets
sales plan
meets
IT solution
composed
of
IT development
alternative
contains
enables
IT production
alternative
contains
bill of
services
project plan
references
describes
based
on
references
preliminary
IT service
composed of
generates
capacity
provides
costs/
benefits
composed
of
instantiates
generates
external
services
supplier
application
SaaS provider
hardware
Internet provider
infrastructure
owns /
operates
schedules
production
of
preliminary
IT service
units
provides
resource
IT service
provider
master
production
schedule
human
sources
defines
Exhibit 32. High-level view of meta model
consultant
other suppliers
75
76
In analogy to the automotive industry, an IT service unit can be compared to an individual car. Similar to automobile manufacturers, which produce car units, in IIM IT
service providers produce IT service units. For instance, a car unit could be an Audi
A4 with the serial number TT43997. An IT service unit could be an instance of the IT
service ‘perform email campaign’, which was delivered to a marketing employee at a
specific date and time.
The sales view of the IIM framework contains entities providing information related
to the IT customer. Based on customer expectations, the sales specification is designed
to serve two purposes: first, to inform the customer about the functionality, value
proposition, and SLAs of an IT service; second, to derive objectives for the manufacturing of the corresponding IT service units. Moreover, customers’ demand for IT service units is identified in order to provide inputs for the sales plans of IT service units.
In IIM, the production view of IT management contains entities related to the manufacturing of IT services. Thereby, the IT solution (e.g., in-house or SaaS solution)
must assure that all IT services included in an IT service portfolio can be produced
according to sales plans. The IT solution consists of one IT development alternative
and one IT production alternative. The first alternative contains the project plan,
which defines how the corresponding IT production alternative is developed. The IT
production alternative contains for each defined IT service the bill of services (BOS),
i.e., the list of preliminary IT services required to produce one IT service unit. The
consolidation of the BOS and the production plan result in the master production
schedule (MPS). The MPS defines the quantity of preliminary IT services, which must
be available in order to fulfill the production plan of each IT service.
Preliminary IT services are composed of three sources: first, capacities provided by
resources owned and operated by the IT service provider (i.e., application, hardware,
infrastructure, or human); second, external IT services sourced by the IT service provider from external suppliers (i.e., SaaS provider, Internet provider, consultant, other
suppliers); and third pre-preliminary IT services. Capacities produced internally and
external IT services generate different benefit and costs constellations. The sum of the
benefits and costs of the selected capacities and external IT services represents the
overall benefits and costs of an entire IT solution. An IT solution is successful if it is
cost-efficient and reliable. Likewise, capacities produced internally and resources
sourced from suppliers must be available on time, in the required quantity and quality,
during average, as well as during peak times.
Method Introduction
77
5.1.4 Procedure Model
The proposed method for IT service-oriented investment analysis is based on the procedure model depicted in Exhibit 33. According to the principles of method engineering, the procedure model defines in sequential phases the ideal order of all activities
provided by the model. The model remains flexible as it allows the user to return to
previous phases, or to repeat a phase several times. Decision theory (see Chapter 3.1),
and the industrial approach of Manufacturing Resource Planning (MRP II, see Chapter 3.4) serve as the basis for the structure of the procedure model.
need for
IT support
sales view
phase 1: customer requirements analysis
phase 2: pre-selection of in-house & SaaS solutions
( IT solution = combination of
IT development & IT production alternative )
IT solution 1: in-house
IT solution 2: SaaS
and
phase 3: manufacturing specification
of in-house solution
phase 3: manufacturing specification
of SaaS solution
phase 4: capacity requirements planning
for in-house solution
phase 4: capacity requirements planning
for SaaS solution
phase 5: cost accounting
of in-house solution
phase 5: cost accounting
of SaaS solution
integrated
sales &
production
view
production
view
integrated
sales &
production
view
phase 6: final selection between
in-house or SaaS solution
or
decision 1:
request to change IT product
decision 2:
development of
IT service portfolio
decision 3:
cancellation of IT product order
Exhibit 33. Procedure model for the IT service-oriented investment analysis
78
The procedure model is developed for the internal IT service provider who evaluates
for internal contractors two IT solution types, i.e., in-house and SaaS solutions. For
each phase the procedure model determines, the activities to be performed, the input
to be entered, and the output to be created (see Exhibit 34). In order to enable division
of labor in the decision process, for each phase the procedure model defines the roles
to be occupied by the internal IT service provider. Thereby, the role definitions refer
to the roles described in IIM’s role model of IT service providers (see Chapter 2.2.3).
During execution of the procedure model, the IT service provider changes several
times its point of view, i.e., from the sales to the production view of IT management,
and vice versa.
phase
input
output
role
1 customer
requirements
analysis
• target groups
• business process maps
• customer expectations
• IT product contract
• sales specifications
• sales plans
•
•
•
•
2 pre-selection
of in-house &
SaaS solutions
• IT product contract
• corporate IT requirements
• blueprints of IT development
& IT production alternatives
• shortlist of feasible IT solutions
• production engineering
3 manufacturing
specification
of un-house &
SaaS solutions
• blueprints of IT development
& IT production alternatives
• shortlist of feasible IT solutions
• BOS of core and support
services
• work plans of maintenance
services
• project plans of IT development alternatives
•
•
•
•
4 capacity
requirements
planning for
in-house &
SaaS solutions
• blueprint of IT production
line project plans
• project plan,
• work plans
• bills of services
• sales plans
• workload profile,
• master production schedules,
• updated blueprint of IT production line , project plans,
work plans, and BOS
• product engineering
• resource management
5 cost accounting
of in-house &
SaaS solutions
•
•
•
•
•
•
•
•
•
• controlling
6 final selection
between inhouse & SaaS
solution
• all documents created in the
previous phases
sales plans
work plans
project plans
costs of internal resources
prices of external services
total costs of IT solutions
actual costs of IT services
costs of unused capacities
unit costs of capacities, preliminary IT service units, & IT
services
• ‘what-if’ scenarios
• updated IT product contract
& sales specifications
• final decision
•
•
•
•
product management
account management
contractor
end-user
product engineering
production engineering
resource management
sourcing
controlling
account management
product management
contractor
Exhibit 34. Input, output, & roles of the procedure model
Triggered by customer company’s need for IT support, the procedure model begins
with the sales view. The first phase is conducted independently from any realization
of IT solutions.
Method Introduction
79
1. Phase 1 – Customer Requirements Analysis. In the first phase, the role product
management defines the services of the new IT service portfolio. Thereby, the requirements for the IT service portfolio are derived from account management’s analysis of business processes and customer expectations. Independently, or in collaboration with the contractor, product management then bundles selected IT services to IT
products. Customer-relevant information about an IT product is provided in an IT
product contract. Sales specifications and sales plans provide additional data about the
IT services contained in an IT product.
In the subsequent phase, the IT service provider enlarges its view to an integrated sales
and production view.
2. Phase 2 – Pre-Selection of In-House & SaaS solution. In this phase, the roles
product engineering and production engineering identify possible IT solutions
composed of one IT development and one IT production alternative. The evaluation of the IT product contract, sales specifications, sales plans, corporate IT requirements, and first blueprints of the IT production lines are used to eliminate infeasible IT solutions at an early stage. In some cases, even a final decision in favor
of a certain IT solution can be reached.
In case no exclusive selection could be made based on the previous qualitative analysis, the list of feasible IT solutions must be evaluated quantitatively. In the following
three phases, an information model is established, which will be used in phase 6 for an
extensive sensitivity analysis.
3. Phase 3 – Manufacturing Specification of In-House & SaaS Solution. In this phase,
the preselected IT solutions are further specified. For each IT development alternative, production engineering designs a project plan for the development of the IT
production lines. The project plan includes deadlines, as well as required resource
capacities. Furthermore, for each IT service and IT production alternative a socalled bill of services (BOS) is developed. Thereby, a BOS is a parts list that informs about which resource capacities and preliminary IT services are required to
build a single IT service unit.
4. Phase 4 – Capacity Requirements Planning for In-House & SaaS Solutions. Based
on the sales plans and the bill of services, production engineering generates a master production schedule (MPS) for each resource. Resource Management evaluates
the existing IT inventory and the MPS in order to determine the future workload of
each resource. If the existing resources cannot assure a timely provision of the required capacities and preliminary IT services, the role sourcing will procure external services and resources from suppliers.
80
5. Phase 5 – Cost Accounting of In-House and SaaS Solutions. In this phase, the role
controlling determines for each IT solution the total development and production
costs for the contract duration defined in the IT product contract. Due to the high
granularity of the previous planning (i.e., planning on the level of individual IT
services, resource capacities, and external IT services), controlling can compute
costs from different perspectives (e.g., costs per IT service/IT service unit/IT product, development project costs, manufacturing overhead costs, or the costs of unused resources).
The final decision is jointly reached by the internal IT service provider and the customer company.
6. Phase 6 – Final Selection Between In-House & SaaS Solutions. Based on the information collected in the previous phases, in the final phase the prices for each IT
product are determined according to the actual IT service unit consumption of the
corresponding customer. The price calculation is based on a thorough sensitivity
analysis. Three outcomes of this phase are possible: First, one IT solution is chosen initiating the development of the IT production line. Second, the sales specifications are further modified requiring the repetition of the investment analysis;
And third, the launch of a new IT service portfolio is cancelled as none of the IT
solutions satisfy fully the internal IT service provider or its customers.
As mentioned before, in general procedure models are built on meta models. The procedure model of the IT service-oriented investment analysis refers to the meta model
introduced in Chapter 5.1.3. Moreover, each of the six phases presents a detailed view
of the meta model focusing on the relevant elements of the particular phases.
5.1.5 Fictitious Example
In the following chapters, Chapters 5.2 to 5.7, the phases of the previously described
procedure model are illustrated with a holistic example of a fictitious company. In
order to demonstrate a real-life implementation of the IIM approach, for each phase
examples of the company’s roles, input and output documents are provided (compare
Exhibit 34, p.78).
The application area of the fictitious example is Customer Relationship Management
(CRM). CRM has been chosen as application area for the following three reasons.
First, CRM SaaS solutions are widely adopted amongst today’s companies (see Exhibit 35, [Herbert 2008a]). Second, CRM SaaS solutions have been on the market for
several years, and have therefore reached a significant maturity level. Salesforce.com,
RightNow, or Siebel, for instance, offered their CRM SaaS solutions already in the
late 1990s [Herbert 2005]. Third, compared to other SaaS solutions, such as human
Method Introduction
81
capital management or collaboration, CRM solutions are more complex as they have
to meet requirements of various company-specific CRM processes. In summary, the
application area CRM provided rich customer experiences, which were used to create
the fictitious example. Furthermore, the complexity of CRM SaaS solutions are compatible to well-established packaged CRM software [Maoz/Desisto 2006]. Thus, in
many cases SaaS CRM solutions are able to provide a similar business value as packaged CRM software.
"For which of the following softwawre applications are you using software-as-a-service?"
Human capital management
45%
Collaboration
38%
Customer relationship management
36%
Order management
35%
Content management
32%
Enterprise resource planning
31%
Supply chain management
31%
Web 2.0 Technologies
22%
Base: 74 software IT decision-makers at North American and European enterprises
Exhibit 35. SaaS usage by software application [Herbert 2008a]
The example of the fictitious company is based on findings from interviews and discussions with SaaS customers, SaaS providers, and SaaS experts. Appendix A provides further information on interview partners and analyzed documents. Although,
the example refers to real-life information, the numbers provided in the example are
fictitious. For instance, number of employees and end users, IT product consumption
rate, utilization rates of IT resources, as well as, financial cost and benefit numbers are
generated specifically for the example.
The following paragraphs describe the initial situation of the fictitious company, Electro Ltd.. It created the need to introduce a new IT service portfolio entailing the evaluation of current in-house and SaaS deployment solutions.
Electro Ltd.: Initial Situation – The Case of a Fictitious Company
Electro Ltd. is a hardware company with its headquarters based in Zurich, Switzerland. Established in 1991, it specializes in the distribution of electronic devices. As of
the fiscal year 2008, Electro employs 2,000 people in its four subsidiaries. The company’s financial situation, as well as general information about its customers is outlined in Exhibit 36 (see next page).
82
Electro Ltd.
established
headquarters
subsidiaries
products
Financial situation 2008
number of employees
turnover 2007
annual increase of revenue
Information on Swiss customers 2008
number of customers
average duration of relationship with customer
average annual interactions with the company
average annual revenue per customer
annual growth rate of customer base
1991
Zurich, Switzerland
China, Germany , Switzerland, USA
electronic devices
2,000 (including 500 in the area of CRM)
CHF 20 million
10.2%
500,000
6.5 years
4.5
CHF 5,000
7.6%
Exhibit 36. Initial situation of fictitious company Electro Ltd.
Electro’s business customers are satisfied with the product quality, price, and service
the company provides. However, due to increasing customer numbers, the company
has recently experienced problems to sustain the same service levels. Thus, the company fears a negative impact on customer satisfaction, purchase rate, and final revenue. With the introduction of new IT products, the company hopes to improve the
management of their external customers and to re-establish its service levels.
A closer look at the company’s current IT infrastructure reveals the following problems. Customer data is distributed over various systems: The marketing department
uses a seven year old packaged CRM system; the call center agents in the service
department apply macro-enhanced Microsoft Excel sheets; and the sales representatives only use paper documents to manage their client base. Furthermore, Electro’s
internal IT service provider, i.e., Electro IT Services, is overburdened with the maintenance of the company’s obsolete systems. Consequently, Electro IT Services, cannot provide sufficient IT support for the business units, nor can they implement timely the new CRM functionality requested by the business units.
For the above-described reasons, the company assigns its internal IT service provider
to specify a new IT service portfolio ‘IT support for CRM activities’, as well as, to
evaluate several CRM solutions, in-house, as well as SaaS solutions.
Phase 1 – Customer Requirements Analysis 83
5.2 Phase 1 – Customer Requirements Analysis
Purpose:
Roles:
Activities:
Input:
to define contractors’ requirements for a new IT service portfolio
account management, product management, contractor, end-user
- analyze contractors’ and end-users’ expectations regarding the planned IT service portfolio,
as well as the IT service usage in their business processes
- develop for each IT service of the IT service portfolio a sales specification
- configure the IT products using the new IT services
- develop sales plans for each IT service and end-user group
- create IT product contract with references to the sales specifications, and sales plans of the
selected IT services
business process maps, expectations of contractor and end-user
Output:
IT product contract, sales specifications and sales plans of IT services
Next:
phase 2 (i.e., pre-selection of in-house and SaaS solutions)
The first step, in an IT service-oriented investment analysis of in-house versus SaaS
solutions is the collection and definition of customer requirements. Production alternatives in industry are designed to meet the functional, quality and cost requirements of
the physical products to be manufactured. Thus, based on the degree to which production alternatives meet these requirements, one alternative will be selected [Fogarty et
al. 1991, 5, Schuh 2006, pp.295-303]. Similarly, due to IIM’s analogies to manufacturing industries, requirements of IT products will equally serve in the following
phases as guidelines to design the IT solutions. They will also be used as evaluation
metrics in the pre-selection and final selection phases and thus play an important role
throughout the entire method. Exhibit 37 illustrates the key elements of the meta model for the phase customer requirements analysis. References to this meta model are
made in the following paragraphs.
contractor
evaluates
configures
IT product
contract
describes
has
IT product
bundles
references
product
management
develops
sales
specification
describes
IT service
offers
IT service
portfolio
instantiates
sales plan
meets
informs
account
management
forecasts
IT service
unit
consumes
end-user
has
demand
Exhibit 37. Detailed view of meta model – Key elements of phase 1
84
To identify the customer requirements for a new IT service portfolio, the role account
management analyzes the expectations of the contractor and the defined end-user
groups. Furthermore, it evaluates the business processes to be supported by the new IT
services. Based on this information the role product management develops the sales
specifications of the IT services to be provided by the IT service portfolio. Thereby,
the sales specifications must be free from any technical terms, containing only the information relevant for the contractor [Hochstein 2006, p.108, Brocke et al. 2009].
Using the previously defined sales specification, contractors configure their own IT
products. Each contractor selects which IT services of the IT service portfolio should
be offered to his end-users in an IT product. The IT product configuration approach is
derived from the concept of product configuration commonly applied in the automotive industry [Fogarty et al. 1991, Hochstein et al. 2008c, pp.37-38]. In order to reduce
the complexity of an IT product, the contractor can define smaller IT products, which
meet the exact needs of smaller end-user groups. Based on the contractor’s selection
of IT services, product management creates the IT product contract (Chapter 5.2.1).
The contract includes the references to the selected IT services (Chapter 5.2.2), as well
as the references to the sales plans for the defined end-user group (Chapter 5.2.3). The
phase is completed after each contractor has agreed to the first draft of the contract.
5.2.1 IT Product Contract
As IT products are used in the context of long-term relationships between the internal
IT service provider and the customer company, general terms and conditions of each
IT product must be documented in an IT product contract. The contract clearly describes the overall legal arrangement between the IT service provider and the contractor [Power et al. 2006, pp.113-133]. It determines the scope and nature of the engagement, i.e., the rules by which the two parties will operate during the entire relationship. Furthermore, an IT product contract defines standard legal protection and the
financial terms of the agreement. The IT product contract contains references to the
selected IT services and the sales plans for the defined end-user groups
An IT product contract is well designed if it is based on the following principles. It
should be precise in describing the requirements of the IT customer; it should be complete in order to prevent potential opportunism from the supplier, it should be balanced protecting the interest of both parties, and it should be flexible allowing future
changes to the contract. In general, contracts differ in depth, form, detail, and duration
[McIvor 2005, pp.251-252, Power et al. 2006, pp.132-135].
In the first phase of the IT service-oriented investment analysis, the master contract
serves as initial commitment between the contractor and the internal IT service pro-
vider. Moreover, it provides the guideline for the creation of potential IT solutions.
For this reason, a first draft of the IT product contract focuses only on the most relevant information for the overall planning of the IT service portfolio. Thus, in this
phase a draft of the contract usually contains less information than a final version of
the contract.
The IT product contract does not include any technical details about the future realization of the IT product. Thus, no information about a possible in-house solution or
SaaS solution is provided. Instead, a first draft of the IT product contract should include basic product information, such as the name and the ID of the IT product, as
well as name and ID of the associated IT service portfolio. Moreover, the provider and
contractor should be mentioned. A general description about the IT product should
inform about the possible business impact, which can be achieved if the IT product is
applied by the contractor. To guarantee the achievement of the business impact, general requirements for the usage of the IT product should be defined (e.g., skill level of
end-users and recommended use of core services). Further relevant information, which
should be included in the IT product contract, are the price of the IT product, its endusers, the delivery medium required to consume the core services (i.e., combination of
a physical device and software client), as well as the first and end delivery date [CC
IIM Team 2007a, Pinnow et al. 2008].
The description of the IT services included in the IT product should provide references to the overall SLAs of the IT product, as well as references to the sales specification (see Chapter 5.2.2) and sales plans (see Chapter 5.2.3) of the selected IT services [CC IIM Team 2007a, Vogedes et al. 2008a].
Electro Ltd.: Customer Groups & IT Product Contracts
IT product
As illustrated in the exhibit below, Electro Ltd’s marketing manager and customer
contact manager configure three IT products based on the IT services of the new IT
service portfolio ‘IT support for CRM activities’.
ID
name
ITP_056
IT support for marketing activities
ITP_057
IT support for sales activities
ITP_058
IT support for service employees
price
CHF 300 per end-user/month
customer company
first delivery date
contractor
end-user
- description
- location
- numbers
st
st
st
January 1 2010
February 1 2010
March1 2010
marketing manager
customer contact manager
customer contact manager
MA-CH
marketing employees
SA-CH
sales employees
SE-CH
service employees (in call center)
Zurich, Switzerland
Zurich, Switzerland
Zurich, Switzerland
21
37
55
Exhibit 38. Targeted groups for new IT service portfolio
86
Product management develops for each IT product an initial contract. Exhibit 39
shows an extract of the IT product contract ‘IT support for marketing activities’.
IT Product Contract
IT product name:
IT product ID :
ITP_056
Associated IT service portfolio:
IT support for CRM activities (ID: ISPO_056 )
Provider:
Electro IT Services
Contractor:
Marketing manager of Electro Ltd.
Description of IT product:
The IT product ‘ITP_056’ provides IT support for marketing employees. End-users are enabled to consume a defined list
of core and support services (see below a description of the IT services included in the IT product). The regular consumption of the IT services will increase the rate of successful delivered email campaigns by 30%. It will raise employee satisfaction by 10%. Customer segmentation functionality will produce a 20% better fit between the company’s product
offerings and customer demands. Requirement for the achievement of the defined business impacts is that the end-users
have basic skills in marketing, that they are familiar with the IT product, and that they enter the information requested by
the system according to the system’s guidelines.
- Price:
CHF 300 per user/month for the use of core services
(additional prices occur for the use of support services, see sales specifications)
- End-users:
initially: 21 marketing employees located in Zurich, Switzerland
possibility to extend the number of end-users and locations
- Delivery medium:
PC or laptop, and user interface (web browser or smart client)
- First delivery date:
January 1 2010
- End delivery date:
March 31 2019 (10 years)
st
st
Description of IT services included in the IT product:
Two groups of IT services are offered in this IT product. First, core services provide the functionality to support the enduser in its business processes, increasing the processes’ efficiency and quality. Second, support services provide the
functionality to support the enablement and consumption of core services.
- Overview of IT services
core services
- CSE_001: login
- CSE_002: logout
- CSE_012: view customer profile
- CSE_014: edit customer profile
- CSE_016: segment customers
- CSE_032: perform email campaign
- CSE_071: view marketing report
-…
support services
- SSE_003: enable end-user
- SSE_004: disable end-user
- SSE_005: train end-user
- SSE_008: help desk
- SSE_073: set-up business unit
- SSE_088: change request
- SSE_120: upgrade software
- Service Level Agreements: - Availability of core customer data from 1980-today
- Availability transaction data of marketing, sales and service from 2000-today
- 100% cross–departmental data transparency
 further SLAs are defined for each IT service (see sales specifications)
- Purchase quantity:
 specified for each IT service and end-user group (see sales plans)
Note: The IT product contract serves as first agreement between the provider and the contractor. The contract is a
pre-final contract, which is used for a following IT service-oriented investment analysis. The data in this contract will
be updated after completion of the investment analysis.
Exhibit 39. Contract for IT product ‘IT support for marketing activities’
5.2.2 Sales Specifications of IT Services
The IT product contract contains the general high-level conditions and terms for the
long-term relationship between the internal IT service provider and the contractor.
Moreover, the IT product contract lists the IT services selected for the particular IT
product. Detailed information about the IT services is provided in the sales specifications. For each individual IT service one sales specification must be developed, serving as commitment from the IT service provider to the customer to deliver the IT services as specified. This commitment is of particular relevance as the customer cannot
test IT services upfront due to the intangible character of services [Bieger 2002, p.8].
Sales specifications can be referenced by several IT products.
For the creation of sales specifications, the IIM provides comprehensive and practical
guidelines [CC IIM Team 2007b, CC IIM Team 2007a]. From these guidelines the
following selection of sales attributes most relevant for the proposed method were
derived.
• Order number serves as unique identification number for the IT service.
• Name provides a self-explanatory description of the IT service.
• Description provides significant information about the IT service, e.g., about its
consumption and purpose.
• Price provides information on the payment parameters of an IT service. In addition
to the price of the IT product, separate prices for specific IT services may be necessary to create a higher cost transparency. The price of an IT service informs, for
instance, about the billing unit, or the frequency of payment (e.g., up-front payment, regular payment on a monthly or annual basis). Similar, to the price of the IT
product, prices defined in the customer requirements phase are only first assumptions, which may need to be updated after the investment analysis is completed.
• End-user groups define the end-users, i.e., the entities consuming the IT services.
Depending on the type of IT service customer groups may be employees, business
units, or the company as a whole.
• End-user involvement explains the expected end-user participation in the coproduction process of an IT service. The description of the end-user involvement is
necessary in order to clearly define responsibilities [Power et al. 2006, pp.133134]. This way, the level of uncertainty to which extend the defined SLAs will be
fulfilled can be further reduced [Maleri 1991, pp.105 et sqq.].
88
• Business Impact explains the value of the IT service providing ideally quantitative
assumptions of the IT service’s impact on the customer. As illustrated in Exhibit
40 the impact of the IT service depends on the service type and the characteristics
of the particular service.
business processes
negative
impact
negative
impact
positive impact
support services
support services
set up business unit
enable end-user
train end-user
help-desk
positive
impact
core services
positive
impact
change request
upgrade software
Exhibit 40. Business impact of core and support services
In this dissertation, two IT service types are distinguished (see Chapter 2.2.2):
first, technology-intensive core services, which create a direct, positive impact on
the customer’s business processes; second, labor-intensive support services, which
enable and maintain the previous group of IT services. Support services have only
an indirect, positive impact on the business processes in which the corresponding
core services are consumed. However, often, support services also cause a minor
direct negative effect on the business processes. For instance, the support service
‘train end-user’ requires from the end-user, i.e., a business employee, time to consume the service. During this time, the business employee cannot create revenue
for the company. Nevertheless, after the service consumption a positive impact
will occur: due to increased knowledge about the core services, the business employee will most likely be able to extent its productivity and the efficiency of its
business processes.
• Service Level Agreements (SLAs) describe the quality commitment of the IT service provider [Crawford et al. 2005]. Thereby, only the quality criteria relevant for
the contractor should be defined in the sales specification. Instead of informing the
contractor about the server availability or the network bandwidth, the contractor
needs to know the end-to-end availability of the entire IT service. Quality criteria
differ for each IT service but address in general typical quality issues, such as, reliability, responsiveness, performance, or security.
In the following, characteristics of core and support services are presented. For each
IT service, an example of a sales specification is provided.
5.2.2.1 Core Services
Core services generate the primary business benefit for the customer company. Applied by end-users in their business processes, the technology-intensive core services
are able to decrease the company’s costs and increase its revenue. Exemplarily, Exhibit 41 illustrates the business impact entailed by the consumption of core service included in the IT product ‘IT support for marketing activities’.
finances
customer
share of
wallet
revenue
profit
increased
price level
market
share
costs
cross-upselling
reputation
customer
retention
customer
acquisition
customer
satisfaction
process
productivit
y
process
efficiency
channel
process
quality
internal processes
availability
and quality
of data
core services of
IT product
“IT support for
marketing activities”
improvement
of email
campaigns
service
innovation
employee
suggestions
employee
satisfaction
learning & innovation
Exhibit 41. Business impact of core services [adapted from Gronover 2003, p.16]
The introduction of a new core service will increases the quality (e.g., evoked by better task management) and the efficiency of a process (e.g., evoked by elimination of
manual tasks). As a result, process productivity grows entailing a cost reduction and
profit increase [Picot et al. 1999, p.274]. Additionally, consumption of the core services will increase the data quality and availability of information [Dous et al. 2005,
Büren et al. 2006]. Based on the improved provision of data (i.e., correct information
at the right time), marketing employees can send better email campaigns. Thus, customer satisfaction increases and the company gains reputation [Gronover 2003, p.40,
Kagermann/Österle 2006, pp.87 et sqq.]. The higher reputation of the company increases the number of new customers extending the market share of the company. A
higher reputation also positively affects current customers as it strengthens their loyalty. Thus, customers are more open for cross-selling and accept higher price levels
[Reichheld/Sasser 1990, pp.99 et sqq., Jendrosch 2001, 2 et sqq., Stauss/Seidel 2002].
In conclusion, sales volume and therefore revenue increases.
90
As illustrated in Exhibit 42, an IT product is composed of a set of core services, which
can be consumed by end-users in their business processes. Thereby, every core service
represents an atomic entity with a unique purpose and a distinct business impact. A
core service can be referenced by several IT products.
IT product
cores
services
IT services
login
IT support for
CRM activities
view customer
profile
support
services
edit customer
profile
segment
customers
perform email
campaign
view marketing
report
…
logout
Exhibit 42. Example of core services included in an IT product
In the following, two sales specification examples of core services are provided.
Electro Ltd.: Sales Specification of Core Services
Product Management develops sales specifications for all IT services of the IT service portfolio ‘IT support for CRM activities. Exhibit 43 depicts the IT services
‘view customer profile’ and ‘segment customers’. The first IT service is contained in
each IT product of the IT service portfolio. However, the second IT service only appears in the IT product ‘IT support for marketing activities’.
CSE_012
description:
end-user groups:
end-user involvement:
business impact:
view customer profile
core service provides all available master and transaction data of a selected external business customer of Electro Ltd.
employees of marketing, sales, and service departments
end-user provides the ID, or first and last name of the business customer
lead time of the business activity ‘retrieve customer information’, which is supported by
this IT service, will increase by 15%
service level agreements
availability:
99.9% (24x7)
response time:
sub second
CSE_032
description:
perform email campaign
core service supports Electro Ltd’s email campaigns with new IT functionality. Maximum
3,000 emails can be sent in each campaign.
employees of marketing departments
end-user creates content for email campaign and selects target customer groups
IT service will increase Electro Ltd’s annual lead-to-opportunity rate by 13%.
end-user groups:
business impact:
availability:
99.9% (24x7)
response time:
maximum 6 minutes for 850,000 emails
Exhibit 43. Sales specification of selected core services
5.2.2.2 Support Services
Support services are offered in combination with core services. In contrast to the first
technology-intensive IT service group, this group is for the most part labor-intensive
(see Chapter 2.2.2). Support services only create indirect value for business processes
by assuring end-users’ ability to consume core services. For instance, they guarantee
that end-users possess the required delivery medium to order and to consume IT services, that end-users gain the knowledge to use core services, and that they receive
support if problems with core services occur. Additionally, support services may improve the quality or may change the characteristics of core services. In the context of
this dissertation, support services are customer-facing IT services, which do not include background IT services without any end-user participation (e.g., regular maintenance services). Exhibit 44 illustrates a possible structuring of support services,
which has been specifically chosen for this dissertation.
IT support for
CRM activities
IT product
cores
services
enable
end-user
train
end-user
support
services
help desk
setup
business unit
IT services
change
request
online
training
regular
support
small
business unit
minor
change request
face-to-face
training
VIP support
medium
business unit
large
change request
upgrade
software
large
business unit
Exhibit 44. Example of support services included in an IT product
The support services presented in this chapter are based on IIM functional specifications and sample description of sales products [CC IIM Team 2007a, Vogedes et al.
2008c]. Additionally, the IT Infrastructure Library (ITIL) 4 provided further insights
for the service design [ITIL 2007a, ITIL 2007b, ITIL 2007d, ITIL 2007c]. In particular, the ITIL part ‘service operation’ was of high relevance for the service descriptions.
4
ITIL provides guidance and best-practice advice for the management of IT development, operations and infrastructure. The latest version consists of five core parts: (1) service strategy, (2) service design, (3) service
transition, (4) service operation, band (5) continual service improvement.
92
Subsequently, the support services most essential for the enablement of core services
are described. The provided structure and descriptions are particular developed for this
thesis. Companies can adjust them according to their corporate needs.
Sales Specification of Support Service ‘Enable End-User’ & ‘Disable End-User’
In order to enable the end-user for the consumption of core services, first, the end-user
must be registered in the system, and second the delivery medium required for the
core services of the IT product must be available to the end-user.
Due to growing security risks, IT related regulations, as well as, rising number and
diversity of users and system functionality, companies have widely introduced identity
and access management concepts [Allan et al. 2008]. The concepts offer capabilities
to manage companies’ sensitive data according to users’ needs and authorization profiles [ITIL 2007b, pp.68-70]. With identity management, end-users can only consume
core services if authenticated and authorized. For this reason, the support service ‘enable end-user’ creates a unique identity for a new end-user. Furthermore, this support
service guarantees that the delivery medium of a specific IT product (i.e., the combination of a physical device and client software) is available to the end-user. Two cases
may occur when the IT service ‘enable end-user’ is ordered: first, one part of the delivery medium may be already available to the end-user, and thus only the missing part
needs to be installed. Second, neither the physical device nor the client software may
be available, and therefore both parts of the delivery medium must be newly provided
to the end-user. The IT-service ‘disable end-user’ revokes the access rights from the
user and de-installs the software used for the consumption of the core services included in a specific IT product.
Electro Ltd.: Sales Specification of Support Service ‘Enable End-User’
Due to Electro Ltd’s high security standards and need for a fast enabling of its endusers, product management specifies the following support service (see Exhibit 45).
SSE_003
description:
enable end-user
support service generates a new identity for a new end-user of the IT product ITP_056,
ITP_057, or ITP_058. Moreover, it installs the delivery medium required for the IT product.
price:
end-user groups:
business impact:
service hours
delivery time
customer satisfaction
CHF 50.00 per end-user & consumed service unit
marketing, sales and service employees
end-user must restart his PC.
PC is unavailable for 20 minutes
Monday to Friday, 09.00 – 18.00
30 minutes
95% (5% discontent due to unavailability of PC)
Exhibit 45. Sales specification of support service ‘enable end-user’
Sales Specification of Support Service ‘Train End-User’
The consumption of the previous support service enables an end-user to utilize the
core services of a specific IT product. However, in order to achieve the defined quality
levels, the user must be familiar with each core service. For this reason, it is often advisable to offer a support service, which educates the end-user in the correct usage of
the core services. The need for the training depends on the complexity of the IT product (i.e., the number of core services) and on the user’s familiarity with it. A complex
IT product with low usability of the included core services will require a more intensive training. A user’s inexperience further increases the need for training. An untrained user may not be able to use the core services correctly, causing a decrease in
performance. The support service can be provided as online or as face-to-face training.
As the end-user must provide time from his regular job to consume this IT service, the
usage duration should be as short as possible. Thus, the IT service must provide the
right balance between the time spent on the service consumption, and the positive
business impact achieved through a better knowledge about the core services.
Electro Ltd.: Sales Specification of Support Service ‘Train End-User’
Electro Ltd. requires a fast and efficient training of new users. Exhibit 46 illustrates
the sales specification developed for the IT service ‘train user’.
SSE_005
description:
price
end-user groups:
business impact:
delivery medium:
service hours
delivery time
train end-user
support service prepares the end-user to consume efficiently and effectively the core
services of the IT products ITP_056, ITP_057, or ITP_058. It offers guided information
about the core service’s usage, and exceptional cases, which may occur.
CHF 500.00 per user and consumed service unit
marketing, sales, and service employees
- necessary time for training depends on the user’s business and computer skills
- user must pass a final test that verifies him to consume the defined core services
between 1 hour (for advanced user) and 4 hours (for basic user)
online training
anytime
minimum 1-4 hours
98%
Exhibit 46. Sales specification of support service ‘train end-user’
Sales Specification of Support Service ‘Help Desk’
The service ‘help desk’ is ordered by the end-user if problems occur affecting the
availability or quality of core services. Thereby, the problems may be caused by user’s
inexperience with core services, unplanned technical failures, or other technical incidents. The goal of the help desk service is to restore the operation of core services as
fast as possible in order to minimize the negative effect on business. The end-user re-
94
ports the problem via telephone or ticket system to the help desk. The first level support of the IT service provider aims at resolving the problem within the defined target
times. Ideally, the problem is resolved within one phone call. Problems that cannot be
solved immediately are forwarded to the second or third level support. Further information on support services are provided by ITIL’s service support guidelines [ITIL
2007b, pp.109-121] .
Electro Ltd.: Sales Specification of Support Service ‘Help desk’
Product Management defines following IT service to support end-users in problems
with core services included in the IT products ITP_056, ITP_057, or ITP_058 (see
Exhibit 47).
SSE_008
description:
price
end-user groups
customer impact:
service level agreement
service hours
delivery time
help desk
service supports the end-user if he experiences problems with core services, or if he has
questions regarding an IT product. After service consumption, the user will be able again
to use the core services effectively and efficiently.
CHF 10.00 per user, IT product , and month
marketing, sales, and service employees
- end-user provides its identification number.
- end-user defines a problem or poses a question.
- end-user is up to 30 minutes available for further inquiry.
depends on the type and difficulty of the incident
(request handling starts max. 30 minutes after request entry)
96% based on the assumption that 80% of the service requests will be solved during the
first contact (first level support), and 20% of the calls will be solved within 8 hours
(second level support).
Exhibit 47. Sales specification of support service ‘help desk’
Sales Specification of Support Service ‘Setup Business Unit’
Today, many companies are divided into numerous entities, e.g., subsidiaries and
business units. As a result, the individual entities often possess their own data and perform business in different ways. Therefore, when an IT product is initially provided to
a company, often each entity must be set up separately for the consumption of core
services (see also ITIL Service Transition [ITIL 2007d]). The internal IT service provider analyses the business processes and data of each entity in order to determine
necessary adjustments to the IT product, or to modify the entities’ business processes.
Furthermore, the data must be extracted from existing systems and imported into the
applications used to produce the core services. If necessary, changes to user profiles
are conducted.
In 2006, Plantronics, Inc. introduced a new CRM application in its 20 markets. For
this, the responsible project team analyzed each local marketing, sales, and service
department regarding their existing CRM software, business processes, and data.
Based on this evaluation, the new CRM application, as well as the processes of some
business units had to be adjusted.
The consumption of this support service requires high end-user involvement. For instance, amongst others, business units must prepare master and transaction data, organization charts, business process maps, as well as information about job profiles,
and end-users’ access rights. Thus, business units are in general interested in a fast
consumption of this support service, and expect the consumption to be frictionless
with as little end-user involvement as possible. The price of this service will depend
on the size of the business unit.
Electro Ltd.: Sales Specification of Support Service ‘Setup Business Unit’
Product Management specifies the following support service, which can be ordered by
a business unit interested in the IT products ITP_056, ITP_057, or ITP_058.
SSE_073
description:
price:
end-user groups:
business impact
service hours:
delivery time:
customer satisfaction:
setup business unit
support service prepares a business entity to use one of the three defined IT products for
CRM activities.
CHF 20,000.00 per business entity and IT product
marketing, sales and service departments
- 15 days of one key user representing the primary contact person on the business side:
Key user is responsible for the management of the business entity, as well as the provision of information related to the planned usage of the ordered IT product.
- 30 days of an employee of the local IT department: Employee prepares, amongst others, data, organization charts, detailed information about job profiles, and end-users’
access rights.
After consumption of this support service, the business impact of the newly introduced IT
product will increasingly become transparent. It will reach its final constant rate approximately four weeks after service completion (please refer to business impact of the ordered IT product). During the consumption of this IT service the productivity of the business entity might decrease slightly due to end-user involvement.
3 weeks
90%
Exhibit 48. Sales specification of IT support service ‘setup business unit’
Sales Specification of Support Service ‘Change Request’
The support service ‘change request’ is provided in order to gather and to process a
customer’s change request to extend an IT product with further core services, or to
change existing core services. A change request includes, for instance, the creation,
modification or deletion of software functionality, fields, or user profiles. The feasibil-
96
ity of fulfilling the request and therefore of modifying core services strongly depends
on the type of the change request. Small changes can be made relatively fast; large
changes may need to be further analyzed and planned in advance. It might not always
be possible to change core services according to a contractor’s new requirement. The
business impact after service consumption may differ substantially depending on the
changes made to the IT product. In general, a change request is not processed if the
costs of changing the IT product exceed the long-term benefits.
Electro Ltd.: Sales Specification of Support Service ‘Change Request’
Exhibit 49 illustrates the sales specification of the IT service ‘change request’, which
was defined for the IT products ITP_056, ITP_057, or ITP_058.
SSE_088
description:
price:
end-user groups:
business impact:
service hours:
delivery time:
change request
support service manages change requests, such as the creation, change, or deletion of UI
fields, user profiles, special report templates, or software functionality
price depends on the complexity of the change request. It ranges from CHF 500.001,000.00 per change request (for minor changes) to CHF 1,00.00-10,000.00 per change
request (for major changes)
marketing, sales, and service departments
end-users communicate change requests to business owners. Business owners and key
users evaluate change requests and request a price from Electro IT Service in order to
reach a decision if core services shall be modified.
depends on change request type
Monday to Friday, 09.00 – 18.00 (no service hours during the time period when the support service ‘upgrade software’ is consumed)
minor changes: 1 week
major changes: up to 3 months
97% if change requests can be fulfilled. 75% if change request has to be rejected.
Exhibit 49. Sales specification of support service ‘change request’
Sales Specification of Support Service ‘Upgrade Software’
Regularly, software vendors release new versions of their software, namely software
upgrades. Software upgrades contain additional features, as well as fewer software
errors and security vulnerabilities known from previous versions [Khoo 2006, pp.1521, pp.162-165, ITIL 2007d, pp.84-114]. As software is a main resource in the production of core services, contractors are interested in the IT service ‘software upgrade’
for the following reasons. First, a software upgrade might offer new functionality,
which better supports the business processes. Second, it might increase the efficiency
of business processes due to elimination of critical software errors.
As well as the many advantages, the consumption of this IT service may also include
severe disadvantages for the customer company. Disadvantages are, for instance, the
unavailability of core services during the time of the upgrade roll-out, temporary high
error proneness affecting the initial consumption of core services after the upgrade
roll-out, or decreased productivity due to adaptation to changes in the new software
release. According to AMR Research, the average upgrade cycle time for packaged
enterprise software is 18-24 months project [Beatty/Williams 2006].
Electro Ltd.: Sales Specification of Support Service ‘Upgrade Software’
Electro Ltd. plans to use the defined IT products primarily in its customer-facing
business processes. Thus, any detraction caused by a software upgrade has a direct
impact on the company’s external customers (e.g., increase in delivery time, decrease
in service quality). In order to keep the detraction of the IT service ‘upgrade software’ as small as possible, Electro IT Services, the marketing manager, and the customer contact manager agreed on the sales specification presented in Exhibit 50.
SSE_120
description:
price:
business impact:
upgrade intervals:
rollout date:
delivery time:
end user training:
upgrade software
support service updates main software that is used to create the IT products ITP_056,
ITP_057, or ITP_058. The existing software is replaced with the SW vendor’s newest
release
CHF 120.000 per customer company and consumed service unit
- 1 key user of each business unit must participate 5 days in upgrade testing.
- every end-user must attend a 1 day delta training prior to the upgrade roll-out date.
up to two months after rollout date, end-user’s productivity may decrease by 15% due
to adaptation to changes in the new release.
maximum 18 months
on weekends, date may be chosen by customer
maximum 3 months
available 14 days before rollout date
90%
Exhibit 50. Sales specification of support service ‘upgrade software’
5.2.3 Sales Plans of IT Services
In addition to sales specifications, the IT product contract also references the purchase
quantity of each IT service. The contractor’s agreement to the expected unit consumption of IT services is of particular relevance for the role production engineering in a
later capacity requirements planning [Vogedes et al. 2008a] (see Chapter 5.5).
To predict the sales volume of IT service units, account management analyses future
developments of the contractor’s environment in regard to influences on the IT service
consumption. Influencing factors, which increase the demands of IT service units, are
referred to as sales drivers [Laux 2005, p.15]. Sales drivers include factors, such as,
patterns of service consumption, the company’s business strategy, or other business
factors. Based on the sales forecast, product management creates for each IT service a
sales plan, which determines when and in which quantity service units must be provided to the defined end-user groups.
98
As core services support business processes, their regular unit demand may be affected by seasonal changes of the contractor’s business. For this reason, it is essential
to identify also seasonal changes in the unit demands of IT services. Based on the duration and the degree to which the unit demands rise during a seasonal maximum,
product management and production engineering must determine collaboratively one
of the following two service delivery strategies [Sheikh 2003, pp.205-250]. The first,
more cost intensive, strategy for seasonal changes is to increase the maximal available
quantity of IT service units and to continue providing the same service levels. The
second strategy is to provide the same quantity of IT service units but with decreased
service levels.
Besides the identification of regular service demand and seasonal changes, product
management must also detect the sources for sudden and unexpected increases in service unit demands [compare to Schuh 2006, pp.161 et sqq.]. The sales plans offered to
the contractor must be compliant with the defined SLAs. Thus, product management
must identify in particular the sales drivers causing sudden unit demands for IT services, the degree to which the unit demand increases, and the occurrence likelihood of
the sales drivers. The following case of Audi AG’s call center illustrates a reason for a
sudden increase in business.
Several times a year, Audi experiences a sudden customer run on its call center. The
up to 40% increase of incoming calls is caused by rainy weekends that allow customers to do neglected paperwork. Customers contact the call center because they experienced problems with their car but did not receive any help from their dealerships
due to expired warranties. Rainy weekends provide these customers the otherwise not
available time to contact Audi in the hope that the costs for a car repair, which might
have occurred several weeks or months before, will be reimbursed by the company.
Product management develops sales plans based on the sales forecast for regular service consumption, as well as on the sales drivers for seasonal and unexpected changes.
The ability to determine reliable sales plans is of particular relevance for the manufacturing of IT service units. Because of their intangible nature, IT services, their subassemblies, i.e., preliminary IT services, cannot be produced for stock [Zarnekow 2006,
p.43]. Thus, at peak-times the IT service provider must either accept a decrease in the
service quality, or must have IT solutions which can handle the exceptional high need
for resource capacities and preliminary IT services [Hochstein 2006, p.118].
Core services support end-users in their business processes [Zarnekow 2006, p.44-47,
Ebert et al. 2007a]. Thus, their demand can be derived from the frequency in which
the corresponding business process is performed, and the number of service units,
which are consumed per process cycle. In order to identify sales drivers for core services, account management must gain a profound knowledge on the business
processes of its internal customers. A tight collaboration is necessary to identify the
relevant sales drivers and to predict the quantity of consumed core service units. A
close relationship with the contractor and the end-users will obtain the best possible
information on future demands. Relevant information should be collected from both
operative and executive employees of the contractor. If the customer company has
used similar core services before, estimates can also be based on information of previous customer behavior.
IT products are composed of various core services, which can be instantiated through
core service units. End-users consume the core service units according to their needs
in different numbers. Thus, the unit consumption per core service and IT product varies for each end-user, i.e., each end-user consumes service units in different quantities
and at different times. Exhibit 51 compares at two different times the unit consumption of the core services included in one IT product. It is assumed that the end-user is a
marketing employee. The differences of service unit consumption can be for this particular IT product explained as follows. The marketing employee might start its day by
checking its recent marketing success. Based on this information he plans the activities for the day. Thus, in the first working hour of the day he mainly uses analytical
core services, such as, ‘view marketing report’, or ‘view customer’. However, in the
afternoon, the marketing employee might rather focus on activities to create direct
value for the company. Thus, he uses mainly service units, which enable him to operate its business, e.g., ‘perform email campaign’ or other operative core services.
Exhibit 51. Service consumption of different core services
100
Besides the varying unit consumption of IT core services provided by one IT product,
the unit consumption of one specific core service, such as ‘view customer profile’,
which is included in several IT products may also differ. Exhibit 52 illustrates the
consumption patterns by different end-user groups (i.e., sales, marketing, and service
department) of the core service ‘view customer profile’.
hourly unit consumption per end-user group
of core service 'view customer profile'
160
140
120
100
80
marketing dep. (MA-CH)
60
sales dep. (SA-CH)
40
service dep. (SE-CH)
20
0
Exhibit 52. Sales forecast example for a core service
The sales forecast of a particular core service and different customer groups (depicted
in Exhibit 52) can be explained as followed. A marketing employee consumes units of
the core service ‘view customer profile’ usually in the morning to gather detailed customer information for his email campaigns. A sales employee uses the service units
before and after a customer visit, in average up to 15 times a day. Against this, the
estimated unit consumption for the service employees depends on incoming calls of
external business customers. Each service employee processes in average 17 calls per
hour, hence, he consumes 17 service units per hour. The peak time for customer calls
is during lunchtime. Marketing and sales employees work from 8 AM to 6 PM, whereas service employees must be available for incoming calls from 7 AM to 8 PM. Accordingly, the time period in which units of the core service ‘view customer profile’ is
consumed therefore differs between the sales and marketing department, and the service departments. The total unit consumption for the core service can be derived from
the sum of the consumed service units by each CRM department.
As the previous examples have demonstrated, core service units may be consumed in
different quantities and at different times by different end-user groups. In order to ensure a high accuracy of capacity management and cost accounting, it is therefore advisable to determine the demand of core services on the level of service units. Appli-
cable measurement unit for sales plans of core services are hours. A measurement unit
of higher granularity, i.e., minutes or seconds, is often not possible, and not necessary
for the further investment analysis.
Electro Ltd.: Sales plans for selected Core Services
Based on the sales forecast of the core service ‘view customer profile’ (see Exhibit
52, p.100), product management determines for each end-user group a sales plan for
the total unit consumption of an average day between February and November.
IT product
ITP_056
ITP_057
ITP_058
Total
07.00
-08.00
0
0
60
60
08.00
-09.00
30
20
100
150
09.00
-10.00
50
20
130
200
10.00
-11.00
65
20
160
245
11.00
-12.00
90
20
180
290
12.00
-13.00
0
0
240
240
14.00
-15.00
20
0
280
300
15.00
-16.00
28
20
200
248
17.00
-18.00
15
15
160
190
18.00
-19.00
0
10
180
190
19.00
-20.00
0
0
90
90
Exhibit 53. Sales plan for core service ‘view customer profile’
(time period January to November)
From February to November, Electro Ltd’s business is constant. However, during
Christmas season in December, its business and therefore, the consumption of all
core services units rises by 40%.
The previous chapter has demonstrated that the unit demand for core services is linear
to the execution of the business processes they support. Contrarily, a similar dependency between unit consumption and business process execution is only true for a few
support services. This can be explained with their indirect impact on business
processes (see Exhibit 40, p.88). Support services have other sales drivers and therefore other consumption patterns than core services.
In general, in every IT product of an IT service portfolio are the same set of support
services included, e.g., ‘set-up business unit’, ‘enable end-user’, or ‘help-desk’. Thereby, support services of the same type often resemble each other in their consumption
pattern. For example, the consumption pattern of the IT service ‘enable end-user’ will
be similar amongst many IT service portfolios, such as ‘IT support for CRM activities’, ‘IT support for accounting activities’, or ‘IT support for ERP activities’. However, whereas the consumption pattern is similar, the outcome of the services will be
different For instance, the IT service ‘enable end-user’ of the IT product ‘IT support
for marketing activities’ will install a CRM client on the end-user’s PC. The same
support service provided by an IT product of the IT service portfolio ‘IT support for
ERP activities’ will install an ERP software client.
102
consumed service units
60
50
40
30
20
10
0
01/2010 02/2010 03/2010 04/2010 05/2010 06/2010 07/2010 08/2010 09/2010 10/2010 11/2010 12/2010
enable end-user
train-end-user
help desk
set-up business unit
change request
Exhibit 54. Sales forecast example for support services
Exhibit 54 illustrates exemplarily the sales forecast per department for the support
services provided by the different IT products of a sample IT service portfolio for a
time period of two years. The sales forecast is based on a general consumption pattern
for support services. In contrast to the measurement unit of hours applied for the sales
forecasts and sales plans of core services, support services often need a lower level of
granularity. Depending on the specific support service, the measurement unit may be
‘daily’ or ‘monthly’.
When predicting the unit demands for support services, it is important to differentiate
between two phases in the lifetime of an IT service portfolio: the initial launching
phase [ITIL 2007a, ITIL 2007d], and the regular, operational phase [ITIL 2007b]. As
illustrated in Exhibit 54 and as explained in the following, the unit consumption of the
support services differs in each phase.
• Enable End-User & Train End-User. The two support services are utilized every
time when a new end-user plans to start consuming an IT product. This is the case
after a business unit was set up for an IT product, and new end-users need to be
prepared for the service consumption. Additionally, the two support services may
also be consumed when an employee replaces another employee, or when a new
employee, who was assigned to use a specific IT product, is hired. The total unit
demand of these support services can be derived from the total number of endusers of each customer group.
• Help desk. The consumption of this support service increases proportionally to the
sales volume of core services. This can be explained by the likely higher failure
rate of the IT production line caused by the greater utilization rate of the resources
producing the core services. Furthermore, the complexity of an IT product, i.e., the
number of core services included in the IT product, as well as their usability may
increase the demand for this support service.
• Setup Business Unit. This support service is consumed by every business unit,
which ordered an IT product. Depending on the customer company’s general
launching strategy for new IT service portfolios, this can happen at different times.
A customer company may pursue one of the following two strategies. First, the
customer company may decide to provide new IT products of an IT service portfolio for all business units at the same time, and thus, must set up all business units
concurrently. Second, the customer company may avoid the risk of a large rollout
and therefore introduces the different IT products in the business units in a sequential process. The service ‘set-up business unit’ must be completed before the
planned first delivery date of the IT product. The consumption duration may differ
for each business unit depending on the business unit’s data volume that is migrated into the new system, as well as the business unit’s business processes that
need to be aligned with the core services of the new IT product.
• Change Request. The support service ‘change request’ is ordered by a contractor.
In general, a certain time after the launch of an IT service portfolio the unit demands for this service reaches its maximum. After initial modification needs for
the core services of an IT product have been fulfilled, the unit demand for this service usually decreases again. In the course of time when the new users have become more familiar with the core services, their rising desire for further improvement causes the unit demand for the IT support ‘change request’ to increase again,
although not as high as directly after the initial introduction of the IT product. The
regular unit demand is strongly affected by the dynamics of the customer company, i.e., its need to adjust an IT product fast in order to meet changing business requirements.
• Upgrade Software. The consumption of this support service is influenced by various factors, such as frequency of upgrade intervals of the software vendor, the contractor’s desire to be up to date with the newest software, or his resistance to software upgrades. The combination of these three factors determines the quantity in
which this support service will be consumed.
Electro Ltd.: Support Service ‘Enable End-User’
Based on the sales forecast provided by account management (see Exhibit 54, p.102),
product management creates the sales plans for each support service and each IT
product. Exhibit 55 (see p.104) illustrates an overview of the sales plans for the support service ‘enable end-user’.
104
The start date for the sales plan of the IT product ‘IT support for marketing activities’
(first row) is based on the IT product’s first delivery date (see Exhibit 39, p.86). Thereby, the unit demand of the service ‘enable end-user’ is equivalent to the actual number of marketing employees, who have signed up for the initial consumption of the IT
product (see Exhibit 38, p.85). Similarly, product management defines the unit sales
numbers for the IT products created for the departments sales and marketing.
IT product
ITP_056
01/2010
02/2010
03/2010
04/2010
05/2010
06/2010
07/2010
08/2010
ITP_058
21
0
0
0
37
1
0
0
55
1
0
1
0
0
1
0
1
1
1
0
1
0
0
1
Total
21
38
55
2
1
2
2
1
ITP_057
…
…
12/2010
0
…
0
…
1
…
1
Exhibit 55. Sales plan for support service ‘enable end-user’ (service units per month)
The regular unit demand for the support service ‘enable end-user’ differs significantly
from the previously described demand during the launching phase of the new IT products. Moreover, the regular demand varies amongst the three end-user groups. Whereas, marketing and sales departments have a relatively low regular consumption of
this service (i.e., every four months one service unit is consumed), the service department has a considerably higher frequency and number of unit consumptions. This can
be explained with the inferior labor conditions, and therefore higher employee turnover rate of call centers. Consequently, the service department consumes in average 1
units per months of the service ‘enable end-user’.
Phase 2 – Pre-Selection of In-House & SaaS Solutions 105
5.3 Phase 2 – Pre-Selection of In-House & SaaS Solutions
Purpose:
to identify IT development and IT production alternatives in order to preselect IT solutions
consisting of feasible combinations of both alternatives.
Roles:
production engineering
Activities:
- create blueprints of every possible IT development and IT production alternative
- choose IT solutions, i.e., IT development / IT production alternative combinations, based
on qualitative criteria
Input:
IT product contract, sales specifications, corporate IT requirements
Output:
blueprints of each IT alternative, shortlist of feasible IT solutions
Proceed with:
phase 1 (i.e., customer requirements analysis), phase 3 (i.e., manufacturing specification of
in-house & SaaS solution), or cancel the IT product order
In the previous phases, the customer requirements of a new IT service portfolio were
defined in the IT product contracts. In this phase, IT alternatives, which could realize
the specified IT service portfolio, are identified and described at a high-level. In a qualitative evaluation considering the restrictions derived from the end-users, as well as
from corporate IT requirements, feasible alternatives are pre-selected for a further
quantitative analysis in the subsequent phases. This approach is compliant with the
creation of rough-cut designs of production lines and high-level decision-making, e.g.,
buy versus make, in production engineering [Fogarty et al. 1991, Sheikh 2003]. The
activities of this phase are undertaken by the role production engineering.
In the context of this dissertation, alternatives are represented as IT solutions. Thereby, one IT solution is composed of one IT development and IT production alternative
(compare to Chapter 3.4.1, [Scheeg 2005]). An IT development alternative represents
the setup of an IT production line. An IT production alternative embodies the operation of the IT production line generating the IT service units. For each identified IT
development and IT production alternative, one blueprint is created containing sufficient information for a first qualitative evaluation of the IT alternatives. Exhibit 56
illustrates the elements of the meta model, which are most relevant for this phase.
IT production
alternative
blueprints
describes
enables
developed for
composed
of
IT solution
IT service
portfolio
sales
specification
describes
IT development
alternative
identifies
develops
production
engineering
determines
provides
corporate IT
requirements
IT service
bundles
IT product
evaluates
contains
shortlist of feasible
IT solutions
describes
fulfills qualitative
aspects of
IT product
contract
106
To reach an initial decision, all possible combinations of IT development and IT production alternatives must be evaluated [Scheeg 2005]. Thereby, in order to reduce the
effort of a first qualitative analysis, the focus is laid on the evaluation of IT development and IT production alternatives of core services. Finally, product engineering selects all feasible combinations of IT development and IT production alternatives, i.e.,
IT solutions, for a more detailed quantitative evaluation process. If no feasible IT solutions can be found, the customer requirements must be adjusted. Thus, phase 1
would need to be repeated. If modifications in the customer requirements do not lead
to at least one possible IT solution, then the planned development of the IT service
portfolio must be cancelled.
5.3.1 Blueprints of IT Production Alternatives
Blueprints of IT production alternatives for core services specify IT production lines,
which are composed of IT resources and external services. In analogy to manufacturing industry, IT production lines can be compared to industrial facilities or work centers [Zarnekow 2006, pp.235-252]. But, unlike industrial production lines, which are
enterprise-internal and require no customer participation, IT production lines connect
both parties involved in the co-production process of the IT services, i.e., the internal
IT service provider and the end-user.
In this dissertation, IT production lines used for the manufacturing of core services are
structured into three main logical parts. First, the manufacturing part, which produces
preliminary IT services and assembles them to final units of core services. Second, the
transportation part, which is used to send end-user’s service requests to the internal
IT service provider, and to return service units. Third, order and consumption part,
which is used by the end-user to create service requests, and to consume the delivered
service units.
Exhibit 57 (see next page) shows examples for both IT solutions, i.e., in-house and
SaaS, of a potential IT production line. The first figure illustrates the IT resources required for an in-house production of core services. The production line provides a
short-distance service delivery based on a local area network. The second figure depicts a core service production outsourced to a SaaS provider. In this IT production
line, core services are delivered worldwide using a public transportation line, i.e., the
Internet. A similar worldwide service delivery could also be achieved with the inhouse solution if the Internet is used as transportation line, instead of, or in addition to
the LAN. The following paragraphs explain in more detail the IT resources and external services of both IT production lines.
IT solution 1: in-house (local unit delivery of core services)
company
end-users
marketing rep
sales rep
internal IT
service
provider
service rep
server
client app
client app
client app
OS
OS
OS
CPU
CPU
CPU
enterprise
server app
router
database
operating system
CPU
local area network (LAN)
IT solution 2: SaaS (local and global unit delivery of core services)
company
end-users
marketing rep
sales rep
service rep
internet
browser
internet
browser
internet
browser
OS
OS
OS
CPU
CPU
CPU
SaaS
provider
local area network (LAN)
internal IT service
provider
internet
browser
OS
Internet
router
CPU
company 2
…
company n
Exhibit 57. In-House & SaaS – Blueprints of IT production lines for core services
108
IT Solution 1: In-House
In an in-house solution, the manufacturing part of an IT production line for the generation of core services contains the following IT resources:
• Server. A server represents a workstation in an IT production line. It is composed
of hardware (i.e., central processing unit and peripherals), as well as software (i.e.,
generic server software, such as the operating system and security software, and
solution specific software, such as enterprise and database application) [Brenner
1994, Hansen/Neumann 2007]. In the context of this dissertation, the service provided by the server is referred to as basic server service. It embraces services provided by the hardware and the generic server software. However, the services of
the solution specific software (i.e., enterprise and database application) are not included in the basic software services. The usage of basic software services is
measured in CPU instructions.
• Central Processing Unit (CPU). In analogy to manufacturing machines, the CPU,
also referred to as processor, can be compared to an industrial machine. Used by
computer programs, the CPU manufactures core services units from the raw material data [compare to Brenner 1994, 27-29, Menascé et al. 2004, p.14].
• Server Enterprise Application (server EA). This software program provides the
business logic governing the CPU in the manufacturing of core services [Brenner
1994, pp.30-32]. An enterprise server application receives service requests from
the corresponding client enterprise application. It includes the logic on how a core
service is manufactured, i.e., how information is processed at the server, and which
information is sent to the end-user. The logic of a server EA can be modified
through a software update, customization, or configuration [Zarnekow 2006,
pp.227-230]. In this thesis, the service of the server EA is measured in CPU instructions.
• Database Application (DBA). A database application represents a computer program that is executed on the CPU in order to store, and retrieve the raw material
data [Krcmar 2004, pp.111-119, Stahlknecht/Hasenkamp 2004, pp.158-162]. It
receives requests for data processing from other computer programs, from the
server enterprise application. If a database is only accessed by one application, it is
often common practice to locate both software programs in the same server [Menascé et al. 2004, pp.38-60]. In this case, the two software programs share the
same resources, such as CPU or operating system. If the database is used by several programs, it is usually placed in a dedicated server. Similar to the service of the
server EA, the DBA service is measured in CPU instructions.
• Operating System (OS). An operating system represents the basic software which
manages the server’s resources and provides them as a service to other software
programs and users [Brenner 1994, pp.30-32, Stahlknecht/Hasenkamp 2004,
pp.73-82]. The tasks of an OS include the control and allocation of memory, the
prioritization of system requests, the control of input and output devices, the facilitation of computer networking and the management of files.
The transportation part of an in-house solution is responsible for the delivery of the
end-user’s service requests to the provider, and for the return of core service units to
the end-user. The following resources are part of the transportation lines.
• Local Area Network (LAN). A LAN is a local transportation line connecting
workstations, servers and end-users [Brenner 1994, p.34]. It covers a small geographic area, such as a home, an office, or a number of buildings. The most common technologies used to build a LAN are Ethernet and Wi-Fi. A LAN’s capacity
is measured in kilobytes per second (kbs) [Menascé et al. 2004, p.14]. Thus, the effort to transport a service request or a service unit can be measured in kilobytes
(kb).
• Wide Area Network (WAN). A WAN represents a broad area network which connects LANs and other networks crossing cities, regions, and countries [Brenner
1994, pp.33-35, Stahlknecht/Hasenkamp 2004, pp.97-112]. It can be private, specifically built for an organization, or public such as the Internet. Similar to the
LAN the capacity of a WAN is also measured in kbs.
• Internet. This specific form of a WAN can be used as preliminary service offered
by an Internet service provider. To access the Internet, a workstation must be either directly connected to a router, or be part of a LAN which is connected to a
router [Stahlknecht/Hasenkamp 2004, pp.109-112]. The data, i.e., service requests
and service units, is transmitted using the standard Internet protocol.
The order and consumption part of an in-house solution is composed of similar resources as the manufacturing part. However, as explained in the following, the resources of the two parts differ in size and capacities, as well as in their role in the IT
production line.
• PC, Laptop, Cell Phone and Other Clients. Client workstations are used by endusers as interface to the IT production line. They are composed of similar components as the server. In this dissertation, the service provided by this workstation is
referred to as basic client service. The basic client service includes the services of
the client hardware and generic software, such as the operating system, security
software, and Internet browser. The service is measured in CPU instructions.
110
• CPU. In contrast to the CPU of a server, which is dedicated to a limited number of
software programs, the CPU of a client, in general a microprocessor, runs a number of software programs installed on the client (e.g., enterprise client applications,
typical office programs, or the Internet browser) [Stahlknecht/Hasenkamp 2004,
pp.21-35]. But, unlike the CPU of a server, which processes a large quantity of requests, the CPU of a client manages comparatively fewer requests. Thus, compared to the CPU of the server, the CPU of a client needs less capacity.
• Client Enterprise Application (client EA). This software program represents the
application with which the end-user interacts with the corresponding server enterprise application [Stahlknecht/Hasenkamp 2004, pp.44-45]. The client EA collects
data from the customer, creates service requests, sends the requests to the server,
receives and interprets the replies, and presents the results to the end-user. The
service of the client EA is in this thesis referred to as client EA service and is
measured in CPU instructions.
• OS. The operating system located on a client performs similar tasks as a server OS.
It is shared by all software programs installed on the client.
IT Solution 2: SaaS
The manufacturing part of a SaaS production line resembles the manufacturing part of
an in-house solution. However, it is scaled for a mass production of core services and
a large number of diverse customers [Chou 2004, pp.41-58]. SaaS providers operate
entire server farms, which are targeted to produce the same standard of IT services
mass-customized to meet various customer needs.
In 2007, Salesforce.com had 29.800 customers with 646,000 paying subscribers.
The SaaS provider’s CRM software was operated in two data centers. As at the end
of 2008, a third data center was planned to be launched in Singapore [Tehrani
2007].
The manufacturing of IT service units in a SaaS solution can be compared to a black
box, which is owned and operated by the SaaS provider [Jayatilaka et al. 2003, Carraro/Chong 2006]. In general, customers know only little about, and have only limited
influence on, a SaaS provider’s manufacturing center (e.g., model and capacity of the
servers, name and internal structure of the database applications). Instead, the SaaS
provider informs the customer about the service levels of its IT services (e.g., response
time, or availability) [Ma et al. 2005]. Thereby, the service levels only refer to the
manufacturing process of the SaaS provider. In order to compute the service levels
perceived by the end-user, the service levels of the transportation part and of the order
and consumption part must also be considered [Menascé et al. 2004, p.13]. For instance, the response time of a core service produced with a SaaS service is composed
of the manufacturing time, the transportation time of the service requests and service
units, as well as the time it takes to display the content of the service on the end-user’s
screen. In 2007, Salesforce.com advertised a constant availability of 99.9%, NetSuite
provided an availability of 99.98%, and Taleo offered an availability of 97.0%. Thereby, the service levels only referred to historic data. The SaaS providers did not commit
publically to any specific service levels, which they can provide.
In addition to specific information about IT services, SaaS providers offer critical information on the management and operation of their data centers (e.g., location, security, memory space per customer, or outage recovery time) [Jayatilaka et al. 2003, Bona/Thompson 2007, Pescatore 2007].
• SaaS service. The SaaS service is an external service, which can be configured by
the internal IT service provider, but which is manufactured by the SaaS provider.
The external SaaS service can be compared to the output of an in-house manufacturing unit. As the SaaS service can be consumed with a generic user interface, i.e.,
Internet browser, the service must include in addition to business logic also the information on how the data should be displayed in the user interface. Against this,
in an in-house solution only the business logic must be included in a service. The
information to display a service is already available in the client enterprise software. The consumption of a SaaS service is in this thesis measured in seconds, relevant SLAs are response time and availability. The SaaS service can be measured
in service requests.
The transportation part of a SaaS production line resembles the one of an in-house
solution for long-distance service delivery:
• LAN. For very small end-user numbers, who are each directly connected to an Internet router, SaaS production lines function without a LAN. However, for larger
end-user numbers, SaaS production lines also require a local network.
• Internet. In order to create service requests, to deliver and consume core service
units a constant Internet access must be available. However, if a SaaS provider offers in addition to an online UI an offline UI, the Internet access must only be assured for the time when the data is updated with the server.
Similar to the in-house production line, the SaaS production line must contain an order
and consumption part. Owned by the customer, this order and consumption part resembles the one of an in-house solution. The main difference between the two solu-
112
tions lies in the software programs that end-users use to request and consume core
services.
• PC, Laptop, Cell Phone and Other Clients. In general, every device that supports
the required Internet browser can be used to consume SaaS services.
• CPU. The requirements of a client CPU in a SaaS solution resemble the ones of a
client CPU in an in-house solution.
• Internet Browser. The software program used as user interface to order and consume SaaS-based core services is the Internet browser. Most SaaS providers offer
SaaS services, which can be consumed on a wide range of Internet browsers. In
contrast to the client enterprise application, which is dedicated to a defined range
of core services, the application area of an Internet browser is broader.
SaaS providers, such as NetSuite, RightNow, Oracle on-demand, and Salesforce.com allow users to consume their applications on the most common Internet browsers, i.e., Internet Explorer or Firefox.
• OS. The Operating system in a SaaS solution has the same role as the OS in an inhouse solution. However, the OS requirements of the SaaS solutions are often fewer. This is because the customer is not limited to the proprietary client software
provided by the software vendor. Instead, the customer uses common Internet
browsers executable on a wide range of operating systems.
Electro Ltd.: Blueprints of IT Production Alternatives
For the realization of the IT service portfolio ‘IT support for CRM activities’, production engineering identifies three IT production alternatives: in-house production,
independent application provider, and SaaS provider (see Exhibit 58).
production
alternative 1 (PA1)
in-house production
manufacprovider: Electro IT Services
turing
server: serverTX32
CPU: Intel, Centrino Duo
server EA: CRM serverApp 1
OS: Windows XP
DBA: Oracle 9iDB
location: Zurich, Switzerland
transportaLAN: Ethernet 10 Gbit
tion
order &
client EA: client CRMApp 1
consumpCPU: Pentium II
tion
OS: Windows XP (min.)
production
alternative 2 (PA2)
independent app provider
provider: IBM
server: serverTX32
CPU: RISC
server EA: CRM serverApp 2
OS: Unix
DBA: SQL
location: Bern, Switzerland
LAN: Ethernet 10 Gbit
WAN: GigaClassServices
client EA: client CRMApp 2
CPU: Pentium II
OS: Windows XP (min.)
production
alternative 3 (PA3)
SaaS provider
provider: CRMSaaS.com
response time:
0.13 seconds
availability: 99,5%
location:
LAN:
WAN:
client app:
CPU:
OS:
Texas, USA
Ethernet 10 Gbit
Cablecom Internet
IE, Firefox
Pentium II
Windows XP, Vista
Exhibit 58. Blueprints of IT production alternatives [based on Scheeg 2005, p.146]
5.3.2 Blueprints of IT Development Alternatives
When a new IT production line is engineered, often several IT development alternatives exist. In analogy to industrial production, IT development alternatives are not
only limited to the internal creation of IT production lines (e.g., in-house software development). In fact, they also may include the procurement of entire production lines
or parts of it. In IIM for example, a part of a production line not self-developed may
be a SaaS solution, or an IT work center, such as packaged software. Often, the procured entities must be modified in order to satisfy the needs of the end-users.
The following characteristics can be used to roughly specify an IT development alternative [e.g., Scheeg 2005, pp.141-144, Schniederjans et al. 2005, pp.190-197].
• alignment of software functionality and functionality of core services
• development environment (e.g. case tool, operating system, database system)
• development period / required manpower
As software provides the functionality for core services, it represents a main work
center in an IT production line [Zarnekow 2006, p.89]. The functionality may be composed of individual software developed by internal service providers, packaged software procured from software vendors, or external services rented from SaaS providers. All three sources must offer the functionality specified for the defined core services. In case a functionality is not provided by the packaged software, or a SaaS solution, it should be possible to implement it in the development phase. A development
alternative is eliminated in the pre-selection phase, if the software does not allow to
add functionality which was identified as most relevant for the end-users.
Software-as-a-Service is often perceived to provide less functionality than packaged
software in the same application area [Gupta/Herath 2005, Dubey/Wagle 2007]. The
reasons for this may result from the SaaS provider’s former strategy to target SMEs,
the relatively young age of SaaS solutions; or restrictions because of the SaaS business model and its challenge of cost-efficiency (see Chapter 2.3.3). However, in recent
years SaaS providers have continuously enhanced their applications in order to reach a
new target group of large enterprises [Herbert/Martorelli 2008].
SAP’s SaaS solution Business ByDesign (BYD) will offer in its initial delivery phase
an 80% subset of the functionality. which is provided by its packaged software mySAP. With this functionality, SAP expects BYD to better meet the requirements of its
target group, small and medium sized enterprises with simple business processes.
Contrarily, SAP’s packaged software is targeted to large enterprises.
114
Since its foundation in 1999, Salesforce.com has been continuously extending its
software with functionality that today supports a variety of CRM activities. Furthermore, missing functionality can also be created in Salesforce.com’s development environment AppExchange.
Oracle offers its CRM solution as in-house solution, as hosted solution by independent application providers, and as on-demand solution. Oracle’s in-house and hosted
solution is identical software but delivered in two different ways. Thereby, Oracle’s
on-demand solution contains less functionality and is also more limited in its customization capability than its in-house solution.
To support customers in their evaluation process, software vendors and SaaS providers often offer trial versions of their software. Whereas software vendors provide trial
versions, which customers can download and install on their PCs, SaaS providers offer
their trial versions online without any installation needed. The provision of online trial
versions is emphasized as one of SaaS’ advantages. Nevertheless, the availability of
online trial versions differs among SaaS providers. Some providers allow a fast online
registration and testing. Others provide online trial versions of their service only in
combination with intense customer support. Against this, some SaaS providers do not
offer a trial version at all. Instead, they offer their customers a local presentation of
their software. Similarly, software vendors handle the provision of trial versions for
download differently.
Salesforce.com offers an on-demand trial version, which the potential customer can
use directly after registration. For BYD, SAP also plans to offer an online version for
which the potential customer can sign up. In addition, BYD will allow potential customers to convert the on-demand trial version into a run-time version. Contrarily,
Right Now and Siebel offer their CRM on-demand solutions only to potential customers considered as highly likely to purchase, and who are in contact with their sales
persons. Finally, some SaaS providers, such as Enviance or Target, do not provide
an online trial version at all. Instead, they offer a software demonstration for interested customers.
In order to better evaluate the alignment between software functionality and the functionality specified for the core services, many companies develop prototypes.
Plantronics developed a prototype based on a SaaS solution in order to test the response time of its subsidiaries, in particular in India and China. Likewise, Audi AG
implemented a prototype. One of the major goals of Audi’s prototype was to evaluate
a specific functionality for routing a lead, as well as, to promote the planned CRM
system at its dealerships.
Electro Ltd.: Blueprints of IT Development Alternatives
Based on the sales specifications of the planned IT service portfolio, Product Engineering identifies four IT development alternatives. Exhibit 59 outlines the characteristics of the identified IT development alternative.
development
alternative 1 (DA1)
in-house development
alignment of software
functionality & business
specified for IT product
development environment
• case tool
• operation system
• database system
labor resource
• development period
(approximately)
- software provides
complete functionality
Eclipse
development
alternative 2 (DA2)
packaged software
+ customization
- software does not
provide most relevant functionality
- missing functionality
can be implemented
Windows, Unix, Linux
Oracle, DB2
system specific development tool
Windows
SQL
12 months
3 months
development
alternative 3 (DA3)
SaaS solution A
+ customization
- software does not
can be implemented
- offered as complete
IT product by SaaS
provider
- accessible remotely
via Internet browser
development
alternative 4 (DA4)
SaaS solution B
+ customization
- software does not
can’t be implemented
- offered as complete
IT product by SaaS
provider
- accessible via
Internet browser
1.5 months
2 months
Exhibit 59. Blueprints of IT development alternatives [based on Scheeg 2005, p.144]
The first development alternative (DA1) represents an in-house development, which
meets the required functionality for the core services. Furthermore, it provides flexibility in the choice of technology for the development environment. However, the
internal IT service provider expects a relatively long development period compared
to the other alternatives.
The second development alternative (DA2) is based on packaged software, which
can be customized to the functionality most relevant for the marketing, sales, and
service department. Nevertheless, the technology that can be applied for the development environment is more limited compared to the first alternative.
Finally, development alternatives 3 and 4 (DA3, DA4) are based on rented SaaS solutions. Thus, their development environments are provider specific. The shorter development period of both alternatives is advantageous. However, the alternatives
differ in their customization capability. DA3 can be customized to meet the most
relevant requirements, whereas DA4 is rather limited.
116
5.3.3 Decision-Making by Internal IT Service Provider
In order to eliminate IT solutions, which are not feasible, production engineering enters combinations of IT development and IT production alternatives, (i.e., IT solutions) in a two-dimensional feasibility matrix [Scheeg 2005, pp.144-147]. Development alternatives are arranged horizontally, whereas production alternatives are arranged vertically. The matrix is composed of m columns and n lines, if m development and n production alternatives were identified. If several IT solutions are selected
as feasible, a further quantitative cost and benefit analysis is necessary to determine
the optimum solutions for the IT service provider and customer company.
A qualitative evaluation of the IT solutions should consider in particular the following
two aspects:
• Ability to Fulfill IT Product Contract. From the IT product contract, the core services selected by the contractor can be used for a comparison of SW functionality
and the functionality of the core services. Thereby, core services, which are referenced in several IT products, can be identified as highly relevant. Thus, when selecting an IT solution, production engineering should evaluate if the packaged
software or the SaaS solution specifically provides these services. If core services,
which are less used , cannot be realized with the evaluated packaged software, the
contractor must be contacted to discuss a possible elimination of the critical IT services from his IT product. Furthermore, in the SaaS solution, the service levels provided by the SaaS provider can be evaluated. If, for instance, the response time of a
SaaS already exceeds the minimum response time defined in the sales specification,
the IT solution must be eliminated or a possible decrease of the SLAs must be discussed with the contractor.
• Ability to Fulfill Corporate IT Requirements. As well as customer requirements,
corporate IT requirements (e.g., IT outsourcing strategy, strategic software or outsourcing partner, security regulations, degree of standardization) must be evaluated.
For instance, if the company has never outsourced any IT before, if the data to be
outsourced is very sensitive, or if governmental regulations do not allow the outsourcing of specific data, a SaaS solution may be already eliminated in this preliminary decision phase. Another eliminating factor might be that the company has a
strategic SW vendor or outsourcing partner.
Electro Ltd.: Pre-Selection of IT Solutions
Based on the identification of four development and three production alternatives,
production engineering generates the subsequent feasibility matrix (see Exhibit 60.
next page).
development
alternative 1 (DA1)
in-house development
production
alternative 1 (PA1)
in-house deployment
production
alternative 2 (PA2)
independent application
provider
production
alternative 3 (PA3)
SaaS provider
development
alternative 2 (DA2)
packaged software
+ customization
development
alternative 3 (DA3)
SaaS solution
+ customization
development
alternative 4 (DA4)
SaaS solution
+ customization
(√)
√
in-house
―
(√)
(√)
(√)
(√)
(√)
―
―
√
SaaS
(√)
Exhibit 60. IT Feasibility Matrix [based on Scheeg 2005, p.147]
The symbols applied in the matrix can be explained as follows:
‘―’ represents IT alternative combinations, which are under no circumstances feasible. For example, the combination DA1/PA3 is not realistic as a pure SaaS provider
does not host internally developed software (see Chapter 2.3.3)
‘(√)’ represents IT alternative combinations, which have been eliminated because of
certain restrictions specified for an IT service portfolio. For instance, production engineering opposed all combinations, which included the alternative DA1. The reason
for this is that it would not be possible with DA1 to deliver the IT product according
to the first delivery date specified in the IT product contract. Furthermore, all combinations, which include the alternative DA4 were eliminated as the SW functionality
of the alternative was not compliant with the sales specifications of the IT service
portfolio. Finally, IT alternatives, which included the alternative PA2 were eliminated as production engineering identified a risk of miscommunication between the selected independent application provider and the software vendor.
‘√’ represents the IT solutions which were chosen for a further evaluation. The following two IT development / production combinations were selected:
• IT solution 1: In-House (DA2 / PA1)
• IT solution 2: SaaS (DA3/PA3)
The following real cases illustrate strong qualitative indications, which were used in
investment analysis to decide against or in favor of a specific IT solution.
In fall 2006, Audi planned to develop a new IT solution to support its global dealers
in their lead management processes. In this context, Audi conducted an investment
analysis, which was largely based on SW functionality requirements. In the study,
Audi analyzed two packaged software and four SaaS solutions in the area of CRM.
One SaaS solution stood out as it met many of the SW requirements for a compara-
118
tively small price. However, in the course of the project planning, the requirements
for the new solution were extended to support a broader range of CRM processes.
The previously favored SaaS solution could not provide the needed functionality anymore, and was therefore eliminated from the short list.
Contrarily, in the case of the company Empirix, the eliminating factor for a packaged software solution deployed in-house was the longer time period of the development project. In 2003, the start-up company needed IT support within a short
time period. However, at that time, caused by the Internet boom, it was not possible
for the company to develop an internal IT infrastructure on time. In particular,
servers were in short supply, and IT salaries were high. Thus, the company decided
for a SaaS solution.
Plantronics’ evaluation of IT solutions was based on the following corporate IT
strategy. Software of the company’s strategic software vendor had to be chosen if it
met the defined requirements. Otherwise, a SaaS solution was preferred. Amongst
other reasons, Plantronics finally decided for a SaaS solution because the packaged
solution provided by the standard SW vendor did not fully provide the required
functionality.
Phase 3 – Manufacturing Specification of In-House & SaaS Solutions 119
5.4
Phase 3 – Manufacturing Specification of In-House & SaaS Solutions
Purpose:
to specify IT development and IT production alternatives for a quantitative evaluation
Role:
product engineering, production engineering, resource management, sourcing
Activities:
- develop for each IT production alternative the bill of services (BOS) of all IT services
provided by the new IT service portfolio,
- define for each IT production alternative the work plans for the maintenance services
- develop for each IT development alternative a project plan
Input:
sales specifications, blueprints of IT development & IT production alternatives, shortlist of
feasible IT solutions
Output:
BOS of core and support services, work plans of maintenance services, & project plans of IT
development alternatives
Proceed with:
phase 4 (i.e., capacity requirements planning for in-house and SaaS solutions)
In the previous phase, the feasible IT solutions were identified based on an initial qualitative evaluation. In this phase, the IT development and IT production alternative of
the preselected IT solutions are further specified. For each IT development alternative,
the role production engineering designs a project plan for the development of the IT
production lines. It describes the milestones, as well as the required resource capacities of the project. Similarly, for each IT production alternative, the role product engineering describes the bill of services (BOS) of all core and support services to be provided by the IT service portfolio. Thereby, in analogy to the bill of materials in industrial manufacturing, the BOS is a parts list that describes in which quantities preliminary IT services (i.e., internal resource capacities and external IT services) are consumed to build a single IT service unit [Vogedes et al. 2008b]. In addition to the bills
of services, production engineering defines the work plans for the maintenance of the
IT resources. The detailed information on the IT development and IT production alternatives enables the internal IT service provider to develop sound cost and benefit
assumptions in the following phases. The increased evaluation effort is justifiable as
80% of IT costs are determined in the specification phase of an IT solution [Baumöl
1999, p.145]. Exhibit 61 illustrates the meta model of this phase.
develops
product
engineering
contains
IT production
alternative
bill of
services
references
contains
IT service
composed
of
preliminary
composed
of
IT service
project plan
enables
IT development
alternative
describes
project plan
composed of
develops
capacity
provides
resource
owns /
operates
composed
of
sourcing
resource
management
sources
external IT
service
provides
production
engineering
supplier
120
5.4.1 Bill of Services & Work Plans of IT Production Alternatives
In order to determine how much capacity must be provided by the resources in the IT
production lines described in Chapter 5.3.1, it is essential to know how many IT service units must be produced at one time bucket, and how much resource capacity is
consumed to manufacture one IT service unit. Whereas the production plans specified
in phase 1 address the first question, the second question is answered in this phase
through the description of bill of services (BOS).
BOS is adopted from the concept of bill of material (BOM), which is commonly practiced in Manufacturing Resource Planning 2 (MRP 2). In MRP 2, bill of materials is
the “definition of a final product” that “includes a list of the items, ingredients, or materials needed to assemble, mix, or produce that end product” [Fogarty et al. 1991,
126]. The BOM is created in the design phase of a product and is used in various
ways. For instance, manufacturing engineers apply the BOM to specify which components should be manufactured, and which should be purchased. Against this, accounting uses the bill of material to cost a product. In industry, many types of BOM are applied, including single level BOM, multilevel or intended BOM, planning BOM, or
manufacturing BOM [Oden 1993, p.95, Plossle 1995, pp.39-45]. Every BOM serves a
different purpose.
Whereas the BOM defines the tangible materials of which a product is composed, the
BOS used in the IIM lists the intangible preliminary IT services used to manufacture a
core or support service [Hochstein et al. 2008c, Vogedes et al. 2008b]. In the BOS, the
quantities of preliminary IT services to be consumed and the units of measure are explicitly defined. In the context of this thesis, the BOS is adapted from the multi-level
BOM, which is often used in MRP 2 and MPS computation. It defines exactly the
number of manufacturing levels and the number of preliminary IT services consumed
on each level. Furthermore, the multi-level BOS informs about the order in which an
IT service is manufactured, i.e., the sequence of operations. Chapters 5.4.1.1 and 0
illustrate exemplarily bill of services for selected core and support services. The examples were designed according to the BOS development principles derived from
manufacturing resource planning [Sheikh 2003, pp.391-392]:
• The information of a BOS should be complete satisfying the needs of the IIM roles
using it (e.g., sourcing, resource management, controlling),
• The preliminary IT service ID should be unique,
• All preliminary IT services in the BOS should be additive,
• The hierarchy level of the BOS should be as shallow as possible.
Concluding, in Chapter 5.4.1.3, work plans for maintenance services are defined.
For a comprehensive comparison of the feasible IT production alternatives that produce core services, it is necessary to describe for each alternative the BOS of all core
services provided by the new IT service portfolio (see Chapter 5.4.1.1). The parts of
the BOS (i.e., the preliminary IT services to be consumed for the creation of one core
service unit) can be directly derived from the blueprints of the IT production lines.
Each resource defined in the blueprints provides capacity, which is consumed as preliminary IT service in order to create one core service unit. Thereby, resource capacities of a supplier incorporate into the production process as external services. Exhibit
62 outlines the preliminary IT services that are typically referenced in a BOS of a core
service. The type of capacities provided by the IT production lines differ slightly between the in-house and SaaS solutions.
manufacturing part
description
unit
basic server
service
server
EA service
DBA service
instr.
instr.
SaaS service
requests
instr.
provided by
internal
ISP
internal
ISP
internal
ISP
SaaS provider
transportation part
description
unit
LAN service
kb
WAN service
kb
provided
by
internal
ISP
supplier
Internet
service
kb
supplier
order & consumption part
description
unit
basic client
service
client
EA service
web browser
service
instr.
instr.
instr.
provided
by
internal
ISP
internal
ISP
internal
ISP
Exhibit 62. Resource capacities provided by in-house and SaaS IT production lines
[adapted from Menascé et al. 2004, p.14]
As illustrated in Exhibit 63 (see next page), the second BOS level of a core service is
identical for all identified IT production alternatives. Each core service is decomposed
into typical activities of a remote procedure call (RPC). A RPC is a protocol that uses
the client-server model to send a service request from a client over a network to the
server receiving in return the reply generated by the program on the server [Mahmoud
2004, Österle et al. 2007, p.14]. In the context of the fictitious example and the IT
production lines identified in Chapter 5.3.1, the core service ‘view customer profile’
can be exemplarily divided into the following five RPC activities:
1. Create Service Request. Initiated by the incoming call of a business customer, the
end-user, e.g., a call center agent, uses the CRM client application to formulate a
request to the server. For this, he enters the customer identification (ID) number
into the system and completes the action by clicking on ok.
2. Send Service Request. The service request is sent over the network to the enterprise
CRM application located on the server. The transmitted information includes the
customer ID, as well as the end-user ID of the call center agent. The network may
be a local area network (LAN) and/or the Internet.
122
IT Solution 1: in-house
level 1: core services
level 2:
preliminary IT services
(RPC activities)
create
service request
level 3:
preliminary
IT services
( internal
resource
capacities
& external
services)
basic client
service
client EA
service
send
service request
LAN service
WAN
service
(optional)
view
customer profile
process
service request
basic server
service
server EA
service
provided by
supplier
send
service reply
display
service content
basic client
service
LAN service
WAN
service
(optional)
client EA
service
send
service reply
display
service content
DBA service
IT Solution 2: SaaS
level 1: core services
level 2:
preliminary IT services
(RPC activities)
create
service request
send
service request
basic client
service
LAN service
(optional)
web browser
service
internet
service
view
customer profile
process
service request
SaaS service
LAN service
(optional)
basic client
service
internet
service
web browser
service
Exhibit 63. In-House & SaaS – Sample BOS of a core service
3. Process Service Request. The enterprise CRM application interprets the request,
and creates an SQL command, which the application sends to the database system.
Based on this request, the database system searches the database and returns the
data result of the query (i.e., the information about the business customer).
4. Send Service Reply. The enterprise CRM application sends the result over the network to the client application.
5. Display Service Content. The client CRM application on the end-user’s desktop
receives the reply and displays it on the screen.
As described before, the second BOS level of core services are identical regardless of
in-house versus SaaS production alternative. However, with regard to the service levels (e.g., response time, availability) the RPC activities may differentiate. This is because the same activities of different IT production alternatives may be composed of
different internal resource capacities and external services. Consequently, as the service levels of the RPC activities differ between the IT production alternatives, the service levels of the core services are also not equal. In the following, the general differences on the third BOS level are described for each IT production alternative.
IT Solution1: In-House
The activities ‘create service request’ and ‘display service content’ consume mainly
capacities that are completely created by resources located on the end-user’s desktop.
Whereas all capacities provided by the client enterprise application, i.e., the CRM application, are designated for the production of core services of a particular IT service
portfolio, namely ‘IT support for CRM activities’, other resources of the server (operating system, CPU, disc, etc.) may also be involved in the production of core services
of other IT service portfolios. The activities ‘send service request’ and ‘send service
reply” consume mainly network capacities created by the resource LAN and WAN.
As the internal IT service provider owns the network, the LAN service is also produced in-house. The resources located on the server (i.e., server enterprise application,
database application, operating system, CPU, and disc), which are owned and operated by the internal IT service provider, execute the activity ‘process service request’.
Depending on the core service, i.e., simple versus complex, capacity demand for resource capacities may differ. In contrast to the resources on the client desktop, the resources on the server are often exclusively used for one specific server application.
IT Solution 2: SaaS
The preliminary IT services required to produce the activities ‘create service request’
and ‘display service content’ resemble the preliminary IT services of the same activities generated by the in-house IT production line. However, instead of a client application, an Internet browser and a SaaS user interface is used to create the request. The
activities ‘send service request’ and ‘send service reply’ are produced based on network services provided by an external Internet provider, as well as preliminary IT services provided by the router owned and operated by the internal provider. In contrast
to the in-house creation of the activity ‘process service request’ in the SaaS solution
the production of the same activity is completely outsourced to the SaaS provider.
Electro Ltd.: Bill of Services of Core Service ‘View Customer Profile’
Based on the blueprints of the identified IT production lines (see Exhibit 57, p.107),
product engineering develops BOS for all core services to be provided by the new IT
service portfolio. Exemplarily, Exhibit 64 illustrates the BOS for the core service
‘view customer profile’, which were reached based on the following assumptions. In
both IT solutions, the instructions required from the client CPU are rather small, as
the content of the core service is generated on the server. Furthermore, the kb required to send the service requests to the server are marginal, as they only contain
the user ID of the call center agent and the customer ID. Against this, the service
content returned to the client requires several kb from the LAN as it contains various
124
customer information (name, address, transactions, etc.). However, the activity
‘process service request’ differs largely between the two BOS as only the SaaS interface, i.e., the SaaS service, is transparent in the BOS. No capacity information on
how this service is produced are available. Against this, in the in-house solution the
basic server service, the server EA service, and the DBA service are listed.
BOS level
1 2 3
IT solution 1 – In-House: BOS of core service ‘view customer profile’
ID
name
type
X
CSE_012
X
X
PSE_114
PSE_230
PSE_145
create service request
clientX61 service
CRM client App 1 service
basic client service
client EA service
Electro IT Services
Electro IT Services
instr.
instr.
1
2
X
PSE_222
PSE_701
send service request
10 Gbit Ethernet service
LAN service
Electro IT Services
kb
1
X
X
X
PSE_352
PSE_432
PSE_021
PSE_470
process service request
serverTX32 service
CRM server App 1 service
Oracle 9i DB service
basic server service
server EA service
DBA service
Electro IT Services
Electro IT Services
Electro IT Services
instr.
instr.
instr.
3
2
1
X
PSE_436
PSE_701
send service reply
LAN service
Electro IT Services
kb
64
X
X
PSE_578
PSE_230
PSE_145
display service content
clientX61 service
client EA service
Electro IT Services
Electro IT Services
instr.
instr.
X
X
X
X
X
provided by
unit
quantity
5
1
2
BOS level
1 2 3
IT solution 2 – SaaS: BOS of core service ‘view customer profile’
ID
name
type
X
CSE_012
X
X
PSE_135
PSE_230
PSE_078
create service request
clientX61 service
Internet Explorer 7.0 service
web browser service
Electro IT Services
Electro IT Services
instr.
instr.
1
2
X
X
PSE_245
PSE_701
PSE_895
Cablecom Internet service
LAN service
Internet service
Electro IT Services
Cablecom
kb
kb
1
1
X
PSE_353
PSE_762
CRMSaaS.com (basic) service
SaaS service
CRMSaaS.com
X
X
PSE_479
PSE_701
PSE_895
send service reply
LAN service
Internet service
Electro IT Services
Cablecom
kb
kb
X
X
PSE _563
PSE _230
PSE_078
display service content
clientX61 service
Internet Explorer 7.0 service
web browser service
Electro IT Services
Electro IT Services
instr.
instr.
X
X
X
X
X
provided by
unit
quantity
requests
1
1
64
1
2
Exhibit 64. In-House & SaaS – BOS of core service ‘view customer profile’
5
In this thesis, for each CPU instruction of the server EA service and the DBA service, one CPU instruction of
the basic server service is consumed. Thus the instruction number of the basic server service is composed of
the instruction number of the server EA service and the DBA service (i.e., 3 = 2+1).
In addition to the identification of the BOS of core services, for a sound evaluation of
the IT production alternatives also the BOS of support services must be developed. As
support services are largely based on capacities provided by human resources, the
composition of the BOS, i.e., the selection of human services, has a significant influence on the costs of the IT production alternatives. Thus, in order to focus on the most
cost-intensive resources, the IT resources ‘information’, ‘network’, ‘application’, and
‘hardware’ will not be covered in this chapter about the BOS of support services. The
bill of services provides a first indication of the service level fulfillment of support
services.
Labor capacities consumed to create support services can be divided into three groups:
First, capacities offered by the roles of the internal IT service provider (see IIM role
model of IT service provider described in Chapter 2.2.3). Second, capacities offered
by suppliers, such as SaaS providers, software vendors, and business consultants.
Third, capacities offered by the customer participating in the service co-production
process. Exhibit 65 lists a selected number of human services to be referenced in the
BOS of support services, work plans of maintenance services, as well as project plans
of development projects.
description
product management services
account management services
production engineering services
product engineering services
sourcing services
resource management services
production management services
delivery management services
SaaS human services
software vendor services
consultant services
end-user services
contractor services
unit
person
hours / days / min.
provided by
person
hours / days / min.
supplier
person
hours / days / min.
customer company
Exhibit 65. Human resource capacities used for the creation of support services
The difference between the BOS structure of core and support services is substantial.
Whereas the bills of services of core services are often based on the same RPC activities, the bill of services of support services differ largely in activities, selection of capacities, and aimed service levels. For instance, the service ‘enable end-user’ requires
labor capacities of only a few minutes. Against this, the service ‘change request’ may
use labor capacities for up to several days. The following paragraphs on the BOS of
typical support services explain the similarities and differences between the bills of
services of in-house versus SaaS solutions.
126
• Enable End-User. The BOS of this support service shows only marginal differences between the two IT solutions if it is consumed without any optional preliminary
services. The first subcomponent of ‘enable user’ is the activity ‘provide end-user
information’, which is realized through the consumption of manager services. The
activity is followed by the two activities ‘create user ID & assign it to profile’ and
‘send login information’, both built on delivery management services. However,
the bills of services differ between the two IT solutions due to the need to install
client software on the end-user’s PC. Thus, in the in-house BOS, the installation
file must be sent to, and installed by the end-user. Contrarily, in the SaaS BOS, the
end-user must only activate his account. Regarding the fulfillment of service levels, the in-house BOS requires from the end-user a higher involvement in the coproduction process as the software installation causes a timely restart of the PC.
The support service ‘enable end-user’ differs strongly due to the two optional preliminary services available in the in-house solution, namely ‘resolve SW installation problem’ and ‘upgrade client OS’. Thereby, the frequency in which, the two
optional services are consumed depend significantly on the existing condition of
the client PC, and the technical knowledge of the end-user.
IT Solution 1: in-house
enable end-user
provided by
customer company
level 1:
support services
level 2: preliminary services (activities)
provide
end-user
information
create enduser ID &
assign it to
profile
send
installation
file
send
login
information
resolve SW
installation
problem
(OPTIONAL)
run
installation
file
upgrade
client OS
(OPTIONAL)
level 3: preliminary services (resource capacities)
manager
service
delivery
mgmt.
service
delivery
mgmt.
service
delivery
mgmt.
service
IT Solution 2: SaaS
enduser
service
enable end-user
delivery
mgmt.
service
enduser
service
delivery
mgmt.
service
level 1:
support services
level 2: preliminary services (activities)
level 3:
preliminary services
(resource capacities)
provide end-user
information
create user ID &
assign it to profile
send
login information
activate
end-user
manager
service
delivery mgmt.
service
delivery mgmt.
service
end-user
service
Exhibit 66. In-House & SaaS – Sample BOS of a support service
Exhibit 66 illustrates for the two IT solutions in-house and SaaS the multi-level
BOS of the support service ‘enable user’. The component order represents the sequence in which the service is manufactured.
• Train End-User. The BOS of the support service ‘train user’, which may be of type
online or face-to-face, does often not differentiate between the two IT solutions. In
the online option, the BOS only contains one component, i.e., the activity ‘attend
training’, which is produced based on end-user services. In the face-to-face option,
a second BOS component is referenced. This component is represented by the activity ‘teach end-user’. The role delivery management of the internal IT service
provider executes this activity. In addition, the SaaS provider may offer a training
specially designed to educate the trainers, i.e., the role delivery management.
• Help-Desk. For the in-house, as well as for the SaaS solution, this service may be
composed of delivery management services provided by the internal IT service
provider. Thereby, with increasing support levels (i.e., first to third level support) a
higher qualification is required by the role delivery management. On the third support level, additional support services provided by the software vendor or the SaaS
provider might also be necessary. Often, the support may also be completely ousourced to the SaaS provider. The service levels depend in both options on the
availability and qualification of the human resources involved in the production of
this support service.
• Set-Up Business Unit. For both IT solutions, this support service is composed of
the same elements. The customer, i.e., the contractor, must deliver business data
and business process models to the role account management. Based on this information, the roles product engineering and production engineering adjust the
server enterprise application or the SaaS solution and import the data. External
consultants may support the set-up of the business unit. The service is in general
consumed in combination with the service ‘enable user’.
• Change Request. The bills of services of the IT service ‘change request’ are almost
equal for both IT solutions. The contractor requests the role account management
to modify the enterprise application or SaaS solution. Based on this information,
the roles product engineering and production engineering evaluate the feasibility
and costs of the change request. If the change request is approved, the two roles
conduct the changes. Differences between the two BOS may occur with regard to
the service level ‘user satisfaction’. This is because the ability to customize might
be less for a SaaS solution compared to an in-house solution. Thus, fewer change
requests might be completed in the SaaS solutions.
• Upgrade Software. The BOS of this service differ significantly between the two IT
solutions. Only consumed in average every 18-24 months, the software upgrade of
an in-house solution resembles in effort and duration a complex development
project (see Chapter 5.4.2). Against this, in a SaaS solution the software upgrade
128
activities are almost completely outsourced to the SaaS provider. The internal IT
service provider is only responsible for the provision of test data, the enablement
of new features, and the end-user information about new features. Regarding service levels, in the SaaS solution the customer is less flexible in determining the
rollout date increasing the risk that the upgrade might be conducted during critical
business times for the contractor.
Electro Ltd.: Bill of Services of Support Services
For all support services to be provided by the new IT service portfolio (see Chapter
5.2.2.2), product engineering develops a BOS. Exhibit 67 exemplifies the BOS of the
support service ‘enable end-user’.
BOS level
1 2 3
IT solution 1: In-House – BOS of support service ‘enable end-user
ID
name
provided by
X
SSE_003
PSE_431
enable end-user
provide end-user information
PSE _980
manager service
PSE _148
create user ID & assign it to profile
PSE _540
delivery mgmt services
PSE _831
send installation file
PSE _540
PSE _976
send login information
PSE _540
PSE _032
run installation file
PSE _185
PSE _187
end-user service
X
PSE _540
X
PSE _185
PSE _403
upgrade of client operating system (OPTIONAL)
PSE _540
X
X
X
X
X
X
X
X
X
X
X
X
X
minutes
5
Electro IT Services
minutes
15
Electro IT Services
minutes
3
Electro IT Services
minutes
2
Electro Ltd.
minutes
12
Electro IT Services
minutes
76
end-user service
Electro Ltd.
minutes
16
Electro IT Services
minutes
120
resolve SW installation problem (OPTIONAL)
IT solution 2: SaaS – BOS of support service ‘enable end-user
ID
name
X
SSE_003
enable end-user
X
PSE_431
PSE_980
provide end-user information
manager service
X
PSE_148
PSE_540
X
PSE_976
PSE _540
X
PSE_587
PSE_185
activate user
end-user service
X
X
X
quantity
Electro Ltd.
BOS level
1 2 3
X
unit
provided by
unit
quantity
customer company
minutes
5
minutes
15
minutes
2
customer company
minutes
1
Exhibit 67. In-House & SaaS – BOS of support service ‘enable end-user’
Generally, the time to complete this service is rather small. The regular demand for
labor capacities of the internal IT service provider is rather similar between the two IT
solutions (i.e., 20 vs. 17 minutes). The end-user involvement differs more significantly
(i.e., 17 vs. 6 minutes). However, large differences between the two BOS exist for the
exceptional cases, i.e., if a SW installation problem must be resolved, or the client OS
must be upgraded.
5.4.1.3 Maintenance Services
Core and support services are customer-facing services. The customer company requests and consumes these services. However, in order to retain reliable and secure IT
production lines further IT services, i.e., maintenance services, must be executed in
the background. Maintenance services are executed on a regular basis by the role
‘management of IT service production’ (see Chapter 2.2.3). Thereby, work plans inform about the date and time when a maintenance service must be performed for a
defined IT resource or external IT service. The frequency and volume of these services must be planned with the objective to support the fulfillment of the SLAs and the
sales plans defined for the core services (see Chapters 5.2.2 and 5.2.3). The following
services are adapted from the list of ‘common service operation activities’ recommended by ITIL [ITIL 2007b, pp.81-102]. The structuring of maintenance services are
specifically developed for this dissertation. This structure can be adjusted to a company’s specific requirements.
In an in-house solution, the internal IT service provider must perform six key services.
• Server Management. The service ‘server management’ must ensure the reliability
and security of the server. It contains activities, such as the maintenance of the operation system, license management, monitoring and control of the server performance, as well as the system access.
• Network Management. Network management is crucial for the reliability and efficiency of the IT service delivery. Main activities of this service are the maintenance of the physical network infrastructure, monitoring of network traffic, insurance of network security, and the management of Internet Service providers.
• Database Administration. This service ensures the optimal security, functionality
and performance of the databases. It includes the maintenance and management of
database standards, the monitoring of the transactions, DB availability and performance, as well as the reporting and control of database security issues.
• Storage & Archive. This service is concerned with the storage and archive of the
data. Activities of this service are the specification of data storage policies and
procedures, the storing of data, as well as the retrieval of archived data.
• Facilities & Data Center Management. This service includes activities, such as
building management, equipment housing, power management, employee safety,
physical access control, contract management, and maintenance of facilities.
130
• Monitoring & Control. This service ensures that the actual service levels of the
core services meet the SLAs defined in the sales specification. Thus, it monitors,
reports the service levels, and if necessary initiates regulatory actions.
IT Solution 2: SaaS
In the SaaS solution most of the maintenance services, except ‘network management’
and ‘monitoring & control’ are outsourced to the SaaS provider. In addition, the following service is required for a SaaS solution.
• Management of SaaS Providers. In the SaaS solution, the management of the interface to the SaaS provider is of particular relevance. On a regular basis, the actual
service levels offered by the SaaS provider must be compared to the SLAs defined
in the SaaS contract. If service levels are below the goal values, the SaaS provider
must be informed, and reactive actions must be demanded.
Electro Ltd.: Work Plans for Maintenance Services
Based on the blueprints of the IT production lines (see Exhibit 57, p.107), production
engineering schedules for both IT solutions, the provision of maintenance services
(see Exhibit 68). The labor capacity demands are based on an average demand for
regular and exceptional maintenance activities. Thereby, the work plan is developed to
assure the service levels of the internal IT resources and external IT services, guaranteeing the SLAs of the core services (see Exhibit 43, p.90).
In-house: consuming internal IT resource
ID
name
maintenance service
labor capacities required for maintenance service
ID
name
provided by
RES_432 serverTX32
MSE_431
server mgmt.
Electro IT Services
MSE _976
facilities mgmt.
MSE _148
database admin.
MSE_540
MSE_980
MSE_194
RES_470 Oracle 9i DB
RES_701 10 Gigabit Ethernet
ISPO_56
IT support for CRM activities
hours./ week
5.5
hours/day
1.10
janitor
1
0.20
Electro IT Services
3
0.60
storage & archive
Electro IT Services
4
0.80
network mgmt.
monitoring & control
Electro IT Services
Electro IT Services
0.5
0.10
2
0.40
6
workload of Electro IT Services (roles: sourcing, resource management & production management ): 3 hours/day
workload of role janitor: 0.2 hours/day
SaaS: intern. IT resource/extern. IT service
ID
name
maintenance service
labor capacities required for maintenance service
ID
name
provided by
hours./ week
hours/day
ESE_762
MSE_458
mgmt. of SaaS
providers
Electro IT Services
1
0.20
RES_701 10 Gbit Ethernet
MSE_980
network mgmt.
0.10
MSE_980
MSE_194
network mgmt.
Electro IT Services
Electro IT Services
0.5
ESE_895
0.1
0.02
Electro IT Services
2
0.40
CRMSaaS.com (basic)
Cablecom Internet
ISPO_56 IT support for CRM activities
workload of Electro IT Services (roles: sourcing, resource management & production management): 0.72 hours/day
Exhibit 68. In-House & SaaS – Work plan for maintenance services
6
For a distribution of labor capacities to the roles sourcing, resource management and production management
see Exhibit 81, p.152
The work plan is only valid for a business week of 5 days, i.e., no maintenance services are scheduled for the weekends. In the SaaS solution, the operation of most IT resources is outsourced to the SaaS provider. Consequently, the two work plans differ in
the defined maintenance services.
5.4.2 Project Plans of IT Development Alternatives
In IT production alternatives, bills of services are used to define the capacities required to generate a service unit of core or support services. In combination with the
sales plans, BOS provide the basis to compute the resource demands and costs of all
service units to be manufactured during the entire lifetime of an IT service portfolio.
Additionally, work plans define the required capacities to maintain internal IT resources and to manage external services. The resource capacity demand of the IT development alternatives, i.e., the capacity demand for the IT project, is evaluated based
on project plans.
IT serviceinvestment
analysis
development project (focus of evaluation)
detailed concept
of
of alternative
detailed
concept ofrealization
IT production
IT production
IT production
alternative
alternative
introduction of
IT production
alternative
IT Solution 1: in-house project activities
- check availability of
resources
- negotiate prices with
SW and HW vendors
- define changes to be
made to packaged SW
- set-up hardware
- install software
- enable development-user
- customize software
- import test data
- enable test-user
- test software
- define maintenance services
- train IT employee
- set-up business unit
- train user
- enable end-user
IT Solution 2: SaaS project activities
- negotiate prices with
SaaS provider
- define changes to be
made to SaaS solution
- enable development-user
- customize SaaS solution
- import test data
- enable test-user
- test software
- define controlling concepts
- train IT employee
- set-up business unit
- train user
- enable user
Exhibit 69. In-House & SaaS – Project phases and activities
Exhibit 69 shows the general phases and activities of a project plan. A project plan can
be used for the planning, scheduling, evaluation, and management of various initiatives, such as investment projects, product development projects, organization development projects, or IT projects [Kuster et al. 2006, p.7]. Regardless of the project
type, every project plan contains a summary of activities and milestones [IMG 1997,
132
p.20, Litke 2007, pp.83-85]. Thereby, similar to the activities referenced in the BOS,
the activities of the project plan are executed based on preliminary IT services, i.e., IT
and human resource capacities (see Exhibit 62, p.121 and Exhibit 65, p.125). The
overall goal of a project plan is to achieve the appropriate balance between project
duration and resource usage that is compliant with the project objectives.
For every IT development alternative, the role production engineering develops one
project plan, which serves as the basis for an initial resource allocation and cost analyses. The project plan describes on a high level the main activities and resource types
of the project [IMG 1997, pp.20-21]. Thus, instead of specific employees, the plan
allocates general resource types (e.g., roles of internal IT service provider, suppliers)
to activities. Furthermore, the initial project plan illustrates dependencies between the
activities, as well as critical paths and bottlenecks. A bottleneck exists when an activity cannot start until other activities have completed causing idle resources and project
delays [Bonham 2004, p.168]. Once the decision for one IT solution is reached, the
project plan of the finally selected IT solution can be reused. Specified in more detail
and continuously updated to project changes, the project plan then serves as management and controlling tool to govern the realization of the IT production alternative.
For the development of project plans a wide range of software tools are available. A
common technique to model project plans are Gannt diagrams (for an example of a
Gannt diagram see Exhibit 70, p.135).
In the IT service-oriented investment analysis method, project plans are developed
based on the initial agreements between the internal IT service provider and the customer company. For instance, the project end date must be prior to the first delivery
dates of the IT products (see Chapters 5.2.1). The start date of a project will depend on
the existing workload of the internal IT employees.
In practice and in academia numerous methods and guidelines about planning and
management of IT projects exist, [e.g., Bonham 2004, IMG 1997, Kuster et al. 2006,
Litke 2007]. The project plans proposed by these sources are commonly composed of
five sequential phases: ‘initialization’, ‘high-level concept’, ‘detailed concept’, ‘realization’, and ‘introduction’. The method for IT-service-oriented decision-making resembles the first two phases of the traditional IT project plan, i.e., initialization and
high-level concept. The remaining phases, however, are part of the development
project of the IT production alternative. Therefore, to evaluate the potential IT solutions, for each IT development alternative a development project containing the phases ‘detailed concept’, ‘realization’, and ‘introduction’ must be determined (see Exhibit
69, p.131).
In the following, the development project phases of the in-house and the SaaS solution
are analyzed. The comparison, which is based on publications on traditional IT
projects, as well as case study research of SaaS customers, shows equally overlaps and
differences in the main activities and resources specified for the two IT solutions.
• Detailed Concept of IT Production Alternative. After the decision for one IT solution is reached, the IT solution must be designed in more detail. In an in-house solution, the role resource management will first analyze the availability of the IT
and human resources required for the new IT production line [e.g., Kuster et al.
2006, pp.50-58]. If new resources must be procured, the role source management
will negotiate with several suppliers the prices of the required hardware and software (e.g., server hardware, server and client enterprise application, database application, etc). Depending on the degree of utilization of the existing IT employees, new employees might need to be recruited. Finally, the roles product engineering and production engineering will define, with the support of key users,
the customization requirements for the packaged enterprise software.
• Realization of IT Production Alternative. In this phase, in the in-house solution,
the role production engineering will set-up test and implementation environments
consisting of the HW and SW, which were defined in the blueprints of the IT production lines. Furthermore, production engineering will create the developmentand test-users, and import the test data. Depending on the alignment between the
SW functionality and the specified functionality of the core services, the following
customization and testing is more or less laborious. In general, customization and
testing is in most IT projects a time-consuming undertaking. In a final activity, the
maintenance services for the production phase must be determined. If a new IT
employee is recruited, the IT employee must be trained for the maintenance of the
new IT solutions, and to for the provision of support services (e.g., ‘train enduser’, ‘change request’ or ‘set-up business unit’).
• Introduction of IT Production Alternative. The introduction of the new IT solution,
uses in both cases the support services ‘set-up business unit’, ‘enable user’, and
‘train user’ (see Chapter 0 for more detail). Thus, with increasing numbers of endusers the effort for this IT service increases exponentially.
134
IT Solution 2: SaaS
• Detailed Concept of IT Production Alternative. Similar to the same phase in the inhouse solution, in the SaaS solution, the role production engineering will evaluate
the available labor capacities required for the future maintenance and support services. However, the availability analysis of the SaaS solution will be less time consuming than the in-house solutions, as the analysis is limited to the few IT resources which still need to be deployed internally (e.g., LAN and router). Furthermore, the role sourcing will negotiate the price of the SaaS service. If the SaaS solution is based on several SaaS services from different providers, the effort for negotiation increases similar to the in-house solution. The effort to determine the
customization requirements of the SaaS solution will be similar to the one of the
in-house solution if both solutions provide the same default SW functionality and
similar customization capabilities.
• Realization of IT Production Alternative. In this project phase, production engineering will set-up the test and development environments. This activity will be
less time consuming than in the in-house solution as no installation of hardware or
software is required. The effort to customize and test the SaaS solution is most
likely equal to the same activities in the in-house solution. However, if the SaaS
solution provides less functionality and less ability to customize than the in-house,
the expenses for this phase will be comparatively smaller. The IT employees must
be trained for the support and maintenance of the SaaS solutions. Whereas, the
training for the support services will be similar between the two solutions, differences will occur in the training for maintenance services. This is explainable, with
less maintenance required for the SaaS solution (see Chapter 5.4.1.3).
• Introduction of IT Production Alternative. With regard to the IT services ‘set-up
business unit’ and ‘train user’, this phase is equal in duration and required resource
capacities to the same phase in the in-house solution. Nevertheless, differences
may be caused by consumption of the service ‘enable end-user’, as the service is
less time consuming in the SaaS solution (see Chapter 0).
Electro Ltd.: Project Plans of IT Development Alternatives
The roles production engineering develops for the two IT solutions the following
project plans (see Exhibit 70). The two IT solutions differ in their total duration time.
Reason for this is in the in-house solution the need to purchase and install software
and hardware for the development and test environments. Furthermore, the effort to
train the new IT employee will be larger in the in-house solution than in the SaaS solution, as the employee will be responsible not only for SW but also for HW issues.
However, the activities of an IT project, which require most labor capacities (i.e., define customization requirements, customize software/SaaS solution, and test software
software/SaaS solution) is expected to be the same in both IT solutions.
IT solution 1: In-House: - task name
11/2009
12/2009
01/2010
02/2010
03/2010
04/2010
05/2010
11/2009
12/2009
01/2010
02/2010
03/2010
04/2010
05/2010
phase 1: detailed concept of IT production alternative
check availability of resources
negotiate prices with SW and HW vendors
define customization requirements
phase 2: realization of IT production alternative
set-up development environment
customize software
set-up test environment
test software
establish maintenance services
phase 3: introduction of IT production alternative
prepare business unit MA-CH
prepare business unit SA-CH
prepare business unit SE-CH
IT solution 2: SaaS - task name
negotiate prices with SaaS providers
customize SaaS solution
test SaaS solution
Exhibit 70. In-house & SaaS project phases and activities7
7
Project plans are based on data used in the cost calculation of the IT development alternatives (see Exhibit 94,
p.183 and Exhibit 95, p.184)
136
5.5 Phase 4 – Capacity Requirements Planning
for In-House & SaaS Solutions
Purpose:
to plan IT solutions, which provide sufficient capacities to accomplish the SLAs defined for
the projected sales plans, work plans and project plans.
Role:
production engineering, resource management
Activities:
- identify critical resources and determine the available capacities
- determine workloads, identify bottlenecks, modify the capacity of critical resources
Input
blueprint of IT production line, project plans, work plans, sales plans and bills of services
Output:
workload profile, master production schedules, updated blueprint of IT production line,
project plans, work plans, and bills of services
Proceed with:
phase 5 (i.e., cost accounting of in-house & SaaS solutions)
An IT solution must be designed to be able to execute reliably and cost-efficiently the
defined sales plans, work plans and project plans. At any time during the development
and operation of the IT service portfolio, sufficient capacity must be available to produce or source the IT services. In analogy to manufacturing resource planning, a capacity requirement planning of the defined IT resources and external services must be
conducted [Hochstein et al. 2008d]8. This approach is of particular importance as IT
services cannot be produced for stock, and thus have a higher risk of not retaining the
defined service levels [Hentschel 1992, Corsten 2001, pp.27 et sqq.]. In the planning
of the production lines of physical goods, first, rough-cut capacity planning (RCCP) is
applied to identify critical work centers and to analyze their ability to provide sufficient capacities [e.g., Oden et al. 1993, pp.178-211, Sheikh 2003, pp.424-461].
Second, in a more detailed analysis, namely capacity requirements planning (CRP),
the capacity is planned for each work center of the production lines.
IT service
unit
composed
of
composed
of
preliminary
IT service unit composed of
external
service
capacity
provides
resource
describes
schedules production of
project
plan
schedules
production of
master
production
schedule
computed
based on
sales
plan
service
level
has
contains
determines
workload
profile
blueprint of IT
production line
work
plan
bill of
services
updates
updates
production
engineering
computes
resource
management
8
In addition to capacity requirements planning, MRP 2 also conducts a material requirements planning (see
Chapter 3.4.3). The IT service-oriented investment analysis method does not cover this phase as the method is
based on the assumption that the material ‘information’ is always available, and thus no planning is required.
Phase 4 – Capacity Requirements Planning for In-House & SaaS Solutions
137
In order to identify and adjust critical resources in the IT solution, the roles resource
management and production engineering perform a rough-cut capacity planning resembling the one in the MRP II approach [Oden et al. 1993, pp.178-211]. For each
possible IT solution, the following four steps must be executed for the IT production
and IT development alternatives.
1. Identification of Critical Resources. Critical resources are the resources in an IT
solution with the highest utilization rate [Menascé et al. 2004, pp.74-80]. If the
demand for IT service units increases, the workload of all resources rises linearly.
Thereby, critical resources first reach a 100% utilization rate creating a bottleneck,
which will risk the attainment of the defined SLAs.
2. Evaluation of the Workload of Critical Resources. As depicted in Exhibit 72 the
workload (i.e., the incoming flow of capacity requests) of each critical resource
must be determined.
bills of services (BOS) of core services
sales plans of core services
master production schedule (MPS)
of IT services
core service ‘perform email campaign’
core service ‘login’
core service ‘view customer profile’
workload of critical resources
resource ‘LAN (kb)’
resource ‘server CPU (instr.)’
Exhibit 72. Determination of resource workload
(exemplified for the capacity demand of core services)
138
The resource workload can be derived from the master production schedule (MPS)
of core and support services, the work plans of maintenance services, and the
project plans of development alternatives. For each critical resource one resource
profile, which represents the total capacity demand per time buckets, is created.
Exemplarily, Exhibit 72 (see previous page) illustrates the creation of the MPS of
in-house generated core and support services, as well as the development of the
workloads of the critical resources server CPU and LAN.
3. Determination of the Actual Capacity of Critical Resources. After completion of
the previous step, for each critical resource the actual available capacity per time
bucket must be estimated. The actual (or effective) capacity of a resource differs
from its theoretical capacity [Oden et al. 1993, pp.180-181]. Whereas the
theoretical capacity is based on ideal assumptions of a maximum possible capacity,
the actual capacity is based on experience taking into account conditions which
decrease the theoretical capacity (e.g., downtime or overload of a resource).
4. Adjustments to Capacity of Critical Resources. Information about the expected
workload and the actual capacity of each critical resource are presented in a socalled ‘workload profile’ [Fogarty et al. 1991, p.409]. The workload profile is used
to calculate a resource’s utilization rate by subtracting the workload from the actual capacity. The utilization rate provides information on a resource’s service levels. If the service levels are not sufficient for the production of the planned IT
services, either the actual capacity of the resource must be increased, or the demand for capacities must be decreased, i.e., sales plans, work plans, sales plans,
BOS, or the blueprints of the IT production lines must be adjusted [Sheikh 2003,
p.426].
Once, rough-cut capacity planning is completed and the critical resources meet the
required service levels, the utilization rate for the remaining resources is calculated
similarly. The information will be necessary in the subsequent phase, i.e., cost accounting of IT solutions (see Chapter 5.6). The following subchapters explain in more
detail the resource characteristics, i.e., the capacities and service levels, of the IT production and IT development alternatives.
5.5.1 Capacities & Service Levels of IT Production Alternatives
The rough-cut capacity planning for IT production alternatives aims at determining
the maximum resource capacity to be required for the production of core, support and
maintenance services. Its overall goal is to accomplish the SLAs defined in the sales
specifications (see Chapter 5.2.2).
139
The capacity planning for core services is conducted as explained in the previous paragraphs. Thereby, for the execution of the step ‘adjustments to capacity of critical
resources’ the following activities are in particular necessary for core services. In order to meet the SLAs defined for a core service (e.g., response time, availability), it
must be assured that all capacities specified in the BOS of this core service can be
consumed as planned. For this reason, the SLAs of a core service must be decomposed
into SLAs for each resource that participates in the production of this service (see Exhibit 73).
response time =
request & consumption time
IT Solution 1: In-house
+ transportation time
local delivery
of core service units
client CPU time
LAN time
global delivery
client CPU time
LAN time
WAN time
server CPU time
client CPU time
LAN time
Internet time
server CPU time
server CPU time
+ manufacturing time
IT Solution 2: SaaS
local & global delivery
Exhibit 73. Decomposition of service response time into capacity response times
As illustrated in the example above, if core services are delivered globally, the response time of an in-house and a SaaS solution will be equal. However, if the core
services are delivered locally the response time of the in-house solution is expected to
be shorter than the one of a SaaS solution. This is explainable by the need for the Internet in the SaaS solution.
Whereas, the quality criteria ‘response time’ is completely determined by IT capacities, other quality criteria, such as ‘availability’, are also influenced indirectly by labor
capacities. For instance, a core service may be unavailable due to an overload or a
failure of only one single IT resource [Menascé et al. 2004, p.16-18]. But, the extent
to which an IT resource failure occurs, as well as the amount of time it takes to fix it
depends significantly on the availability of qualified human resources responsible for
preventing and correcting failures (see service levels and capacities of support and
maintenance services for more detail, Chapters 5.5.1.2 and 5.5.1.3).
A resource provides enough capacities if it can offer for all core services produced by
this resource the required resource service levels. This must be true for any time bucket specified in the sales plans. In the following paragraphs, the resource capacities and
their impact on the service levels defined for the in-house and SaaS solution are explained in more detail.
140
Aiming at creating an end-to-end solution, the in-house IT production line is divided
into the manufacturing part, the transportation part, and the order and consumption
part (see Chapter 5.3.1). To assure the specified SLAs, all resources included in these
three parts must be analyzed with regard to their risk of developing a bottleneck in the
IT production line. As will be elucidated in the next paragraphs, the CPU, the LAN,
and the WAN represent the most critical resources in this IT production line.
Subsequent resources are evaluated in the manufacturing part of an in-house solution.
•
Server. The quantity of core service units that can be manufactured in this work
center depends entirely on its components. Thus, the server must primarily fulfill
the following requirements: It must be available, it must provide sufficient physical space to hold the hardware components, and it must manage the components’
energy supply. As long as this is the case, the server does not impose any constrains on the maximum number of core service units to be manufactured. However, if a hardware component, such as the CPU, is increased to such an extent that
the server’s maximum capacity is reached, the server must be replaced or supplemented by a server with a higher capacity. Furthermore, if the server enterprise
application and the database application must run on separate physical locations
then a dedicated server must be provided for each software program.
•
Central Processing Unit (CPU). The CPU represents the most critical resource in
the manufacturing part as it determines the maximum number of core service units,
which can be produced at one time bucket. This number is computed by subtracting the total required CPU power of all core service units to be manufactured from
the actual CPU capacity. The first figure in Exhibit 63 illustrates that this loadindependent resource provides a constant manufacturing time as long as the
maximum capacity is not exceeded [Menascé et al. 2004, p.45-46].
manufacturing time
of one core service unit
CPU load
no admission
control
rejected service requests
maximum
capacity
admission control
CPU load (i.e., processed requests of core service units)
time of incoming service requests
Exhibit 74. Admission control to manage incoming orders of core service units
[adapted from Menascé et al. 2004, p.18, p.47]
141
However, if the CPU is overloaded (i.e., when it accepted more requests of service
units then it can manage), the manufacturing time for each core service unit will
increase exponentially. For this reason, admission control is applied to manage incoming service requests in order to guarantee constant manufacturing times. The
second figure in Exhibit 74 illustrates the behavior of admission control. When the
maximum CPU capacity is reached, admission control rejects new incoming service requests in order to provide sufficient capacity for processing the already accepted service requests. Whereas this approach positively affects the quality criteria ‘response time’ for selected IT service units, it also decreases the overall availability for all end-users. Therefore, if an overload risk exists, e.g., due to seasonal
and exceptional changes, it is advisable to choose a CPU with a higher capacity.
•
Enterprise Server Application, Database Application, and Operating System.
These software programs are not critical resources. They must be available but
once installed, they provide the same capacity regardless of their workloads. Thus,
they do not need to be considered in the rough-cut capacity planning.
The transportation lines contain major critical resources, which have a significant impact on the response time of core service units.
•
LAN. This closed network, owned by the internal IT service provider, is in general
used by a clearly defined number of end-users. Thus, the workload of the LAN can
be directly derived from the unit demand for core services and the required capacity for each unit. Based on this knowledge, the needed actual capacity of the LAN
can be determined and the LAN technology, e.g.128K ISDN or OC48, can be chosen. However, when determining the actual capacity of a LAN it must be considered that this resource is load-dependent [Menascé et al. 2004, pp.45-46]. Its
transportation time increases linear to the number of unit requests and delivered
service units due to increased package collisions. Furthermore, for the calculation
of the resource load it must be considered that the resource LAN might be shared
by cores services of a variety of IT service portfolios (e.g., ‘IT support for CRM
activities’, ‘IT support of ERP activities’, or ‘IT support for finance activities’).
•
WAN. Similar to the LAN this network is also load-dependent. Two types of WAN
exist: closed networks that are exclusively used by one company, or open networks
that are based on the public Internet. The load predictability and the controllability
of the two network types differ. The first network resembles the LAN. Thus, its total workload can be predicted, and its maximum capacity can be adjusted according to production needs. Contrarily, the resource load of the second network type,
i.e., the Internet, is less predictable as explained in more detail in the following description of capacities offered in a SaaS solution (see p.144). The capacity of a
142
WAN must only be considered if the service units are delivered to locations distant
to the location of service production, i.e., where the server is located.
Similar to the resources of the manufacturing and transportation parts, the resources of
the order and consumption part (i.e., the client) must be analyzed. However, these resources are less critical for the entire IT production line. A bottleneck at the previously described resources will affect the entire production of service units. A bottleneck
at the resources of one order and consumption part will influence only the unit delivery of one user.
•
PC, Laptop, Cell phone and other Clients. These work centers must be available to
request and consume service units. The capacity behavior resembles the one of a
server in an in-house manufacturing part.
•
CPU. The processor of a client PC functions in the same way as a processor of a
server. However, because of its significantly smaller workload (i.e., a typical client
CPU must only process the service requests of one end-user) less actual capacity is
required from this resource. Moreover, if the CPU mostly processes requests from
typical client enterprise application the need for actual capacity further decreases.
Client enterprise applications usually require less CPU power as they are mostly
used for activities, which require less CPU power, such as initiating a service request and displaying the service content.
•
Client Enterprise Application and Operating System. These resources behave in a
similar manner as the software programs on the server. Thus, they are less critical
for the production of core service units.
IT Solution 2: SaaS
Comparable to the analysis of an in-house solution, the resources of a SaaS IT production line must be evaluated in order to identify imbalances between the workload and
the actual capacity of each resource. Critical resources of the SaaS IT production line
are the SaaS service, the LAN, and the Internet.
As the manufacturing part is outsourced to the SaaS provider, the internal IT service
provider cannot control the resource capacities used to manufacture the core service
units (e.g., capacities of servers, CPUs, database applications, and operating systems).
However, depending on the outsourcing contract and the SaaS model (see SaaS continuum, Chapter 2.3.3), the internal IT service provider can define and control more or
less the output created by the SaaS provider, i.e., the SaaS service.
•
SaaS Service. In a pure SaaS solution, the SaaS provider supplies in general one to
only a few data centers that produce the total quantity of core service units. Thus,
143
the service level agreements are the same for all customers. Often, SaaS providers
use this strong dependency of many customers on one manufacturing center to
their advantage when advertising their SaaS offerings to small-and medium-sized
enterprises. According to current SaaS providers, they are more likely to resolve an
incident faster if it occurs to a large customer group consisting of large, medium
and small enterprises instead of to only one small company.
On January 6th, 2009 at around 12 pm (PST), Salesforce.com’s network was down
for 38 minutes, affecting all instances of the SaaS solution. During this time,
900,000 subscribers were unable to access the SaaS application to transact with
business customers. Reason for the downtime were a network failure due to memory allocation errors, which also caused the back-up servers to fail. The outage
was experienced differently by the customers. Some customers complained about
the sudden outage, other customer pointed out positively the fast recovery of the
system [Greenberg 2009, Milller 2009].
In contrast to the previous described SaaS model, in a SaaS model resembling a
more traditional ASP solution, the core service units requested by individual companies are produced on IT production lines dedicated for each customer. Thus, in
this model the service levels can be adjusted to individual customer needs.
Taleo produces individually SaaS services for each customer. The company’s customers share the same application code, i.e., they use the same version of Taleo’s
application, but each customer application is installed on a dedicated server.
Thus, a possible downtime of one server would only affect one customer. Similarly, Oracle runs individual application instances for each customer. Thus, a server
outage only affects the instances, which are installed on the particular server.
As described earlier, most of the time a customer can only measure the output of
the SaaS provider, but not the capacity of each single resource, which the SaaS
provider deploys. Thus, in general SaaS providers inform their customers about the
availability and response time of their SaaS solutions, security of their data centers
and applications, as well as system or data recovery times.
When calculating the overall fulfillment of the SLAs of a core service, which is produced in a SaaS solution, not only the service level of the SaaS service, but also the
service levels of the remaining resources in the IT production line, i.e., the transportation lines and the consumption and order center, must be taken into account.
Whereas in an in-house solution the usage of an Internet service is optional, in the
SaaS solution the Internet service is obligatory. Only a few SaaS providers offer an
144
offline version of their software, which can be used if no Internet service available. If
the SaaS provider does not offer an offline version, the SaaS service can only be used
if Internet access is available.
•
Internet Service. Similar to the LAN and the private WAN in an in-house solution,
the Internet is load dependent. Furthermore, the Internet is an open network. Thus,
the number of end-users and their Internet usage is unknown to and not controllable by the internal IT service provider. Thus, when determining the response time
of a core service, the internal IT service provider should consider factors that have
an impact on the response of the Internet. For instance, the response time will be
affected by the location and the time of the day [Menascé et al. 2004, p.25].
A crucial criteria in Plantronics‘ investment analysis of the preselected SaaS solutions was the end-to-end response time of the SaaS service. As the SaaS providers
only guaranteed internal SLAs, which did not include the service levels of the Internet, Plantronics tested the SaaS services in the locations of all its subsidiaries.
Furthermore, when considering a SaaS solution the risk of possible unexpected
events increasing suddenly the response time of the Internet should be assessed.
As illustrated in Exhibit 75, in recent years one particular event had a large
short-term impact on the response time of the Internet. On January 24th 2003, the
SQL slammer worm caused the response time of the Internet to increase significantly.
Exhibit 75. Past exceptional increase of Internet response time
(http:// www.internettrafficreport.com/event.htm)
•
LAN. The behavior of the LAN of a SaaS solution is equal to the one in an in-house
solution (see p.141).
145
The capacities of most resources in the order and consumption part (i.e., the client) of
a SaaS IT production line resemble the resource capacities in the in-house solution.
However, the resource Internet browser differs from the equivalent in-house resource
‘client enterprise software’ as explained in the following.
• Internet Browser. Like other software programs, the main requirement of this resource is its availability. In contrast to the client enterprise application, this resource is less dependent on the up-to-datedness of the operating system. In general,
the Internet browser is included in the installation process of the operating system.
For instance, the installation of the OS Windows also installs the Internet Explorer.
Thus, often an Internet browser is already available on the client PC and does not
need to be installed exclusively for a new IT service portfolio.
• Client Device, CPU, and Operating System. These resources resemble the ones in
the in-house solution (see p.142).
The case of the fictitious company exemplifies how a rough-cut capacity planning is
performed according to the previously described guidelines. Further information on IT
performance analysis is published by [e.g., Menascé et al. 2004, p.25, Gunther 2007].
Electro Ltd.: Capacity Planning for Core Services
The roles resource management and production engineering perform for each IT solution a rough-cut capacity planning. They identify critical resources, analyze their
workloads, and adjust their actual capacity in order to meet the defined SLAs ‘availability’ and ‘response time’ of all core services available in the IT service portfolio.
The process is explained in the following in more detail for the resource CPU.
In-house: Workload of Critical Resource ‘Server CPU’
Based on the sales plans (see Exhibit 53, p.101) and the bill of services (see Exhibit
64, p.124) of all core services, resource management first creates the master production schedule (MPS) of the critical resource CPU (see Exhibit 76).
CPU capacity
(in instr./hour)
login
logout
edit customer profile
segment customers
perform e-campaign
view marketing report
view sales report
…
instr./hour
instr./day
07.00
-08.00
500
300
120
300
50
50
150
300
…
3,000
160,000
08.00
-09.00
700
450
300
500
240
15
250
500
…
4,000
09.00
-10.00
1,500
1,200
400
700
400
500
100
250
…
8,000
10.00
-11.00
3,400
2,400
490
800
600
200
20
40
…
12,000
11.00
-12.00
7,500
8,000
580
900
500
150
10
10
…
35,000
12.00
-13.00
5,400
2,000
480
540
200
0
10
10
…
18,000
13.00
-14.00
7,400
4,000
600
700
300
50
100
200
…
22,000
…
…
…
…
…
…
…
…
…
…
…
Exhibit 76. In-House – Regular MPS of CPU (January - November)
18.00
-19.00
3,200
5,400
380
220
20
50
20
50
…
15,000
146
In addition to the regular MPS of the CPU, resource management determines the MPS
for the peak month December. Due to Christmas times, for this month the unit production of all core services will increase in average by 40%. As a result the maximum
workload of the CPU grows similarly (e.g., from 35,000 to 49,000 instructions/hour,
every day in December between 11 am and 12 pm). The comparison of available capacities and the expected actual workload during regular and peak times is illustrated
in the workload profile of the CPU (see Exhibit 77).
CPU capacity
serverTX32 (instr./hour)
available CPU power
07.00
-08.00
150,000
08.00
-09.00
150,000
09.00
-10.00
150,000
10.00
-11.00
150,000
11.00
-12.00
150,000
12.00
-13.00
150,000
13.00
-14.00
150,000
total utilized capacities of CPU required to meet projected sales plans
regular
4,000
8,000
12,000
3,000
(utilization rate)
(2%)
(2.7%)
(5.3%)
(8.0%)
peak time in December
4,200
5,600
11,200
16,800
(utilization rate)
(2.8%)
(3.7%)
(7.5%)
(11.2%)
35,000
(23.3%)
49,000
(32.7%)
18,000
(12.0%)
25,200
(16.8%)
22,000
(14.7%)
30,800
(20.5%)
…
…
…
…
18.00
-19.00
150,000
15,000
(10.0%)
21,000
(14%)
Exhibit 77. In-House – Workload profile of CPU
In-house & SaaS: Computation of Service Level ‘Availability’
Resource management determines the actual service levels of the core services on the
following considerations:
As the expected utilization rate of the CPU never exceeds the theoretical maximum
capacity, the availability of the server CPU is 100%. However, the actual availability
of the core services, which are generated in-house, is expected to be less than 100%,
i.e., 98.88%, due to possible failures of the internal IT resources, and longer recovery
times caused by the limited availability of internal IT employees responsible for the
maintenance of the IT resources (see Chapter 5.5.1.3). The actual availability of the
core services generated in the SaaS solution is expected to be higher due to the SLAs
guaranteed by the selected SaaS provider (i.e., 99.5%). Nevertheless, also in the SaaS
solution, the end-to-end availability of core services is expected to be decreased partially (i.e., 0.2%) by the availability of still remaining internal resources, such as the
LAN). The following actual availabilities of core services are predicted:
• In-House: 98.88% availability of core services
• SaaS:
99.3% availability of core services
In-House & SaaS: Computation of Service Level ‘Response Time’
The response times of all core services are calculated for both IT solutions in a similar
way. Exhibit 78 exemplifies the calculation of the response time for the core service
‘view customer profile’. The main difference is caused by the SaaS solutions’ additional time to deliver the service over the Internet. In particular, in peak times such as
during the Christmas period, the response time of the Internet increases.
order & cons. time
transportation time
manufacturing time
IT solution: in-house (seconds)
resource
clientX61 (CPU)
10 Gbit Ethernet (LAN)
serverTX32 (CPU)
actual response time
regular
0.15
0.11
peak
0.15
0.17
0.13
0.39
0.13
0.45
IT solution: SaaS (seconds)
resource
clientX61 (CPU)
10 Gbit Ethernet service (LAN)
Cablecom Internet
CRMSaaS.com (basic)
actual response time
regular
0.15
0.11
0.20
0.13
0.59
147
peak
0.15
0.17
0.50
0.13
0.90
Exhibit 78. In-House & SaaS – Response time of core service ‘view customer profile’
In contrast to core services, which are entirely produced based on capacities of IT resources, support services, as well as, maintenance and development services are largely generated from labor capacities. Thus, the focus of the capacity planning for these
services is concerned with the planning of human resources. For this, the role human
resource management aims at aligning the future availability to the future demand of
labor capacities [Armstrong 2006, pp.365 et sqq., Stock-Homburg 2008, pp.71-148].
Thereby, technical competencies, skills, experience, flexibility and availability of human resources are considered. For the production of support services, human resource
management selects capacities from the following three types of labor resources
(compare to Exhibit 65, p.125):
• Internal IT Service Provider. Human resources of the internal IT service provider
have a profound knowledge about the internal IT systems, as well as the customer’s end-users and business processes. They are in particular efficient in activities,
which they perform on a regular basis. In other activities, which they perform only
occasionally, they are less productive and more error-prone [Chou 2004, pp.2224]. In order to increase internal labor capacities, the internal IT service provider
must invest time and money in recruitment and training [Schott/Campana 2005,
p.95]. Moreover, surplus resources cannot be reduced quickly but must be decreased over time. Thus, a sudden decrease in the consumption of support service
would result in an increase of unused labor capacities.
• Supplier. Human resources of suppliers are less familiar with the particulars of the
company. Instead, they are specialized in the activities for which they are hired.
Thus, in these activities they are more effective and efficient than internal IT employees [Chou 2008, pp.63-82]. Human resources of suppliers are normally procured on-demand for short term, unpredictable and less frequent activities.
• Customer Company. Human resources of the customer company are also involved
in the co-creation of support services. For instance, in the support service ‘help
desk’, end-users provide information about the problem that occurred, and in the
service ‘change request’, key users help testing the changes for applicability in
148
their business processes. As these activities distract users from performing their
normal work, i.e., the creation of value in the business process, their involvement
in support and development services should be marginal.
The future long-term demand of the labor capacities of a new IT service portfolio is
computed based on the BOS (see Chapter 0) and the sales plans (see Chapter 5.2.3.2)
of the support services. Additionally, the future demand of maintenance services must
be considered (see Chapter 5.5.1.3). Exhibit 79 exemplifies a possible outcome of
such a calculation. The demand for labor capacities of the roles product management
and account management is expected to be similar for the two IT solutions as they are
not concerned with IT solution specific activities, for instance, in the support service
‘change request’. Differences in the total annual capacity demand of the roles production engineering and product engineering is mainly explainable by the varying demands for the service ‘upgrade software’. The variations in the capacities of the role
delivery management may derive from the service ‘enable end-user’. In the exhibit
below, it is assumed that the capacities of the roles sourcing, resource management
and production management are not required for the production of support services.
The extent to which the labor capacity demand differs between the two IT solutions
strongly depends on the company-specific sales volume of support services.
IT solution 1: In-House
IT solution 2: SaaS
14%
12%
10%
8%
6%
4%
2%
0%
product
management
account
management
production
engineering
product
engineering
sourcing
resource
management
production
management
delivery
anagement
Exhibit 79. In-House & SaaS – Labor capacities required for support services (sample)
In the following, the support services of the two IT solutions (see Chapter 5.2.2.2) are
explained regarding their similarities and differences in the total utilized labor capacities during the lifetime of an IT service portfolio and offered service levels.
• Enable End-User. For both IT solutions, this service requires in general only relatively small labor capacities. Thereby, the overall labor capacity demand increases
with rising end-user numbers. Significantly differences occur from exceptional
cases in the in-house solution, i.e., problems with the software installation or need
to upgrade a client OS. Thus, with decreasing general condition of the client PCs
149
and technical skills of the end-users who install the software, the difference in the
total demand for labor capacities will grow. As consequence, the service delivery
time of the SaaS solution is most likely to be smaller and less error-prone than the
one of the in-house solution. Additionally, a higher customer satisfaction rate can
be expected due to less end-user involvement in the service competition.
• Train End-User. In both IT solutions, this service is composed of the same labor
capacities. Thus, the service levels are the same regardless of the IT solutions.
• Help Desk. For help desk services, which are concerned with functional questions,
for both IT solutions the same labor capacities are required from the internal IT
service provider. However, help desk services, concerned with the issues with the
production part will require internal capacities in the in-house solution. Contrarily,
in the SaaS solution, the SaaS provider is responsible for solving these issues. Due
to high availability (24/7) and specialization (operation of server farms), the SaaS
provider may offer a faster service for issues related to the manufacturing part of
an IT solution.
• Set-Up Business Unit. The capacity demand and service levels of this support service are the same for both IT solutions as the service is produced from the same
labor capacities. In both IT solutions, this service is often executed by the internal
IT service provider with support by the customer and external consultants.
• Change Request. As this service is often primarily offered by the internal IT service provider, the delivery time of the solution is the same for both the IT solutions. However, the customer satisfaction rate of the SaaS solution might be smaller as its ability to customize might be less, i.e., fewer change requests might be
completed in the SaaS solution.
• Upgrade Software. The service levels of this service differ significantly between
the two IT solutions. The delivery time and use of labor capacities resembles the
one of an in-house IT development project (see Chapter 5.5.2). Often, in in-house
solutions an upgrade project of packaged enterprise software can take up to six
months and occupies a large number of human resources from the internal IT service provider, as well as end-users who are involved the upgrade project [Beatty/Williams 2006]. As software is only upgraded every 18-24 months, the internal
IT service provider is less experienced with the upgrade resulting in a higher risk
of failures. Against this, in the SaaS solution the upgrade is completely executed
by the SaaS provider who is specialized in upgrading their solution for thousands
of customers. Thus, in the SaaS solution the upgrade is less error-prone and less
distracting to the end-users. The end-users are only limited in the usage of the so-
150
lution during the upgrade rollout, which is often conducted at weekends. The differences in the total capacity demand during the lifetime of an IT service portfolio
will depend on the software lifecycle, i.e., the number of upgrades.
Electro Ltd.: Capacity Planning for new IT Employee (Support Services)9
As the existing IT employees of Electro IT Services are fully occupied, a new IT employee must be hired for the long-term provision of support and maintenance services
included in the new IT service portfolio ‘IT support for CRM activities’. In the following, the role human resource management (HR) determines the expected monthlyrequired labor capacities and the service levels of the support services.
In-House & SaaS: Workload of Critical Resource ‘new IT Employee’
Based on the sales plans and the BOS of all support services, HR creates the daily
workload of the new IT employee (see Exhibit below).
support services
ID
name
SSE_003 enable end-user
SSE_005 train end-user
SSE_008 help desk
SSE_073 set-up business unit
SSE_083 change request
SSE_120 upgrade software
IT solution 1: In-House – new IT employee (minutes/month)
01/2010
02/2010 03/2010
04/2010
05/2010
06/2010
[A] 1,151
2,082
3,014
110
55
110
180
120
360
30
30
30
630
1,740
3,090
3,390
3,390
3,390
400
400
400
0
0
0
2,400
4,800
7,200
8,640
4,800
2,400
0
0
0
0
0
0
…
…
…
…
…
…
…
12/2011
110
30
3,390
0
480
0
01/2012
55
30
3,390
0
[B] 0
[B] 4,800
workload in minutes/month
4,761
9,142
14,064
12,170
8,275
5,930
…
4,009
8,274
workload in hours/day
3.97
7.62
11.72
10.14
6.90
4.94
…
[C] 3.34
6.90
IT solution 2: SaaS – new IT employee (minutes/month)
01/2010
02/2010 03/2010
04/2010
05/2010
[A] 357
646
935
34
17
180
120
360
30
30
630
1,740
3,090
3,390
3,390
400
400
400
0
0
2,400
4,800
7,200
8,640
4,800
0
0
0
0
0
06/2010
34
30
3,390
0
2,400
[B] 300
…
…
…
…
…
…
…
12/2011
34
30
3,390
0
480
0
01/2012
17
30
3,390
0
[B] 480
[B] 300
support services
ID
name
SSE_003 enable end-user
SSE_005 train end-user
SSE_008 help desk
SSE_073 set-up business unit
SSE_083 change request
SSE_120 upgrade software
workload in minutes/month
3,967
7,706
11,985
12,094
8,237
5,854
…
3,934
4,217
workload in hours/day
3.31
6.42
9.99
10.08
6.86
4.88
…
[C] 3.28
[C] 3.51
Exhibit 80. In-House & SaaS – Workload of new IT employee (support services)
The differences between the two workloads are explained in the following.
[A] In the first three months, the initial end-users of the three IT products are enabled
to use the core services of the IT product. The workload differences between the
two IT solutions derive from the varying BOS of the support services (see Exhibit
9
For simplicity, in the example the IIM roles of IT service providers are incorporated in one person, i.e., the
new IT employee.
151
67, p.128). Thereby, the calculation of the labor capacities required in the inhouse solution is based on the assumption that in 30% of the services ‘enable enduser’ problems with the SW installation occur, and in 10% of the services a new
client OS must be installed (e.g., 1,151 = (21 user x 20 min.) + (21 user x 0.3 x 76
min.) + (21 user x 0.1 x 120 min.)). Against this, in the SaaS solution, the calculation of the demand for labor capacities is purely based on sales plan and the BOS
(e.g., 357 =21 user x 17 min.).
[B] In the in-house solution, after a two-year period, the software packaged must be
upgraded. In collaboration with other colleagues, the new IT employee will be
strongly involved in the upgrade project (4,800 min./month = 4 hours/day). To reduce the risk of the upgrade project, the service ‘change request’ is not provided
during this time (0 min.). Contrarily, in the SaaS solution, the software upgrade is
performed by the SaaS provider every 6 months, requiring only little involvement
by the new IT employee (300 min./month = 5 hours/month). Thus, the service
‘change request’ can still be offered (300 min.).
[C] 2010/06, the launching phase, i.e., the introduction of new IT products is completed. Thus, beginning in 2010/07 the support services are consumed on a regular basis and in smaller quantities. The month 2011/12 shows a typical month for
this phase, which shows only marginal differences in the daily workload of the
new IT employee.
Although as described above, differences between the two IT solutions exist during
the launching phase and the upgrade phases, these differences are rather marginal during the phases of regular unit consumption.
In-House & SaaS: Service Level Computation of Support Service ‘Enable End-User’
Based on the assumption that the new IT employee provides sufficient labor capacities
and the BOS of the support services (see e.g., Exhibit 67, p.128), HR determines the
SLAs of all support services. For instance, for the criteria ‘delivery time’ of the support service ‘enable end-user’, it defines the following SLAs for the two IT solutions.
• In-House: 3 hours 45 min. (= 20 + 76 + 120 min. + 9 min. buffer time)
• SaaS:
30 min. (= 17 min. + 13 min. buffer time)
For the in-house solution, the maximum delivery time is considered. It includes exceptional cases, such as problems with software installation, or need to upgrade client OS.
In both IT solutions, a buffer time is added to the final SLAs.
152
For the long-term demand of labor capacities, human resource management must not
only consider support services, but also maintenance services. Maintenance services
are generated based on labor capacities, which can be provided by the roles of the internal IT service provider and its suppliers. For these labor capacities, the same characteristics are valid as were explained in Chapter 5.5.1.2.
20%
15%
10%
5%
0%
product
account
management management
production
engineering
product
engineering
IT solution 1:In-House
sourcing
resource
production
management management
delivery
anagement
IT solution 2: SaaS
Exhibit 81. In-House & SaaS – Labor capacities required for maintenance (sample)
Exhibit 81 illustrates an example comparison of the labor capacities required for the
provision of maintenance services by the internal IT service provider in an in-house
and a SaaS solution. In this dissertation, it is assumed that maintenance services are in
particular generated by the roles sourcing, resource management and production management. The differences in capacity demand of the before illustrated example can be
derived from the work plans for maintenance services (see Chapter 5.4.1.3). In this
phase, the role human resource management aligns the previously defined work plans
to the available internal labor capacities. As will be illustrated in the following, the
provision of maintenance services has a large impact on the service levels of the core
services (see Chapter 5.2.2.1).
For both IT solutions, maintenance services are executed on a regular basis. Thus, the
total labor capacity demand caused by the maintenance services can be directly derived from the defined work plans. Thereby, due to differing maintenance services, the
demand for labor capacities varies in general between the two IT solutions. In the inhouse solution, the internal IT service provider is responsible for the maintenance of
all internal IT resources, providing services, such as server management, network
management, database administration, storage & archive, and monitoring & control.
Against this, in the SaaS solution, the internal IT service provider is only responsible
for the management of the SaaS provider itself, network management, and monitoring
and control.
153
The time spent to maintain internal IT resources of the IT production lines has a direct
impact on the service levels of the core services [Zarnekow 2006, pp.45/46]. For instance, if more effort is put into the assurance of the security of the database, network,
or client PC, the overall security of the core services will increase. Moreover, if more
activities are performed to prevent system outages, the overall availability of the core
service will increase.
In addition to the proactive activities, the service levels of the core services can be
further improved by the fast provision of reactive activities [ITIL 2007b, pp.26/27].
Therefore, the availability of qualified IT employees has a large impact on the availability of core services. For instance, if a system fails during the weekend no IT employee might be directly available for the recovery of the system. It could take about 8
hours for the IT employee to drive to the building of the internal IT service provider
and to fix the problem. The following calculation of the availability of a core service
could be therefore made based on the assumption of a six-hour unavailability of the
system: 1- (6 hours per month ÷ (24 hours/day * 30 days)) = 98.88%
The service levels of the core services, which are influenced by the provision of maintenance services, can differ largely between internal IT service providers. With increasing investment in human resources, the service levels of the core services will
most likely grow. Thereby, investment may be made in the number of hours spent to
maintain one IT resource, in the availability or in the qualification of internal IT employees [Armstrong 2006, pp.173-202]. For instance, highly skilled IT employees will
be able to resolve a problem faster than employees with less experience and qualification. Furthermore, a decrease in the regular utilization rate of the IT employees, or to
schedule IT employees to stand-by on the weekend, will decrease the unavailability of
core services caused by unexpected system failures.
IT Solution 2: SaaS
In the SaaS solution, most maintenance services are outsourced to the SaaS provider.
Thus, the internal need for labor capacities is comparatively low. Only few labor capacities are required to maintain the still remaining internal IT resources, to control
the service levels of the core services, and to manage the relationship to the suppliers
(see Chapter 5.5.1.3). As a consequence, the internal IT service provider has less influence on the service levels of the core services. The internal IT service provider can
only influence the services levels the internal transportation line and the order and
consumption part (i.e., the client PC).
The potential unavailability of a SaaS provider can be calculated based on the provided SLA for the SaaS service. For instance, a core service with a 99,5 % availabili-
154
ty, which is a common SLA for SaaS providers [Herbert et al. 2007a], would be unavailable for: (1 – 0.995) * 30 days * 24 hours/day = 3.6 hours per month.
Additionally, unavailability of the core service could occur due to the regular maintenance hours of the SaaS provider. Often SaaS providers, reserve a fix time slot for
their maintenance activities, e.g., every first Saturday of a month from 10-11 am.
Electro Ltd.: Capacity Planning for new IT Employee (Maintenance Services)10
Based on the work plans for maintenance services, which were designed to guarantee
the SLAs of the core services (see and Exhibit 68, p.130), human resource management (HR) identifies for both IT solutions the following total daily workload of the
new IT employee (see Exhibit 82). The total workload is caused by the previously determined labor capacity demand for support services (see Exhibit 80, p.150) and the
labor capacity demand for maintenance services.
maintenance services
ID
name
MSE_431
MSE_980
MSE_148
MSE_540
MSE_194
server mgmt.
network mgmt.
database admin.
storage & archive
monitoring & cont.
IT solution 1: In-House – new IT employee (hours/day)
01/2010 02/ 2010
03/2010
04/2010
05/2010
1.10
0.50
0.50
0.50
0.90
0.10
0.05
0.05
0.05
0.10
0.60
0.15
0.15
0.15
0.30
0.80
0.20
0.20
0.20
0.50
0.40
0.10
0.10
0.10
0.20
workload caused by (hours/day)
[A] 3.00
- maintenance services
- support services
(see Exhibit 80, p.150)
3.97
total daily workload
ID
name
MSE_458 Mgmt. of SaaS
providers
MSE_980 Network Mgmt.
MSE_194 Monitoring & Cont.
…
…
…
…
…
…
12/2011
1.10
0.10
0.60
0.80
0.40
01/2012
1.10
0.10
0.60
0.80
0.40
[B] 1.00
[B] 1.00
[B] 1.00
[B] 2.00
[A] 3.00
…
[A] 3.00
[A] 3.00
7.62
11.72
10.14
6.90
4.94
…
3.34
6.90
8.62
12.72
11.14
8.90
7.94
…
6.34
9.90
IT solution 2: SaaS – new IT employee (hours/day)
01/2010 02/2010
03/2010
04/2010
05/2010
06/2010
…
12/2011
01/2012
6.97
0.20
0.12
0.40
workload caused by (hours/day)
- maintenance services
[A] 0.72
- support services
3.31
total daily workload
06/2010
1.10
0.10
0.60
0.80
0.40
4.03
0.20
0.12
0.40
0.20
0.12
0.40
0.20
0.12
0.40
0.20
0.12
0.40
0.20
0.12
0.40
…
…
…
0.20
0.12
0.40
0.20
0.12
0.40
[B] 0.72
[B] 0.72
[B] 0.72
[B] 0.72
[A] 0.72
…
[A] 0.72
[A] 0.72
6.42
9.99
10.08
6.86
4.88
…
3.28
3.51
7.14
10.71
10.80
7.58
5.60
…
4.00
4.23
Exhibit 82. In-House & SaaS: Workload profile of new IT employee
(caused by maintenance & support services)
The two resource profiles differ in their daily workload for following reasons:
[A] Due to the outsourcing of maintenance services in the SaaS solution, the regular
workload for maintenance services differs in 2.28 hours/day between the two IT
10
For simplicity, in the example the IIM roles of IT service providers are incorporated in one person, i.e., the
new IT employee.
155
solutions (i.e., 3 vs. 0.72 hours/day). As the workload for support services is rather similar, the same difference is recognizable in the total daily workload (e.g.,
in 2010/01: 6.97 vs. 4.03 hours/day).
[B] In the months, February to May 2010 it is predicted that in the in-house solution
the increased provision of support services will result in a significant exceeding of
the new IT employee’s maximum workload (i.e., 10 hours/day). Thus, to unload
the new employee, in the in-house solution HR reduces the labor capacities for
the maintenance services by up to 2 hours (e.g., from 3 hours/day in 01/2010 to 1
hour/day in 02/2010). Contrarily, in the SaaS solution, due to the smaller labor
capacity demand of the support and maintenance services, it is not necessary to
decrease the labor capacities of the maintenance services during the same time period. As a consequence, in the in-house solution a decrease of the core services’
service levels is expected. Contrarily, in the SaaS solution the service levels are
expected to remain the same.
Based on the predicted total daily workload of a new IT employee, human resource
management determines for the launching phase of the new IT service portfolio, to
employ a new employee on a full-time position. However, due to the significantly different total workloads in the regular production phase, in the SaaS solution the position of the IT employee is reduced to a part-time position (i.e., 50%).
5.5.2 Capacities & Service Levels of IT Development Alternatives
Like support and maintenance services, development projects are labor intensive.
However, whereas the latter two services have long-term demands for labor capacities, the labor demand of development projects is short-term. Based on the project
plans defined in the previous phase (see Chapter 5.4.2), human resource management
aligns the labor need of the projects with the available capacities of the internal IT
service provider. Thereby, often companies have a shortage of internal human resources, as the IT employees are mostly engaged in the daily operation and maintenance of existing IT service portfolios [Bonham 2004, pp.161-168]. Thus, additionally,
external human resources (i.e., consultants) are considered for the execution of the
development projects. Besides labor capacities, development and test environment
must be available for the development project.
The goal of the capacity planning of the IT production alternative is the concretization
of the project plans. Thereby, the planned realization of the project plan must meet the
first delivery dates of the IT products, which were defined in the IT product contracts
(see Chapter 5.2.1). Additionally, the concretized project plan must be able to develop
the IT service portfolio as specified in the sales specifications of the IT services. In the
156
following, the differences between the two IT solutions are explained regarding the
required capacities and the consequences of the overall availability particularly of
human resources.
As defined in the project plan of the in-house solution, the demand for labor capacities
is slightly higher than in the SaaS solution. Differences between the two IT solutions
mainly derive from the need to install hardware and software for the development, test
and production environments. These project activities also demand the availability of
higher qualified IT employees. Besides the testing and customization of the solution,
the IT employees must have the knowledge to set-up and administer the IT environments. The higher demands for human resources will result in the in-house solution in
a later project completion date than in the SaaS solution. The project becomes further
delayed, if the internal IT service provider does not have hardware and software available for the IT environments. In this case, additional time for procurement and shipment must be allowed. However, the internal IT service provider can shorten the
project time by extending the overtime of internal IT employees or the workload of
external consultants.
IT Solution 2: SaaS
As illustrated before, the SaaS solution requires less in-house human involvement in
the development project. The IT employees must have the knowledge to customize
and test the solution, however no technical knowledge to install the development, test,
and production environment is required. Furthermore, no time is required for the procurement and shipment of any software or hardware.
Electro Ltd.: Capacity Planning for Development Alternative
Based on the project plans of the two IT development alternatives (Exhibit 69, p.131),
the role human resource management schedules the labor capacities required for the
development project. In the in-house, as well as in the SaaS solution the new IT employee is planned to be involved fulltime in the development project. Furthermore,
two existing IT employees shall work 10 hours per week overtime for the duration of
the project. Finally, one external consultant shall support both development projects.
With the same labor capacities involved in both IT solutions, the SaaS project could
be completed one month before the in-house project. However, if the labor capacity
per month would be increased (e.g., by extending the overtime of the internal employees or by increasing the work hours of the external consultant), the in-house
project could be completed at the same time as the SaaS solution.
Phase 5 – Cost Accounting of In-House & SaaS Solutions
157
5.6 Phase 5 – Cost Accounting of In-House & SaaS Solutions
Purpose:
to compute the total costs of IT solutions, the actual costs of IT services, and the costs of
unused capacities.
Role:
controlling
Activities:
- compute the total costs of the IT production and IT development alternatives based on the
costs of internal resources and external services.
- compute the actual costs of core, support, maintenance, and development services by
multiplying the cost rates of the IT service units with the sales plans, work plans, and
project plans.
- compute the costs of unused capacities by subtracting the actual costs of IT services from
the total costs of IT solutions.
sales plans, work plans, project plans, costs of internal resources, & prices of external services
Input
Output:
total costs of IT solutions, actual costs of IT services, costs of unused capacities, as well as
unit costs of capacities, preliminary IT service units, and IT services
Proceed with:
phase 6 (i.e., final selection between in-house and SaaS solution)
Managerial cost accounting supports managers in planning, controlling, continuous
improvement, and investment analysis [Horngren et al. 2003, p.7, Maher et al. 2006,
p.140]. In tactical decision-making, for instance, cost information is often used for
decisions on the price of a product, adding or dropping a product, or outsourcing the
manufacture of a component [Hansen/Mowen 2006, pp.790-801]. Similarly, in IT
management, cost accounting approaches are used to create transparency of IT costs,
to classify controllable IT costs, to determine cost rates for internal cost accounting,
and to support reporting and investment analysis [Herrmann 1991, Scheeg 2005]. The
proposed method applied the approach of IT product-oriented cost accounting developed by [Übernickel 2008]. The approach was chosen due to its accuracy of cost allocation and its capability to achieve high cost transparency. In particular, its ability to
allocate costs on a unit and non-unit basis to various cost hierarchies (e.g., service
units, IT products, customers, etc.) was particularly relevant for the service comparison of in-house and SaaS solutions. Exhibit 83 depicts the core elements of this phase.
consumes
unit cost
provides
has
IT service
unit
consumes
has
consumes
preliminary
IT service unit
composed
of
unit cost
capacity
external
service
has
has
internal
resource
has
unit cost
price
procurement
costs
costs of unused
capacities
computes
production plan,
work plan, project
plan
composed
of
actual costs
of IT services
computes
controlling
composed of
computes
total costs of IT
solutions
Exhibit 83. Detailed view of meta model – key elements of phase 5
158
Total Costs of IT Solutions
The role controlling is responsible for the cost comparison of the two IT solutions.
Based on the information collected in the previous phases, controlling determines the
total costs of each IT solution. For this, it classifies the costs of the resources (i.e.,
fixed one-time and recurring costs) into direct manufacturing costs, direct labor costs,
and overhead costs [Maher et al. 2006, p.35]. Thereby, in the context of this dissertation, manufacturing costs are caused by internal IT resources and external IT services;
labor costs occur from internal human resources and external human services; and
overhead costs include indirect materials and labor costs (e.g., rent and air conditioning, etc.). The sum of the production and development costs result in the total costs of
the two IT solutions for the contract duration defined in the IT product contracts.
Chapter 5.6.1 illustrates the calculation of the production costs of the core and support
services. Chapter 5.6.2 explains the calculation of the development costs of the two IT
solutions.
Actual Costs of IT Services & Costs of Unused Capacities
The calculation of the total costs, provides good first insights for the investment analysis of in-house and SaaS solutions [Dubey/Wagle 2007]. However, in some cases
total costs do not support sufficiently the investment analysis if the outcome of the
two IT solutions is similar. Furthermore, the comparison may even mislead the decision-maker due to the IT solutions’ differences in fixed and variable costs [compare to
Hansen/Mowen 2006, pp.68-80]. For instance, an in-house solution with higher total
costs than a SaaS solution would be less expensive if the unused capacities caused by
the variety of fix costs, which are typical for in-house solutions, could be used productively for other IT service portfolios. Thus, a better understanding of the unit costs, of
IT services, i.e., the costs of actual consumed resource capacities and external service
units, increases the knowledge base for the decision-making between the in-house and
the SaaS solutions. The detailed information on unit costs of IT services will also be
used in the final phase for the price calculation of IT products (see Chapter 5.7).
To determine the costs of IT service units and unused capacities in this dissertation,
the IT product-oriented cost accounting approach by [Hochstein et al. 2008a, Übernickel 2008] is applied. Additionally, activity-based costing approaches were considered in the following cost calculations [e.g., Hansen/Mowen 2006, 133-151, Maher
et al. 2006, pp.230-251] In order to determine the unit costs of the core, support, maintenance, and development services, the role controlling computes the unit costs of all
preliminary IT services. Exhibit 84 illustrates the allocation of the resource costs and
the prices of external services to service units.
159
unit cost of
service
costs assigned
using cost driver
unit cost of
preliminary service
costs assigned
using cost driver
unit cost of
resource capacity
unit price of
external service
Exhibit 84. Cost accounting of service units
[adapted from Hansen/Mowen 2006, p.134]
The following four activities must be performed for the computation of service unit
costs. The activities are built on information collected in the previous phases.
1. Identification of Preliminary IT Services. Identify the preliminary IT services (e.g.,
process service request) that consume resource capacities (e.g., for the in-house solution: server / CPU, EA, DBA, OS), external services (e.g., for the SaaS solution:
SaaS service), or other preliminary IT services (e.g., maintenance services).
2. Identification of Cost Drivers. Determine the cost drivers associated with each capacity and preliminary IT service. A cost driver influences the costs of a preliminary IT service. For instance, the cost driver of the capacity ‘CPU power’ is the
‘number of instructions’ required to generate the preliminary IT service ‘process
service request’.
3. Computation of Unit Costs. Calculate for each capacity and preliminary IT service
the unit cost. For instance, the unit cost for the capacity ‘CPU power’ can be calculated by dividing the total lifetime costs of the CPU through the maximum number
of available instructions provided during the entire lifetime of the resource. However, if all costs, including the unused capacities must be allocated to the unit
costs, the total lifetime costs of the CPU must be divided by the instructions required for the planned sales volume of core services.
4. Assignment of Costs to IT Services. Finally, the unit costs of the preliminary IT
services must be assigned to the unit costs of the IT services. For this, the unit
costs of the preliminary IT services must be multiplied with the corresponding cost
driver. The sum of the preliminary IT services defined one level below the IT service will result in the unit cost of the IT service.
160
Electro Ltd.: Cost Overview for Time Period of 10 Years
To evaluate the cost-efficiency of the in-house and the SaaS solution, the role controlling determines the total costs of the IT solution, the actual costs of IT services and the
costs of unused capacities. The total costs contain the complete costs of internal resources and external services. The actual costs are based on the actual consumption of
preliminary IT services. The preliminary IT services, which will be available but will
not be consumed, cause the costs of unused capacities (see previous explanations for
further information on these cost calculations). Exhibit 85 provides a cost overview of
both IT solutions.
total costs of IT solution
[A] CHF 23,650
[A] CHF 177,800
CHF 154,150
60,800
60,800
0
117,000
93,350
23,650
costs of ‘enable end-user’ and ‘set-up business unit’ are included in the support services(below)
IT development alternative
- phase 1: detailed concept
- phase 2:realization
- phase 3: introduction
IT production alternative
- production costs of core services
- production costs of support services
total
IT solution 2: SaaS
[B] CHF 3,489,496
1,986,256
(see Exhibit 89, p.169 )
1,503,240
CHF 2,943,800
1,540,230
CHF 545,696
446,026
1,403,570
99,670
CHF 3,667,296
3,097950
CHF 569,346
total costs of IT solution
[A] CHF 0
[A] CHF 119,300
CHF 119,300
52,800
52,800
0
66,500
66,500
0
costs of ‘enable end-user’ and ‘set-up business unit are included in the support services(below)
IT development alternative
- phase 1: detailed concept
- phase 2:realization
- phase 3: introduction
IT production alternative
- production costs of core services
- production costs of support services
total
[B] CHF 3,868,242
3,116,012
(see Exhibit 89, p.169 )
752,230
CHF 3,636,770
2,951,520
CHF 231,472
164,492
685,250
66,980
CHF 3,987,542
CHF 3,756,070
CHF 231,472
Exhibit 85. In-House & SaaS – Cost overview (for a time period of 10 years) 11
The costs of the two IT solutions varies in the specific case of Electro Ltd. as follows:
[A] The total development costs of the two IT solutions differ significantly (CHF
177,800 vs. 119,300). This is because in the in-house solution, additional costs for
the purchase and installation of hardware and software occur (see Exhibit 94,
11
The calculation of the total production costs of the core services, the unit costs of sample support and maintenance services, as well as the development costs of both IT solutions are explained in the following chapters. The other numbers in this table are computed following the same approach. However, for simplicity
these numbers are not explicitly illustrated in this thesis.
Maintenance services are not included in this table as they are incorporated into the production costs of core
services. They are allocated to the internal resources and external services used to produce the core services.
161
p.183 and Exhibit 95, p.184 for more detailed information).
However, the difference between the actual costs of the two IT solutions will be
less, if in the in-house solution the hardware and software can be used in other IT
projects after project completion. In the in-house solution, the costs of unused capacities thereby represent the costs, which could be eliminated if unused capacities were utilized elsewhere. In the SaaS solution, costs of unused capacities are
CHF 0. One reason for this number is for instance that the development and test
environments are rented only for the time they are used in the project. Thus, in the
SaaS solution, no costs of unused capacities for the development and test environments occur.
[B] In the production alternative, the total costs of the SaaS solution exceed the total
costs of the in-house solution by CHF 378,746 (CHF 3,489,496 versus
3,868,242). In the in-house solution, the production costs of the core services are
less expensive than in the SaaS solution (CHF 1,986,256 vs. 3,116,012, for more
detail see Exhibit 89, p.169). The cost difference between the core services can be
explained with the subscription fees of the SaaS solution, which are compared to
the licenses and maintenance of the in-house solution comparatively higher.
Interestingly, in the in-house solution, the costs of the support services are higher
than in the SaaS solution. One reason for this is that the total costs of the support
services ‘enable end-user’ and ‘upgrade software’ are larger in the in-house solution (for a sample unit cost calculation of the service ‘enable end-user’ see Exhibit
91, p.174).
The smaller differences between the actual costs, as well as the higher costs of
unused capacities of the in-house solution can be explained with the different utilization rates of the new IT employee, which will be responsible for the operation
and maintenance of the IT service portfolio ‘IT support for CRM activities’ (see
Exhibit 82, p.154). It is expected, that the work load of the full-time employee in
the in-house solution will be in average 60%, whereas the workload of the parttime employee will be in average 95%. Consequently, if in the in-house solution,
the unused capacities of the IT employee were consumed in other IT service portfolios, the actual costs and the costs of unused capacities would decrease.
As will be illustrated in Chapter 5.7, the total costs of the IT solution, the actual costs
of the IT services, and the costs of unused capacities depend on various influencing
factors. Thus, the final decision to pursue an in-house or a SaaS solution is companyspecific.
162
5.6.1 Costs of IT Production Alternatives
The accounting of the actual costs of the IT production alternatives, i.e., the direct
costs of generating core, support and maintenance services, is based on the IT product-oriented cost accounting approach by [Übernickel 2008] (see Chapter 3.4.2). Thereby, the original approach was adjusted to cover the additional costs of external services, which typically occur in SaaS solutions (see exhibit below). Furthermore, to
illustrate the differences in costs between the three identified service types, the cost
centers are assigned to each service type.
costs of IT production alternative
core
services
internal IT resources
•server / CPU
•server enterprise app
•database app
•server OS
•LAN
•
•
•
•
router
client PC / CPU
client enterprise app
client OS
cost allocation
according to time
overhead
costs
cost
allocation
according
to consumption
maintenance
services
support
services
internal human resources
•management of IT service production
internal
human resources
•delivery management
•account management
•…
IT solution 2: SaaS
external
human services
•consultant services
•LAN
•router
•client PC / CPU
•client enterprise app
•client OS
final costs of
support services
external IT services
•SaaS IT service
•Internet service
cost allocation
according to time
cost
allocation
according
to consumption
costs of IT
development
alternative
costs of IT production alternative
core
services
overhead
costs
final costs of
core services
maintenance
services
support
services
internal human resources
•management of IT service production
internal
human resources
external
human services
•delivery management
•…
•SaaS human services
•…
Exhibit 86. Allocation of total production costs to IT services
[adapted from Übernickel 2008]
final costs of
core services
costs of IT
development
alternative
final costs of
support services
163
As the costs of IT resources, i.e., software, hardware and external IT services, is largely discussed in the costs of core services, in this dissertation, the focus of the support
and maintenance services was on the costs of internal and external labor resources.
However, the costs of support and maintenance services can be easily extended to the
costs of internal IT resources and external IT services (e.g., costs of security software,
back-up software).
In the following, the internal resources and the external services required for the production of core, support, and maintenance services of an IT service portfolio are explained regarding their cost behavior (e.g., variable versus fix costs, one-time versus
recurring costs).
The internal IT resources, which were defined in the blueprints of the IT production
lines (see Chapter 5.3.1), are exclusively used for the generation of core services.
Thus, these internal IT resources can be identified as primary cost centers of the core
services [Übernickel 2008, p.55]. Additionally, for a SaaS solution also external IT
services must be considered as primary cost centers. Secondary cost centers are the
resources and services used to generate maintenance services, as well as other resources and services, which must be available for the production of core services, but
which do not directly participate in the production process (e.g., server room, cleaning
services, etc.). Maintenance services and overhead costs are allocated to the final costs
of core services according to actual consumption.
The actual unit costs of each core service can be computed based on the planned capacity consumption per service unit (see BOS, Chapter 5.4.1.1), and the planned cost
rates of the resource capacities. The detailed knowledge of unit costs of each core service enables an accurate allocation of costs to various cost objects according to actual
unit consumption (e.g., core services, IT product, IT service portfolio, contractor,
etc.). For instance, the actual costs of the core services included in one IT product can
be calculated based on the unit costs of each core service and the contractor’s sales
plans defined in the IT product contract.
When determining the actual costs of core services for the entire contract duration of
an IT product, one-time costs as well as recurring costs must be considered. One-time
costs occur, for instance, when a new resource is bought or replaced due to obsoleteness or insufficient capacities. Recurring costs are caused by the regular operation of
IT resources (e.g., CPU consumption of energy).
164
In the following, the IT resources of an in-house IT production line are described regarding their cost behavior and actual lives. The resource costs of the in-house manufacturing part can be explained as follows:
• Server. The initial one-time procurement costs of a server are composed of the
costs of the software and hardware components included in the server. Further, occasional one-time costs may occur when outdated software or hardware must be
replaced. The actual life of a server is determined by the life of its hardware components, and its ability to provide sufficient physical memory or storage capacity.
A server must be replaced or supported by an additional server, if it can no longer
provide enough space for increasing hardware requirements. Similarly, software
on the server must be replaced when it no longer meets changing software requirements. Recurring costs of the server include energy costs for cooling, as well
as the energy costs to run the server’s hardware components.
• Server CPU. In addition to one-time purchasing costs, recurring costs for energy
consumption must be considered when computing the costs of the server CPU.
Thereby, the amount of energy a CPU needs differs depending on the theoretical
capacity and model type. For instance, the Intel Dual Core Xeon with 186 GHz
consumes 68 Watt, whereas the Pentium M with the same capacity consumes 27
Watt. Additionally, the maximum capacity, and thus the energy consumption, can
be reduced by changing from a fast to a slow mode. Exhibit 87 illustrates the daily
utilization rate of a CPU.
available instr.
instr.
available
per second
second
per
costs of unused CPU capacities in slow & fast mode
fast mode
costs of
unused
capacities
slow mode
costs of
used
capacities
07.00
- 08.00
08.00 09.00 10.00 12.00 13.00 14.00 15.00 16.00 17.00 18.00 19.00
- 09.00 - 10.00 - 11.00 - 13.00 - 14.00 - 15.00 - 16.00 - 17.00 - 18.00 - 19.00 - 20.00
Exhibit 87. Stepwise change of actual CPU capacity according to capacity need
However, the volume of actually consumed instructions has no impact on the
energy consumption of a CPU, i.e., the energy consumption is constant within a
defined mode. The exhibit above compares the maximum available CPU instructions in slow and fast mode to the actual consumption of CPU instructions used for
165
the creation of core service units. Unused instructions result in costs of unused capacities.
Besides energy costs, further costs are caused by the actual life of a CPU and the
need to replace or to extend it. Whereas, the theoretical life of a CPU is often unlimited, the actual life of a CPU is determined by the increased need for CPU power. Reasons for this may be higher numbers of service units to be produced or increased CPU requirements of software programs (e.g., of the operating system, database application, or enterprise application).
• Server Enterprise Application. The costs of the server enterprise application can be
derived from the license costs of the enterprise application, as well as the costs of
the support of the SW vendor. Thereby, the internal IT service provider must pay
initial license fees, as well as additional license fees for each software upgrade.
Additional recurring costs for the software support must be considered. In general,
software vendors provide standard prices for the licenses, as well as for the software support. However, in many cases these prices are negotiable.
• Database Application & Server OS. The cost behavior of these two applications
resembles the one of the server enterprise application. Thereby, the lifetime of the
database and the operating system is determined by the DB and OS requirements
of the enterprise application. Thus, a new release of a server enterprise application
may entail a replacement of the database application or the operating system.
The costs of the transportation part of the in-house IT production line vary between
local and global delivery of core service units. For the local delivery, costs to execute
the LAN and the router occur. For the global delivery, additional costs for the wide
area network (e.g., Internet) arise.
• Local Area Network. When computing the costs of the LAN, initial one-time procurement costs of the IT resources, which form the LAN, must be considered. Additional recurring costs are caused by energy consumption. Thereby, the costs depend on the maximum capacity of the resources, as well as the energy prices. As
these resources are not restricted to be used for only one IT service portfolio, the
costs must be allocated according to actual consumption of the resource capacity.
• Wide Area Network. For the usage of wide area networks, such as the Internet,
monthly costs for the network consumption must be considered (for more detail
see Internet Service p.167).
For the order and consumption part (i.e., client PC) of an in-house production line, the
following production costs must be considered:
166
• PC. The cost behavior of this resource resembles the one of a server (see p.164).
Although, due to lower capacity requirements on hardware and software components the individual costs per workstation are in general smaller than the ones of a
server. The costs are fix for one resource unit, but the total costs of client pc is variable as they rise linearly with the number of client PCs. The costs of this resource
must be shared by all IT service portfolios, which are consumed on the particular
PC.
• Client CPU. As the capacity of a CPU must only fulfill the capacity need of one
single user, the maximum available capacity and therefore the energy costs will be
smaller. Additionally, whereas a server CPU must always be available (i.e., 24/7),
the client CPU must only be available for the working hours of one employee.
Outside these times, the PC can be turned off not causing any energy costs.
• Client Enterprise Application. The cost behavior of the client enterprise application resembles the one of the server enterprise application (see previous page).
Thereby, the costs must be multiplied by the number of end-users.
• Client Operating System. The costs of the client OS resembles the one of the client
enterprise application.
IT Solution 2: SaaS
The manufacturing part of the SaaS solution is determined by the varying prices of the
SaaS providers.
• SaaS Service. The main costs of the SaaS solution are the subscription fees per
end-user. Thereby, as illustrated in Exhibit 88 (see next page) the price models differ significantly amongst the variety of SaaS providers and applications. For instance, some service bundles contain IT services, as well as support services for
one price. Other SaaS offerings provide separate prices for separate service bundles of IT services and support services. SaaS provider may offer service bundlings with different functionality for different prices. Moreover, the prices may
change depending on the total number of end-users per customer, or the data volume to be stored at the SaaS provider’s facilities. Besides subscription fees per
end-user, the SaaS provider may also offer prices based on actual transaction volume. In general, the prices offerings publicly available are limited to simple price
models. More complex SaaS offerings, e.g., for a higher number of end-users, are
in general not available as standard prices. Instead, the prices are negotiated between the customer and the SaaS provider.
Company
price model
Salesforce.com
CRM solution
• Team edition
starter solution for small sales and marketing teams
- $ 20 per user/month for a minimum of 5 users
- additional costs for premium support
- additional costs for further storage (total per user 120 mb)
[Salesforce.com 2008b]
SAP
ERP solution
(Business
ByDesign)
167
contract duration
annual
• Unlimited edition
- $ 65 per user/month for more than 5 users
- premium support and further storage (total per user 120 mb) included
• Base user
€ 133 per user/month for a minimum of 25 users with three extensions
- manufacturing for € 54 per user/month
- warehouse management for € 29 per user/month
- service management for € 22 per user/month
n/a
[Hestermann 2007]
• Advanced user
€ 49 per package of 5 users/month. It provides optional extension of
- basic inventory and manufacturing execution functions for € 29 per package of 5
users/month
RightNow
CRMsuite
• negotiable price per user/month
• per transaction
annual
Taleo:
recruiting
solution
• Taleo enterprise edition
variety of recruiting modules which can be selected
- negotiable price for employee/per company
annual
[Taleo 2007]
• Business edition
provides following three service levels which all include on-demand back up service
and support
- ‘standard’ with simple for $ 99 per user/month
- ‘plus’, a talent management suite for internal employees (price n/a)
- ‘premium’ talent management suite for internal and external employees (price n/a)
WebEx:
Internet conferencing
solution
• Pay-per-use
- 33c/minute per participant
- integrated conferencing for 20c/minute
[webex 2008]
• Meeting center
- $375 per 5 users/month
- $75 per additional user/month
transaction
annual
Exhibit 88. Overview of SaaS providers’ price models
Depending on the coverage of service delivery (i.e., local versus global), and the
choice of technology for the wide area network (private, versus public), the transportation lines of the in-house and the SaaS solutions may use exactly the same IT resources. For example, if the in-house solution is based on a WAN which uses the Internet the costs of the same resources must be considered for the in-house and the
SaaS solution. However, if the in-house solution is purely designed for a local delivery of IT service units, or if a PC in the SaaS solution directly accesses the Internet
without any LAN, the transportation costs between the two IT solutions differ.
• Local Area Network. The cost behavior of the LAN in the SaaS solution resembles
the cost behavior of the LAN in the in-house solution (see p.165 ).
• Internet Service. Similar to the SaaS service, for an Internet service a monthly fee
must be paid. Thereby, different price models may exist. For example, Cablecom
168
in Switzerland offers a price model based on the maximum kbits downloadable/uploaloadable per second, such as the following offers [Cablecom 2008].
‘Highspeed 1000’ for CHF 15 allows to download 1000 kbit/sec and to upload 100
kbit/sec, or ‘highspeed 25000’ for CHF 75 allows to download 25000 kbit/sec and
to upload 2500 kbit/sec. The maximum capacity of this service is computable by
the available kbit/sec multiplied by the available seconds per day. The minimum
contract duration is 12 months. In addition to the Internet access, the Internet service may also include other services, such as security, online storage, or email and
IP addresses. If the Internet service is used by several IT service portfolios, its
costs must be allocated based on actual consumption of bandwidth.
The order and consumption center (i.e., the client) in the SaaS production line resembles the one of the in-house solution. Thus, the client CPU, the operating system and
other hardware will cause the same costs in both IT solutions. However, the cost differences between the client application in the in-house solution (i.e., the client enterprise application) and the client solution in the SaaS solution (i.e., the Internet browser) differ significantly.
• Internet Browser. Standard Internet browsers, such as the Microsoft Internet Explorer are often installed per default with the operating system. Furthermore, the
Internet Browser is used by the end-user for various purposes. Thus, the costs
which could be allocated to a particular IT service portfolio are marginal, and
therefore do not need to be considered in the cost calculation.
Electro Ltd.: Total Costs and Unit Costs of Core Services
Subsequently, controlling (CO) determines the total production and unit costs of all
core services provided by the IT service portfolio ‘IT support for CRM activities’.
Computation of Total Production Costs of Core Services
To determine the total costs for a 10-year production of core services, CO computes
the costs of the internal IT resources and external IT services involved in the production process. The costs include the hardware and software purchasing costs, energy
costs, external service costs, maintenance costs, as well as overhead costs. Additionally, the costs which occur on the level of the IT service portfolio, e.g., for the maintenance service ‘monitoring and control’ must be considered. For the final calculation of
the core services’ unit costs, the total costs are allocated to the total capacity volume,
which will be provided by the corresponding internal IT resources and external IT
services from 2010 – 2019. Exhibit 89 (see next page) presents the total production
costs of the core services.
service / resource
ID
169
IT solution 1: In-House - total costs of IT service portfolio ‘IT support for CRM activities’
2010
2011
2012 (upgrade) … 2018 (upgrade)
2019
total (CHF)
name
ISP_56
MSE_194
12
Monitoring & Control
6,500
6,500
6,500
…
6,500
6,500
[A] 65,000
65,000
PSE_432
RES_241
ESE_540
RES_532
ESE_735
MSE_431
MSE_976
OVH_361
ESE_976
serverTX32 service
server TX32 purchase price
Dell vendor support
Windows XP license
Microsoft vendor support
server management
facilities management
overhead
energy
4,500
300
3,000
200
15,167
2,080
200
520
0
300
0
200
17,875
2,080
200
520
4,500
300
3,000
200
17,875
2,080
200
520
…
…
…
…
…
…
…
…
4,500
300
3,000
200
17,875
2,080
200
520
0
300
0
200
17,875
2,080
200
520
[B] 246,542
22,500
3,000
15,000
2,000
176,042
20,800
2,000
5,200
PSE_021
RES_365
ESE_421
CRM server App 1 service
server CRM App 1 license
SW vendor support
4,000
250
0
250
4,000
250
…
…
4,000
250
0
250
[B] 22,500
20,000
2,500
PSE_470
RES_421
ESE_253
MSE_148
MSE_540
Oracle 9i DB license
SW vendor support
database administration
storage & archive
1,200
50
7,516
10,156
0
50
9,750
13,000
1,200
50
9,750
13,000
…
…
…
…
1,200
50
9,750
13,000
0
50
9,750
13,000
[B] 222,922
6,000
500
95,266
127,156
PSE_701
MSE_980
OVH_361
network management
overhead
1,422
75
1,625
75
1,625
75
…
…
1,625
75
1,625
75
[A] 16,792
16,042
750
PSE_021
RES_609
client CRM App 1 license
(CHF 2,500/user)
282,500
0
282,500
…
0
282,500
[B] 1,412,500
1,412,500
total costs of IT service portfolio ‘IT support for CRM activities’ (10 years)
[C]CHF 1,986,256
service / resource
ID
IT solution 2: SaaS - total costs of IT service portfolio ‘IT support for CRM activities’
2010
2011
2012
…
2018
2019
total (CHF)
name
ISP_56
MSE_194
‘IT support for marketing activities’
6,500
PSE_701
MSE_980
OVH_361
network management
overhead
PSE_895
ESE_452
MSE_980
Cablecom Internet access
network management
PSE_762
ESE_609
CRMSaaS.com subscription
(CHF 220/user/month)
mgmt. of SaaS providers
MSE_458
6,500
6,500
…
6,500
6,500
[A] 65,000
65,000
1,422
75
1,625
75
1,625
75
…
…
1,625
75
1,625
75
[A] 16,792
16,042
750
1,500
352
1,500
352
1,500
352
…
…
1,500
352
1,500
352
[B] 18,520
15,000
3,520
298,320
298,320
298,320
…
298,320
298,320
[B] 3,015,700
2,983,200
3,250
3,250
3,250
…
3,250
3,250
32,500
total costs of IT service portfolio ‘IT support for CRM activities’ (10 years)
[C] CHF 3,116,012
Exhibit 89. In-House & SaaS – Total production costs of core services (10 years) 13
Following cost similarities and differences can be identified in Exhibit 89:
12
For the cost calculation of maintenance services (MSE) see Exhibit 92, p.178
13
MSE: maintenance service, ESE: external service, ISP: IT service portfolio, PSE: preliminary IT service,
OVH: overhead, RES: resource
170
[A] In both IT solutions, the same costs occur on the level of the IT service portfolio
‘IT support for CRM activities’ (CHF 65,000), and on the level of the LAN service ’10 Gbit Ethernet service’ (CHF 16,792). Reason for this is that the services
are used similarly in both IT solutions. Furthermore, the same maintenance services with the same volume of labor capacities were defined for both IT solutions
(i.e., monitoring and control and network management, see Exhibit 92, p.178).
[B] However, the costs between the two IT solutions differ largely in other cost factors. In the in-house solution, costs for the server CPU power, the server EA service ‘server CRM App 1 service’, the DBA service ‘Oracle 9i DB service’ and the
client EA service ‘client CRM App 1 service’ arise. In the SaaS solution, these
costs are replaced by the costs of the SaaS service ‘CRMSaaS.com (basic) service’. Additionally, in the SaaS solutions costs for the Internet service occur.
[C] As a consequence of B, the actual costs of the two IT solutions differ significantly
by CHF 1,129,756 (in-house CHF 1,986,256 vs. SaaS CHF 3,116,012).
Computation of Unit Cost of Core Services
Based on the total costs for the time period of 10 years, CO calculates the unit costs
for each core service as explained in the following (e.g., see Exhibit 90, next page).
Unit costs are used in combination with sales plans to determine the actual costs of an
IT solution, and to calculate IT product prices based on actual consumption. In order
to determine the unit cost of a core service, CO first computes the unit costs of the
preliminary IT services of which the core service is composed. For instance, the cost
of one instruction ‘serverTX32 service’, which is used in the in-house core service
‘view customer profile’, are calculated as follows:
unit cost of
=
1 instruction
serverTX32 service
10-year-costs of ‘serverTX32 service’
forecasted consumption number of CPU
instructions over a time period of 10 years
= CHF 0.00064204 =
CHF 246,542 see (Exhibit 94, p.171)
160,000 instr./day x 20 days x 12 months
x 10 years (see Exhibit 76, 146)
Similarly, for the in-house solution, CO determines the unit costs for the remaining
preliminary IT services ’10 Gbit Ethernet service’, ‘server CRM App1 service’, and
‘Oracle 9i DB service’, as well as for the IT service portfolio. For the SaaS solution,
CO computes additionally the cost per service request of the ‘CRMSaaS.com (basic)
service’ and the cost of one transmitted kb of the ‘Cablecom Internet Service’. The
unit costs of the preliminary IT services differ due to varying total costs and forecasted consumption numbers.
In a following step, the unit costs of the preliminary IT services are multiplied with
the actual consumed units by the particular core service (e.g., for the ‘serverTX32 service’ CHF 0.00064204 x 3 instructions = CHF 0.00192611). The number of the consumed units are derived from the core service’s BOS defined in phase 3 (see e.g., Ex-
171
hibit 64, p.124). The sum of the costs of all preliminary IT services defined in the
BOS result in the unit cost of the core service.
service (see BOS in Exhibit 64, p.124)
ID
name
IT solution 1: In-House unit cost of core service ‘view customer profile’
unit cost (CHF)
units
total cost (CHF)
CSE_012
14
ISPO_56
PSE_222
PSE_701
PSE_352
PSE_432
PSE_021
PSE_470
PSE_436
PSE_701
unit cost of core service ‘view customer profile’
0.00016927
0.00007524
serverTX32 service
0.00064204
server CRM App 1 service
0.00005859
0.00058053
send service reply
0.00007524
service
ID
name
CSE_012
ISPO_56
PSE_245
PSE_701
PSE_895
PSE_353
PSE _762
PSE_479
PSE_701
PSE_895
unit cost of core service ‘view customer profile’
0.00067708
0.00007524
0.00009400
0.00033854
send service reply
0.00007524
0.00009400
3 instr.
CHF 0.00802224
[E] 0.00050781
1 kb
[D] 0.00007524
3 instr.
2 instr.
1 instr.
[E] 0.00192612
[E] 0.00011718
[E] 0.00058053
64 kb
[D] 0.00481536
IT solution 2: SaaS unit cost of core service ‘view customer profile’
unit cost (CHF)
units
total cost (CHF)
1 service request
CHF 0.01201622
[E] 0.00067708
1 kb
1 kb
[D] 0.00007524
[E] 0.00009400
1 service request
[E] 0.00033854
64 kb
64 kb
[D] 0.00481536
[E] 0.00601600
Exhibit 90. In-House & SaaS – Unit cost of core service ‘view customer profile’ 15
The unit cost of the core service ‘view customer profile’ shows following similarities
and differences between the in-house and the SaaS solution:
[D] Due to the same unit cost of the LAN service ’10 Gbit Ethernet’ and the same
number of units consumed, in both IT solutions the LAN costs per core service
unit are the same (i.e., CHF 0.00007524 and CHF 0.00481536).
[E] The services vary in the remaining cost factors due to the usage of different preliminary IT services (‘serverTX32 service’, ‘server CRM App 1 service’, ‘Oracle
9i DB service’ vs. ‘CRMSaaS.com (basic) service’, ‘Cablecom Internet service’).
[F] In the provided example, the in-house unit cost of the core service ‘view customer
profile’ is less expensive than the SaaS unit cost (CHF 0.0080 vs. CHF 0.0120).
This is explainable with the small number of consumed CPU instructions of the
14
The costs, which occur on the level of the IT service portfolio are allocated to the unit cost of each core service. Thereby, the allocation rate is based on the instruction number of the basic server service (i.e., serverTX32), and the service requests of the SaaS service (i.e., CRMSaaS.com - basic), respectively.
15
The costs for the client EA licenses and the SaaS subscription fees are allocated on the cost level ‘IT product /
end-user’ (see Exhibit 100, p.189). Thus, they are not listed in the unit cost of a core service. Furthermore, the
remaining costs of the RPC activities ‘create service request’ and ‘display service content’ are not considered
in the unit costs as they are relatively small.
172
in-house core service ‘view customer profile’. For core services, such as ‘perform
email campaign’, which use up to 100 CPU instructions per service unit, the unit
cost of the in-house solution (i.e., CHF 0.2235) is significantly higher than in the
SaaS solution (i.e., CHF 0.0250). The unit cost of the SaaS service only slightly
differs amongst the core services due to varying kilobytes transmitted over the
LAN and the Internet. However, as for each core service unit only one service request is required, the costs of the preliminary IT service ‘CRMSaaS.com (basic)
service’ (CHF 0.00033854) remain the same for all core services (e.g., ‘login’,
‘view customer profile’, or ‘perform email campaign’)16.
In the in-house, as well as in the SaaS solution, the costs of support services are largely based on costs of human resources [Hochstein et al. 2008a, pp.23-25]. Therefore,
they represent a large cost factor in both IT production alternatives. From the three
available labor capacities identified in the Chapters 0 and 5.5.1.2, the internal IT service provider only considers two for the cost calculation of support services, namely
its own internal labor capacities, and labor capacities procured from suppliers. However, labor capacities consumed from the end-users are not considered in the cost calculation. Instead, the end-users loss of productive work hours due to their involvement
in the service production will be addressed in the business impact of the IT production
alternatives (see Chapter 5.7.2)
• Internal IT Service Provider Costs. For each IT employee, the internal IT service
provider pays a fix monthly salary. Thereby, the range of the salary depends on the
technical competencies, skills, and experience of the employee. To be compliant
with governmental and organizational regulations, the internal IT service provider
may also pay for benefits, retirement plans and compensation. Employees work
full time or part time for a company. Additional hours are compensated with overtime payments that in general exceed the regular hourly salary [Bundschuh/Fabry
2004, p.89, Hochstein et al. 2008a, p.25].
• Supplier Costs. In addition to the costs of internal labor, the IT service provider
also often pays the suppliers for the consumption of external human services [Gadatsch/Mayer 2005, pp.257-268]. Examples are consultant services provided by
consultant companies or SaaS providers. In general, the hourly costs of these services are multiple times higher than the hourly costs of an internal IT employee.
The total costs are flexible as they only incur when the capacities are used to produce services. The internal IT service provider does not pay for idle time.
16
For a sample overview of in-house and SaaS unit costs for core services see Exhibit 100, p.189
173
Based on the labor capacities required to produce the support services, which were
defined in the support services’ BOS, the unit cost for each service can be derived. In
both IT solutions, similar costs will incur for the services ‘train end-user’, and ‘set-up
business unit’. Slight differences in the unit costs may arise for the services ‘enable
end-user’, ‘help desk’, and ‘change request’. Significant costs differences exist between the two IT solutions for the support service ‘upgrade software’.
• Enable End-User. For an end-user who already uses a suitable PC, the costs enabling him to use a new IT service portfolio are rather small. In general, in both IT solutions, it only takes the internal IT service provider a few minutes to register the
new end-user, to assign him to an existing user profile, and to send the login information, activation information or installation file to the end-user. However, the
service will be more expensive in the in-house solution if the end-user encounters
problems to install the new client software, or if the installation of a new enterprise
application requires the upgrade of the operating system. In these cases, more time
will be required from the service provider to complete this service.
• Train End-User. In both IT solutions, if this support service is mostly provided by
the internal IT service provider, the unit costs of this service are the same. However, the costs, between the two available training options, namely face-to-face and
online training, differ: An online training does not require any human involvement,
and therefore is less expensive than a face-to-face training. In the face-to-face option, the total production costs might increase stepwise with the number of endusers, as one training session might be provided for a fixed number of end-users,
e.g., 10-15 end-users.
• Help Desk. For software related issues the unit costs of this support service are
similar in both IT solutions if the internal IT service provider is the main contact of
the end-users. However, for incidents caused by hardware problems, the costs differ between the two IT solutions. This is because in the SaaS solution hardware incidents are solved by the SaaS provider. Thereby, extra costs do not incur for the
internal IT service provider as they are already covered in the regular end-user or
support subscription fees.
• Change Request. In both solutions, the unit costs of this service are similar for application related issues, i.e., customization of the solution. Nevertheless, in the inhouse solution additional costs for changes in the hardware might occur.
• Upgrade Software. The costs between the two IT solutions differ significantly for
the service ‘upgrade software’. In the in-house solution, the unit costs are similar
to a new in-house development project (compare to Chapter 0). The costs for this
174
are completely allocated to the internal IT service provider. The total cost during
the entire lifetime of an IT service portfolio depends on the number of upgrades,
ordered by the contractor. Thereby, the unit costs of one service are smaller if the
upgrade is conducted in shorter cycles. In the SaaS solution, the service is almost
completely outsourced to the SaaS provider. The costs of the software upgrade are
included in the user subscription fee. Small costs for the internal IT service provider arise from activities, such as providing test data to the SaaS provider, enabling
the new features, and informing the end-users about the updates.
• Set-Up Business Unit. The unit costs to provide a client-server based IT service
portfolio to a new business unit does not differ amongst the IT solutions. In both
IT solutions similar activities must be performed, e.g., the business processes of
the business unit must be analyzed and adjusted to the new IT solution. Furthermore, the local data of the business unit must be imported into the new solution.
Afterwards, for each new end-user the support service ‘enable end-user’ must be
consumed. Thereby, as described above, the unit costs of the service ‘enable enduser’ varies between the two IT solutions.
Electro Ltd.: Unit Costs of Support Services
Controlling calculates for each support service the unit cost based on the BOS and the
unit costs defined for each preliminary service.
ID
name
SSE_003
enable end-user
PSE _148
PSE_540
PSE_831
PSE_540
PSE _976
PSE_540
PSE_187
PSE_540
PSE_403
PSE_540
delivery management
send installation file
delivery management
delivery management
resolve SW installation problem (OPTIONAL)
delivery I
upgrade of client operating system (OPTIONAL)
delivery I
ID
name
SSE_003
enable end-user
PSE _148
PSE_540
deliver y management
PSE _976
PSE_540
delivery management
delivery management service (PSE 540)
quantity (min.)
unit cost (CHF/ min.)
regular unit cost:
additional optional unit cost:
cost per service unit
(CHF)
22.57
85.76 and/or 135.42
15
1.13
16.93
3
1.13
3.39
2
1.13
2.26
76
1.13
85.76
120
1.13
135.42
delivery management service (PSE 540)
quantity (min.)
unit cost (CHF/ min.)
regular unit cost:
cost per service unit
(CHF)
19.19
15
1.13
16.93
2
1.13
2.26
Exhibit 91. In-House & SaaS – Unit cost of support service ‘enable end-user’ 17
17
In the unit cost calculation of support services only the costs of the preliminary services provided by the internal IT service provider and suppliers are considered. The costs caused by customer company are neglected.
175
Similar to the unit cost calculation of preliminary IT services used for the production
of core services (see Exhibit 89, p.169), the unit costs of the preliminary services used
to produce the support services are derived from the total costs of the labor resources
and the planned total consumption of labor capacities. For instance, the unit cost of the
preliminary service ‘delivery management (CHF 1.13 per minute) is based on a cost
allocation of the total 10-year costs of the internal human resources. The total costs
include for instance the costs of salaries, overtime, social contributions, rent, and telephone.
A comparison of the unit costs of the in-house and SaaS support service ‘enable enduser’ reveals the following. Due to differences in the required labor capacities, the inhouse unit cost of the support service is slightly higher for regular service consumption than the SaaS unit cost of the same service. Furthermore, additional costs for the
in-house service must be considered if problems with the software installation occur,
or if the client OS must be upgraded.
As specified in the work plans (see Chapter 5.5.1.3), in the in-house solution maintenance services are largely created of labor capacities of the internal IT service provider,
and labor capacities of its suppliers. Thus, similar to support services, maintenance
services are largely composed of labor costs. The costs of the maintenance services
can be derived from the costs of the internal IT employees, as well as from the procurement costs of external human services. Additionally, software costs and overhead
costs must be considered.
Maintenance services are consumed by the IT resources, which they maintain, and
external IT services, which they manage. Therefore, the costs of the services must be
allocated to the IT resource and IT services based on the actual consumption, which
were specified in the work plans (see Exhibit 86, p.162) [Übernickel et al. 2006b]. For
instance, if the IT resource ‘server’ is maintained by the maintenance service ‘server
management’ the labor costs of the minutes spent on this resource must be allocated to
the server. Due to the large impact of maintenance services on the service levels of the
internal IT resources, a reduction in the investment of maintenance services will most
likely negatively affect the service levels of the core services (see Chapter 5.5.1.3). As
a consequence, cost of poor quality may arise. Cost of poor quality refers to the costs
for resolving problems or to consequential costs of reduced service levels [Hochstein
et al. 2008a, p.41].
If the number of IT resources required for the provision of an IT service portfolio increases, while at the same time SLAs of the resources must remain the same, the in-
176
vestments in the maintenance services must be extended. Therefore, the total costs of
the maintenance services will rise. However, if a certain volume of maintenance services is reached, the internal IT service provider will be able to leverage economies of
scale due to a higher level of automation and specialization [Lacity et al. 1996]. As a
result, the proportion between costs of labor capacities and costs of IT capacities will
change, i.e., the cost proportion of labor capacities will decrease, whereas the cost
proportion of IT capacities will increase.
In the following, the maintenance services defined for the two IT solutions are explained regarding their cost behavior and cost allocations to IT resources and external
services.
In the in-house IT production line, the subsequent maintenance services must be allocated to the different IT resources generating the core service units.
• Server Management. To ensure reliability and security, the server must be monitored, controlled and adjusted on a weekly basis. In addition to the costs of these
activities, further costs arise from the installation of new batches or for the operation of security software. The recurring costs are allocated to the resource ‘server’.
• Network Management. The time required managing the network, and thus the unit
costs of this maintenance service depend on various factors. In particular, the size
of the network (i.e., the number of physical IT resources such as routers), the traffic volume, and the user numbers will affect the total costs of this service. In addition to the costs to maintain internal IT resources, costs of managing network partners of wide area networks (e.g., Internet providers) may occur. Costs of the service ‘network management’ are allocated to the resource ‘network’, i.e., Internet or
LAN. Based on the planned number of service units and the number of transmitted
bytes per service unit, the network costs are allocated to core service units. Thereby, the costs must be shared amongst the different IT service portfolios offered by
the internal IT service provider.
• Database Administration. This service is, similar to the previous service, conducted on a regular basis. The costs of this service are allocated to the resource
‘database application’. Thereby, the complexity of the table structure and the data
volume will increase the unit service costs. The total costs of the database application will be allocated to core services based on the number of database accesses
(i.e., new data entries, data updates, and data queries).
177
• Storage and Archive. The unit costs of this service strongly depend on the volume
of the data to be stored, and the automation level of the service. A lower data volume and a higher degree of automation will decrease the costs of one service unit.
The total costs occurring during the entire lifetime of the IT service portfolio depends on the requirements regarding the frequency of service consumption. The
data volume to be stored and updated increases linearly with the number of core
services consumed. The service ‘storage and archive’ is allocated to the resource
‘database application’.
• Monitoring and Control. As this service monitors and controls the end service levels of the core and support services, its costs are allocated to the hierarchy level
‘IT service portfolio’. Recurring costs occur on a daily basis due to monitoring activities. Additional irregular costs occur if regulatory actions have to be performed.
Furthermore, besides labor costs, expenses for controlling and reporting tools must
be considered.
IT Solution 2: SaaS
As most of the maintenance services in the SaaS solution are outsourced to the SaaS
provider, the maintenance costs are relatively low. Nevertheless, three services must
be considered for the cost calculation.
• Network Management. The costs of this service strongly depend on the network
components of the core services’ bills of services. If the BOS only contains Internet services, i.e., if the client PCs are directly connected to the Internet, then the
only costs, which occur, derive from managing the Internet providers. However, if
the BOS also contains LAN services, the network costs will resemble the network
costs in an-house house solution, i.e., costs for the monitoring and controlling the
local area network.
• Management of SaaS Providers. The time required to perform this support service,
and therefore the service costs depend on two factors: first, the number of different
SaaS providers cooperating with the internal IT service provider and second, the
degree of standardization of their relationship [Jayatilaka et al. 2003]. The costs
will increase with each new SaaS provider, but will decrease if the service levels
of the SaaS provider are clearly defined, and sophisticated tools to monitor and
control the SaaS service are available. The costs of this service are allocated to the
external service ‘SaaS service’.
•
Monitoring and Control. Similar, to the in-house solution, in the SaaS solution,
the end-user view, i.e., the sales view, of the core and support services must be
monitored and controlled by the internal IT service provider. As this view is equal
178
for both IT solutions (i.e., both IT solutions must meet the requirements specified
in the sales specification) the cost of this service is also the same.
Electro Ltd.: Total Costs of Maintenance Services
For both IT solutions, the role controlling computes the total costs of the maintenance
services for the period of 10 years. The costs are based on the hourly cost rate calculated for the new IT employee responsible for the maintenance services (CHF 67.71).
As the new employee is responsible for all maintenance services, the hourly cost rate
is the same for all services. The hours per year are derived from the new employee’s
daily workload caused by the maintenance services (see Exhibit 82, p.154).
In-House: resource
ID
name
ID
name
MSE_431 server mgmt.
RES_432 serverTX32
RES_470 Oracle 9i DB
ISPO_56 IT support for
CRM activities
MSE_148
MSE_540
MSE_980
MSE_194
database admin.
storage&archive
network mgmt.
monitoring&cont.
2010
cost rate
hours
costs per
(CHF/hour) per year year (CHF)
(A)224
15,167
67.71
total cost of maintenance services (10 years)
SaaS: resource /service
ID
name
ESE_762 CRM SaaS.com
(basic)
ESE_895 CablecomInternet
ISPO_56 IT support for
CRM activities
ID
MSE_458
MSE_980
MSE_980
name
management of
SaaS providers
network mgmt.
network mgmt.
111
150
21
74
7,516
10,156
1,422
5,010
580
39,270.83
2011 – 2019
hours
per year
264
(1.1 hours/day
x 20 x 12)
144
192
24
96
costs per
year (CHF)
17,875
total costs
for 20102019 (CHF)
176,042
9,750
13,000
1,625
6,500
95,266
127,156
16,047
63,510
720.00
48,750
478,021
costs per
year (CHF)
total costs
for 20102019 (CHF)
48
24
5.2
3,250
1,625
352
32,500
16,250
3,520
96
6,500
65,000
173
11,700
117,270
2010-2019
cost rate
(CHF /hour)
67.71
MSE_194 monitoring&cont.
total cost of maintenance services (10 years)
hours
per year
Exhibit 92. In-House & SaaS – Total costs of maintenance services (10 years)
Main cost differences between the two IT solutions stem in the SaaS solution from the
maintenance services, which were outsourced to the SaaS provider. Furthermore, in
the in-house solution, the annual maintenance costs of the first year differ from the
costs of the following years. Reason for this is that in the first year the labor capacities
required for the maintenance services were reduced, as the new IT employee would be
heavily involved in the introduction of the new IT service portfolio. Thus, less labor
capacities would be available for the maintenance services. In the SaaS solution, the
maintenance services can be executed as planned since the introduction of the new
SaaS solution would require less labor capacities.
179
5.6.2 Costs of IT Development Alternatives
The goal of an IT development alternative is the creation of the IT production alternative, which is responsible for generating the services of a new IT service portfolio.
The one-time costs of the IT development alternative, thus, can be allocated to the cost
hierarchy level ‘IT service portfolio’. Thereby, the development costs can be depreciated over the useful life of this cost object [Hansen/Mowen 2006, p.881]. Based on
the planned sales volume of service units, in a further calculation, the development
costs can then be allocated to the final costs of IT service units, i.e., service units of
core and support services [Übernickel 2008, p.59]. Exhibit 93 shows an extract of the
value chain of the IT product-oriented cost accounting approach (compare to Exhibit
23, p.51). In the context of this dissertation, the extract, which focuses on project
costs, were further specified to illustrate the cost allocation of development services to
final costs of IT services.
costs of IT development alternative
development services
overhead
costs
cost
allocation
according
to consumption
•server / CPU
•server enterprise app
•database app
•server OS
•LAN
•
•
•
•
router
client PC / CPU
client enterprise app
client OS
support
internal
services
human resources
•product management
•product engineering
•production engineering
•…
external
human services
final costs of
core services
costs of IT
development
alternative
final costs of
support services
IT solution 2: SaaS
development services
final costs of
core services
internal
IT resources
overhead
costs
cost
allocation
according
to consumption
•LAN
•router
•client PC / CPU
•client enterprise app
•client OS
•…
internal
human resources
•product management
•product engineering
•production engineering
•…
external
IT services
•SaaS IT service
•Internet service
•…
costs of IT
development
alternative
external
human services
•SaaS human services
•…
Exhibit 93. Allocation of total projects costs to IT services
[adapted from Übernickel 2008]
final costs of
support services
180
The ‘total costs of an IT development alternative’ are composed of the total costs of
internal resources and external services. Against this, the ‘actual costs of the development services’ of an IT development alternative can be derived from costs of the activities performed in the development project. Based on the difference between these
two cost numbers, the role controlling determines the costs of unused resources. For
instance, if a test server can be used for other development projects after the completion of a project, only the costs for the actual usage must be allocated to the project.
As typical for IT development projects, development projects of in-house and SaaS
solution are highly labor intensive [Bonham 2004, pp.161-163]. Thus, a large portion
of development expenses are labor costs. Additional costs occur from overhead costs,
and development and test environments [Bundschuh/Fabry 2004, pp.63-99]. Thereby,
according to the principles of economies of scale, IT service providers, which run frequently IT development projects will be able to better optimize the total costs of their
projects [de Loof 1997]. Contrarily, IT service providers, which launch less regular
new IT service portfolios, will encounter difficulties in reaching the same economies
of scale. The labor capacities provided on a regular basis by the internal human resources is often not sufficient for the additional short-term labor need of the IT project
[Bonham 2004, p.163]. Instead, these service providers must rise costly the maximum
labor capacities by increasing the available capacities of their internal human resources, or by sourcing external human services. Due to overtime payment of internal
human resources and higher hourly rates of consultants, the cost rates of these extra
capacities are most likely higher than the costs of the regular available labor capacities, which occur for the generation of support and maintenance services. Following
costs occur for the human resources and services used in IT development projects of
the two IT solutions:
• Internal IT Service Provider. The cost rates for internal human resources differ
largely amongst IT service providers. Providers, which regular launch new IT service portfolios, can run IT development projects with their existing human resources. Thus, the cost rate is based on regular salaries. However, IT service providers, which perform less regular IT development projects, have in general labor
cost rates composed of regular salary, as well as overtime costs. The hourly cost
rates further differentiate with increasing specialization of the internal IT service
provider. For instance, if the roles of an IT service provider (e.g., product management, product engineering, production engineering) are occupied by different
IT employees with different salary levels, the cost rates of each role will vary.
• Supplier. In addition to costs of internal human resources, external costs of consultant services occur [Lientz/Larssen 2004, p.93]. These costs are variable, i.e., the
181
internal IT service provider must only pay for the actual consumed consultant services. Thereby, the hourly costs of a consultant can be a multiple of the hourly
costs of an internal human resource. Nevertheless, the internal IT service providers
can often negotiate lower prices. For instance, a SaaS provider might offer the internal IT service provider cheaper hourly rates for its consultant services in order
to promote the entire SaaS solution.
• Customer. Although the customer supports the internal IT service provider in the
development project, it is common that the costs of these resources are not reimbursed by the internal IT service provider.
As both IT development alternatives consume the same before described labor capacities, similar costs rates for human resources can be used. Nevertheless, the actual costs
of the solutions will vary for two reasons. First, the labor capacities are consumed in
different volumes due to varying project activities (see Chapter 5.4.2). Second, the use
of internal IT resources and external IT services differs. The following chapters illustrate the consequences this has on the costs behavior of the three core phases of a
development project.
• Detailed Concept of Production Alternative. A large part of the costs of this
project phase derives from the expenses of defining the customization requirements. In both IT solutions, these expenses will be the same as long as the packaged software and the SaaS solution provide the same functionality. However,
costs differences between the two IT solutions will stem from the two activities.
When evaluating the availability of resources, in the SaaS solution only the human
resources must be considered, whereas in the in-house solution also IT resources
are relevant. Moreover, in the SaaS solution the transaction costs might be lower
than in the in-house solution due to smaller numbers of negotiation partners and
the availability of service levels predefined by the SaaS providers [Jayatilaka et al.
2003]. Contrarily, in the in-house solution, unless the internal IT service provider
has fix SW and HW partners, the expenses will be higher than in the SaaS solution
due to the need to evaluate several SW and HW vendors, as well as to compute the
service levels based on the expected workload of the internal IT resources.
• Realization of IT Production Alternative. In this phase, the costs of human resources are also rather similar among the IT solutions. Thereby in particular, activities such as, importing test data, customizing and testing will cause large costs in
both IT solutions. However, differences in costs of human resources stem from the
necessity to set-up hardware and install the server and client enterprise application.
For instance, the costs of the service ‘enable development user’ and ‘enable test
user’ can largely differ between the two IT solutions. In the in-house solution, IT
182
employees must register themselves as users and install the client software on their
machines. In the SaaS solution, no installation is necessary. Thus, the costs rate for
this activity will differ between the solutions. Finally, the costs of establishing
support and maintenance services for the production alternative most likely differ,
as in the SaaS solution only the maintenance services, which are not outsourced to
the SaaS provider, must be defined and taught to the IT employees.
Besides, human resource costs, additional costs for IT services occur. According to
the activity-based costing principles, only the actual costs of the consumption of IT
resources are assigned to an activity. For instance, the costs of usage for the test
server would be allocated to the activity testing software based on the number of
days the server is used in this activity. However, if the IT resource cannot be used
elsewhere after project completion, the costs of unused capacities must also be allocated to the IT development alternative. An addition to hardware costs, software
costs occur in the in-house solution as the internal IT service provider must pay for
each development and test user the user licenses for the enterprise application.
Against this, in the SaaS solution, costs occur either from a fix monthly subscription fee for the SaaS solution for testing and developing, or from a monthly subscription per user. Thereby, the price models for development and test environments may differ, amongst the SaaS provider: the price is either based on the actual number of development and test users, or on the future number of end-users.
Finally, in the in-house solution additional overhead costs may occur (e.g., for the
rent and cooling of the server room, or the insurance of the hardware).
• Introduction of IT Production Alternative. Assuming the in-house solution is based
on client-server architecture with one central web server for all business units, then
the expenses for the activity ‘set-up business unit’ will be the same amongst the
two solutions. Furthermore, the costs of the service ‘train end-user’ will be the
similar due to the same bill of service (Chapter 0). However, differences in costs
will occur due to the different BOS of the service ‘enable end-user’.
Electro Ltd.: Cost Accounting of Development Services
According to the specified project plans (see Exhibit 70, p.135) and the human resources allocated to the development project, controlling develops the total costs of
the two IT development alternatives (see Exhibit 94, p183 and Exhibit 95, p.184). The
difference of CHF 58,500 (CHF 177,800 – CHF 119,300) can be explained as follows:
[A] Due to higher in-house expenses for activities, such as the availability evaluation
of internal IT resources, and the negotiation of prices with several SW and HW
vendors the first phase differs between the two projects by CHF 8,000.
183
[B] The second phase varies largely between the two projects (i.e., CHF 117,000 and
CHF 66,500). The main reasons for this difference is Electro IT Services’ need to
buy new hardware and software licenses for the development and test environment. These costs (i.e., CHF 40,500 = CHF 4,000 +7,500 +4,000 +25,000) are
completely allocated to the in-house project as no need for these resources exists
after project completion. Against this, in the SaaS solution Electro IT services pays
a monthly rent for the SaaS development and test environments.
activities / resources
organizational unit/ resource
phase1: detailed concept of IT production alternative
- check availability of human resources
- check availability of IT resources
negotiate prices with SW and HW vendors
- specify ‘vendor bidding document’
- select SW & HW combination
- define requirements
- install HW and SW
- enable development user
- import test data
customize software
- server enterprise application
- client enterprise application
- overhead
- install HW and SW
- enable test user
- import test data
test software
- test software
- server enterprise application
- client enterprise application
- overhead
- train IT employees
units
unit cost (CHF)
Electro IT Services
Electro IT Services
1 day
2 days
800
800
Electro IT Services
Accenture
Electro IT Services
5 days
5 days
3 days
800
2,000
800
Electro IT Services
Accenture
15 days
15 days
800
2,000
total costs (CHF)
[A] 60,800
2,400
800
1,600
16,400
4,000
10,000
2,400
42,000
12,000
30,000
[B] 117,000
6,400
Electro IT Services
3 days
800
2,400
Electro IT Services
2 days
800
1,600
Electro IT Services
3 days
800
2,400
53,900
Electro IT Services
15 days
800
12,000
Accenture
15 days
2,000
30,000
CRM server app 1
1 license
4,000
[B] 4,000
CRM client app 1
3 licenses
2,500
[B] 7,500
server room 243
20 days
20
400
7,200
Electro IT Services
2 days
800
1,600
Electro IT Services
4 user
8500
3,200
Electro IT Services
3 days
800
2,400
22,100
Electro IT Services
10 days
800
8,000
CRM server app 1
1 license
4,,000
[B] 4,000
CRM client app 1
10 licenses
2,500
[B]25,000
server room 243
5 days
20
100
12,400
Electro IT Services
3 days
800
2,400
Accenture
3 days
2,000
6,000
internal ISP
5 days
800
4,000
costs of the service consumption of three support services ‘set-up business
unit’, 113 (MA: 21,SA: 37,SE: 55) support services ‘enable end-user’, and 113
support services ‘train end-user’ are included in the total costs of support services (see Exhibit 85, p.160). The costs of this phase are therefore not listed in this
cost calculation.
total costs of development alternative
Exhibit 94. In-House – Total costs of development services
177,800
184
development activities
organizational unit/ resource
- check availability of human resources
negotiate prices with SaaS providers
- select SaaS solution
- activate development SaaS environment
- enable development user
- import test data
customize SaaS solution
- usage of development SaaS environment
- activate test SaaS environment
- enable test user
- import test data
test SaaS solution
- test SaaS solution
- usage of test SaaS environment
- train IT employees
units
unit cost (CHF)
Electro IT Services
1 day
Electro IT Services
Accenture
Electro IT Services
3 days
3 days
4 days
800
2,000
800
Electro IT Services
Accenture
15 days
15 days
800
2,000
800
Electro IT Services
Electro IT Services
Electro IT Services
1 days
1 days
3 days
800
800
800
Electro IT Services
Accenture
devCRM onDemand services
15 days
15 days
5 user
800
2,000
18
220
Electro IT Services
Electro IT Services
Electro IT Services
1 days
2 user
3 days
800
220
800
Electro IT Services
testCRM onDemand services
10 days
10 user
800
220
Electro IT Services
Accenture
Electro IT Services
1 days
1 days
2 days
800
2,000
800
total costs (CHF)
[A] 52,800
800
800
10,000
2,400
6,000
1,600
42,000
12,000
30,000
[B] 66,500
4,000
800
800
2,400
43,100
12,000
30,000
[B]1,100
4,800
800
1,600
2,400
10,200
8,000
2,200
8,000
4,400
800
2,000
costs of the service consumption of three support services ‘set-up business unit’,
113 (MA: 21,SA: 37,SE: 55) support services ‘enable end-user’, and 113 support
services ‘train end-user’ are included in the actual costs of support (see Exhibit 85,
p.160). The costs of this phase are therefore not listed in this cost calculation.
total costs of development alternative
119,300
Exhibit 95. SaaS – Total costs of development services
18
In the fictitious company, a price model for a SaaS development and test environment is applied, which is
based on the number of test and development users and the time period for which the environments are used.
Other price models for SaaS environments may charge a price, which is based not on the number of test and
development user but on the number of final end-users.
Phase 6 – Final Selection between In-House or SaaS Solution
185
5.7 Phase 6 – Final Selection between In-House or SaaS Solution
Purpose:
to select the in-house or the SaaS solution based on its cost-efficiency, as well as the updated SLAs and selling prices of the IT products and IT services
Roles:
controlling, account management, product management, contractor
Activities:
-
Input:
all documents created in the previous phases
Output:
‘what-if’ scenarios, updated IT product contract & sales specifications, final decision
Proceed with:
phase 1 (i.e., customer requirements analysis), place, or cancel IT product order
build ‘what-if’-scenarios based on the information collected in the previous phases
analyze IT solutions’ cost-efficiency and service levels of the various scenarios
determine for each IT product a selling price, which is save for future changes
update IT product contract and sales specifications of the IT services
For the final selection of one IT solution, it is crucial to evaluate each solution based
on its current, as well as on expected future changes [de Loof 1997, p.187]. Thus, in
this phase the role controlling uses the static information collected in the previous
phases to build ‘what-if’ scenarios, which simulate future uncertainties in the IT development and IT production alternative of the two IT solutions. The scenarios are
analyzed regarding their cost-efficiency, and ability to fulfill the defined SLAs. Furthermore, for each scenario IT product prices are determined. The final selling price
of each IT product is based on the different IT product prices determined for each
scenario, and the scenarios’ occurrence probability. The role product management
updates the IT product contract and sales specifications with the new price and SLA
information. In a next step, the contractor evaluates the updated documents and discusses cost reduction potentials with the role account management. If the contractor
requests changes to the IT product and the included IT services, the previous steps
must be repeated [Scheeg 2005, p.171]. The investment analysis is completed when
the contractor places, or cancels the final IT product order.
IT development
& production
alternative
has
scenario
affects
costs of IT solutions,
selling price & SLAs of IT
products and IT services
determines
product
management
updates
creates
controlling
composed
of
requests
changes
IT solution
account
management
developed
for
IT service
portfolio
IT product
contract
sales
specification
describes
negotiates with
orders
IT product
evaluates
describes
Contractor
bundles
has
IT service
provides
186
In the following two chapters, the final decision-making between the in-house and the
SaaS solution is explained from two points of views, first the point of view of the internal IT service provider, and second the point of view of the customer company.
5.7.1 Decision-Making by Internal IT Service Provider
The previous phases of the proposed method are based on the assumption that the situation of the customer company, the internal IT service provider, and its suppliers
remain stable and that all variables are known over the entire lifetime of the IT service
portfolio. However, this assumption is artificial as in the real economy the variables
change over time [DeLone/McLean 1992, p.182, Menascé et al. 2004, pp.102/103].
Therefore, in order to select cost efficient IT solutions, which meet the expectations of
the contractor, and to engage in price and service level negotiations, a sound knowledge of possible future changes and their consequences on the two IT solutions is
crucial.
Final Decision-Making by Internal IT Service Provider
IT Development
IT Development Alternative
Alternative
IT
Production
- IT productAlternative
contract
IT Production
Alternative
- sales specifications
- IT product
contract
- production
plans
- sales
specifications
- work
plans
…
- production
plans
- work load
profile
- work
plans
-total
costs of IT production alternative IT Development
- work
load costs
profileof IT services
Alternative
- actual
IT
Production
-total costs of IT production alternative
Alternative
- actual costs of IT services
scen
1
o
i
r
a
na
sce
2
rio
ario
scen
n
IT Development Alternative
IT Production
- IT productAlternative
contract
1
o
i
r
na
IT solution 2: SaaS
IT Development
Alternative
IT
Production
Alternative
na
sce
2
rio
- sales specifications
- IT product
contract
- production
plans
- sales
specifications
work
plans
…
- production plans
- work
load profile
- work
plans
IT Development
-total
costs
of IT production alternative
- work
load
profile
Alternative
IT
Production
- actual
of IT services
-total
costs costs
of IT production
alternative
Alternative
sce
ario
scen
n
controlling creates scenarios by changing various influencing factors of IT development and IT production alternatives
controlling and product management determine selling prices and SLAs based on outcomes and level of uncertainty of scenarios
product management
updates sales prices and SLAs in
contract of IT product & sales specifications of IT services
contractor & account management
negotiate sales prices and SLAs
Final Decision-Making by Customer Company
Exhibit 97. Decision-Making by Internal IT Service Provider
A valuable method to predict future changes is sensitivity analysis [Saltelli et al.
2004, pp.42-46, Koller 2005]. In the context of the proposed method, sensitivity analysis is applied to build ‘what-if’ scenarios. The scenarios provide valuable insights on
the consequences of future risks and uncertainties on the cost-efficiency of the two IT
solutions, as well as the final selling prices and SLAs of the IT products and IT services (see Exhibit 97). Subsequent activities are conducted by the role controlling.
1. Creation of Contributing Factor Diagram. In a first step of this activity, controlling identifies the variables influencing the outcomes of the two IT solutions. The-
187
reby, the influencing variables can be derived from the previous phases as outlined
in Exhibit 98.
manufacturing view
sales view
phases
1. customer
requirements
analysis
3.
manufacturing specifications
4.
capacity
requirements
planning
5.
cost
accounting
influencing factors on costs and service levels
IT product contract
- first delivery date
- price
SLAs of core services
- availability
SLAs of support services
- service hours
- delivery time
- upgrade rollout date
unit consumption of core services
- total daily unit consumption
- daily changes
- seasonal changes
unit consumption of support services
- number of end-users
- number of business unites
- number of end-users
- duration of IT product contract
- response time
- upgrade cycles
- customer satisfaction
-…
 result



In-House/ SaaS
- unexpected changes
-…

- delivery time
- date and frequency of upgrades
-…

In-House
SaaS

- BOS of core services
- BOS of support services
- work plans of maintenance services
- project plan of IT project
…
- workload CPU
- workload of LAN
- workload of internal human resources
…
- prices of software licenses
- prices of software support
- prices of hardware
- salaries of internal human resources
- BOS of core services
- BOS of support services
-work plans of maintenance services

- project plan of IT project
…
- available data storage
- workload of Internet

-workload of internal human resources
…
- prices of subscription fees
- prices of SaaS support

- salaries of internal human resources
-…
- costs of
IT development
& production
alternatives
- selling prices of
IT products & IT
services
- service levels of
IT services
Exhibit 98. Influencing factors to develop scenarios of IT production alternatives
Furthermore, controlling defines which variables are situational, (i.e., not controllable), which are decisional (i.e., controllable) and which variables are goal variables. The categorization of the variables is company-specific. For instance, the
number of IT employees is situational, if the IT service provider cannot change the
employee number due to hiring freeze in the company. However, the number of IT
employees is decisional, if the internal IT service provider has no restrictions on
increasing the employee numbers. Concluding, for each IT production and IT development alternative, controlling develops a contributing factor diagram (CFD).
CFDs are composed of the identified variables and illustrate their logical and mathematical dependencies (see Exhibit 102, p.191 and Exhibit 106, p.197).
2. Determination of Distribution of Variables. For each variable, controlling defines
the value distribution, i.e., the range of possible values (compare to Exhibit 18,
p.43). For instance, the end-user numbers in the first five years after the launch of
a new IT service portfolio may range between 150 and 250 end-users. The renewal
prices of the software licenses to be paid for the next upgrade cycles may range
188
between CHF 2,700 and CHF 3,500. The distributions of the variables are used as
input for the following price calculation.
3. Pricing of IT Products and IT Services. In order to price the IT products and IT
services for the contractors, controlling performs a Monte Carlo Simulation. In the
simulation the previously defined value ranges of the variables are randomly combined to analyze their output of specified goal variables [Mooney 1997, Wieske
2007]. In order to evaluate possible prices, controlling defines, for instance, the
break-even point as one goal variable. Thereby, the price is composed of a specified contribution margin, as well as the development and production costs allocated to the IT product on a per month and end-user basis. The production costs of
the IT product can be calculated based on unit costs and the sales volume of each
core service included in the IT product. For each scenario, controlling analyzes the
volume of service units, which had to be consumed to reach the break-even point.
Any additional, service units that were consumed after the break-even point would
create profit for the internal IT service provider (see Exhibit 106). Thus, IT solutions, which do not reach the break-even point before the end of the contract duration, will result in a loss. For a detailed description on how to calculate the breakeven point see [Hansen/Mowen 2006, pp.736 et sqq.]
total
revenue
revenue
profit region
profit
(CHF100)
400
total
cost
300
200
100
break-even
point
(20, CHF200)
loss
variable expenses
(CHF20, or CHF5 per unit)
fixed expenses (CHF100)
20
40
60
units sold
Exhibit 99. Cost volume profit graph
Based on the probability occurrence and the product price of each scenario, controlling determines the final selling prices for each IT product.
4. Determination of SLAs. In addition to the selling prices, controlling simulates the
service levels of each core and support service in various scenarios. Based on the
occurrence probability and the service levels of each scenario, controlling determines the final SLAs for the sales specifications.
5. Update of IT Product Contract and Sales Specifications. Concluding, product
management updates the IT product contracts and sales specifications of the IT
services with the new price and SLA information.
189
Electro Ltd.: Price Calculation of IT Product
In order to determine the final end-user selling price of each IT product, the role controlling determines for each scenario the proportion of production costs, development
costs, and the contribution margin to be allocated to the IT product on a monthly/enduser basis. Thereby, the monthly production costs to be allocated to an IT product and
end-user are computed with the following formula19.
monthly end-user costs
per IT producti & scenario =
∑ ( daily sales plans of core servicek and IT product
x 20 days x unit cost of core servicek)
number of end-user assigned to IT producti
monthly
license price of packaged SW,
+
or SaaS subscription fee
The formula does not consider the production costs of the support services as they are
billed in addition to the monthly price of the IT product (see Exhibit 39, p.86). Exhibit
100 illustrates a cost calculation for the IT product ITP_056 in the IT production scenario 1. The scenario 1 is based on the data collected in the previous phases.
Scenario 1: original data (see Exhibits in phases 1 to 5) / IT product: IT product ITP_056
core service
ID
description
monthly sales volume of core service units
included in IT product ITP_056
CSE_001 login
CSE_002 logout
CSE_012 view customer profile
CSE_014
CSE_016
CSE_032
CSE_071
…
10,000
10,000
6,360
(0 + 30 + 50 + …+ 15 + 0 + 0 ) units x 20 days
see Exhibit 53, p.101 )
edit customer profile
3,000
segment customers
2,000
perform e-campaign
1,500
view marketing report
2,000
…
…
unit cost (CHF)
in-house
0.00012532
0.00012532
0.00802224
(see Exhibit
91, p.174)
0.00801253
0.04352814
0.22352814
0.01401253
…
SaaS
[C] 0.01201622
[C] 0.01201622
0.01201622
(see Exhibit 91,
p.174)
0.01201622
0.01201622
[C] 0.02500214
0.01430125
…
monthly costs (CHF)
in-house
SaaS
1.25
1.25
51.02
120.16
120.16
76.42
24.04
87.06
335.29
28.03
…
36.05
24.03
37.50
28.60
…
monthly core service production costs for the IT product ITP_056
2,027.99
478.98
monthly core service production costs for the IT product ITP_056 and per one end-user (from 21 end-users)
monthly license price of packaged SW, or SaaS subscription fees
[A]96.57
[B]104.00
[A]22.81
[B]220.00
total monthly core service production costs per end-user for the IT product ITP_056 CHF 200.57 CHF 242.81
Exhibit 100. In-House & SaaS – IT production scenario 1
production costs of core services included in IT Product ITP_056 (month/end-user)
The ‘total monthly core service production costs per end-user computed for the IT
product ITP_056 differ between the in-house and SaaS solution by CHF 42.24 (i.e.,
in-house CHF 200.57 vs. CHF 242.81) for the following reasons.
[A] The monthly core service production costs are significantly higher in the in-house
solution than in the SaaS solution (CHF 96.57 vs. CHF 22.81). This variation is
explainable with the additional costs to purchase and to maintain the internal IT
19
This formula has been chosen in particular to illustrate the differences between the production costs of core
services and the costs for SW licenses and SaaS services.
190
resources (compare to Exhibit 90, p.171). In the SaaS solution, these costs are
smaller as most internal IT resources are outsourced to the SaaS provider.
[B] For the additional effort to purchase and maintain IT resources, SaaS providers
often provide monthly subscription fees which are comparatively higher than the
license fees depreciated over the actual lifetime (in-house: CHF 104.00 = CHF
2,500.00 per license ÷ 2 years ÷ 12 months vs. SaaS: CHF 220.00).
[C] Whereas, in the in-house solution the unit differs largely amongst the core services (e.g., 0.00012532 vs. 0.00802224), in the SaaS solution, the unit costs are rather similar (around CHF 0.01201622). Reason for this is, that in the in-house solution, the calculation of the unit costs are based on the number of varying CPU
instructions. Against this, in the SaaS solution the unit costs of every core service
are based on one service request (see Exhibit 53, p.101).
To determine for each IT product a selling price, which is save for various future uncertainties, controlling repeats the previous calculation for each IT production scenario and IT product. In a following step, for each IT product and scenario a price per
end-user/month is defined. The price consists of a contribution margin, as well as the
production and development costs, which were allocated to the IT product on a month
and end-user basis. Finally, for each IT product a final selling price is determined
considering the prices in the various scenarios and their risk/probability. Due to differing cost drivers, the prices for support services are listed separately in addition to
the price of the IT product.
risk
price scenarios for IT product ITP_056 (with development scenario 1)
20%
price for IT production scenario 1 : data assumptions of the previous phases
production costs of core services included in IT product ITP_056 (month/
user)
in-house (CHF)
SaaS (CHF)
48%
CHF 243.69
CHF 281.60
200.57
242.81
(see Exhibit (see Exhibit 100,
100,p.189) p.189)
allocation of development costs to IT product ITP_056 (month/end-user)
13.12
8.8
 for total costs of IT development scenario 1 see Exhibit 107, p.198
( = CHF 177,800
( = CHF 119,300
÷ 10 years÷12 months
÷ 10 years÷
÷ 113 users) 12 months÷113users)
contribution margin for IT product ITP_056 (month/end-user)
30.00
30.00
price for IT production scenario 2: annual increase of core service units by 10%
CHF 280.30
CHF 292.50
32%
price for IT production scenario 3: annual increase of end-user numbers by 4%
CHF 250.30
CHF 290.40
50%
price for IT production scenario 4: increase of SaaS subscription fees by 30%
after third year
CHF 243.69
CHF 330.80
…
…
…
…
final selling price for IT product ITP_056 (per end-user/month)
CHF 290.00
CHF 315.00
Exhibit 101. In-House & SaaS – Final selling price of IT product ITP_056 20
20
Production scenarios are illustrated in Exhibit 105, p.196. Development scenarios are illustrated in Exhibit
107, p.198. The influencing factors of a scenario are explained in the following two Chapters.
191
In the following, the influencing factors, which were outlined in Exhibit 98 (p.187),
are explained concerning their impacts among each other and their overall impacts on
the IT production and IT development scenarios. The assumptions made in the Chapters 5.7.1.1 and 5.7.1.2 are derived from the phases 1 to 5.
5.7.1.1 Influencing Factors for IT Production Alternatives
The outcomes of IT production alternatives depend on various factors. Thereby, on a
high level, the influencing factors and their relationships are the same in the in-house
and in the SaaS solution (see Exhibit 102).
SLAs of
core
services
number of
end-users
+
-
demand for
core
services
+
-
demand for
/ external IT services
+
extension of
internal resources
/ external services
+
+
costs of IT
production
alternatives
+
+
demand for
maintenance
services
+
demand
for
support
services
+
sufficient
IT capacities
SLAs of
support
services
+
+
+
-
service levels
of core
services
prices / salaries of
internal resources /
external services
sufficient
human
capacities
+
service levels
of support
services
-
demand for
internal human
resources / external
human services
Exhibit 102. Contributing factor diagram of IT production alternatives
However, on a detailed level, variations stem from the values of the variables, and the
amplitude of their mutual impacts. For instance, in both IT solutions, end-user numbers influence directly the demand for internal IT resources or external IT services.
Namely, in the in-house solution, growing end-user numbers entail a linear increase in
one-time license costs; in the SaaS solution, similarly, growing end-user numbers increase linearly the volume of recurring subscriptions fees. The final differences between the total costs of licenses and subscription fees depend on the variations in the
price models, the lifetime of the IT service portfolio, and the upgrade cycles of the inhouse solution.
As typical for outsourcing situations, further differences in the variables stem from
the internal IT service provider’s ability to control the variables. This is because in
outsourcing situations, the IT service provider has less control over the outsourced IT
services [de Loof 1997, pp.96-103]. For instance, in the in-house solution, the internal
IT service provider can influence the service levels of the core services by increasing
192
the capacities of the internal resources. In the SaaS solution, the service levels are to a
large extent determined by the SaaS provider. A final differentiator between the influencing factors of the two IT solutions is the level of uncertainty to which the factors change [Koller 2005, p.18]. In the following, the influencing factors affected by
the customer requirements, and influencing factors affected by the manufacturing
view of the two IT solutions are elucidated.
Customer Requirements
Modifications in the IT product contract or the sales specifications may occur during
the initial negotiation phase with the contractor, or when the support service ‘change
request’ is consumed. Due to developing business requirements, the contractor may
request price reductions, increases in the service levels, or extensions of the IT product through a new IT service. Thereby, decreases in the sales price requires the internal IT service provider either to decrease contribution margins, or to decrease the production and development costs resulting in a reduction of the service levels. Similarly,
higher requirements of the service levels will require the internal IT service provider
to increase its capacities of internal resources or external services resulting in a cost
increase of the IT solution, and thus higher prices.
During the lifetime of the IT service portfolio, the unit demand for core services, the
regular daily and seasonal consumption behavior, as well as the drivers for unit consumption may change. Thereby, the changes in the unit demand are strongly affected
by the business of the contractors. In contrast to core services, the consumption drivers of the different support services vary a lot (e.g., in the number of new end-users,
skill level of end-users, new business units, increased unit consumption, number of
upgrades, etc.). If demands in core or support services change, sales plans and IT production lines must be updated in order to prevent either decreases in service levels, or
increases in unused capacities.
Manufacturing View of IT Solution 1: In-House
Changes in the BOS of core and support services may need to be conducted because
of arising needs to adjust existing sales specifications. For instance, a new requirement to enlarge the delivery of core services from a local to global delivery entails the
extension of the BOS with a new preliminary IT service (e.g., Internet service). The
BOS may also need to be changed if existing resources must be replaced due to resource shortfalls. For instance, because of a total long-term server failure, the preliminary IT service ‘CPU power of Intel Centrino Duo 2.60 GHz’ must be replaced with
the preliminary IT service ‘CPU power of Intel Centrino Duo 3.20 GHz’. Compared
to the low-level BOS of SaaS core services, the BOS of in-house core services is often
193
composed of several BOS levels. Thus, the preliminary IT services in the in-house
BOS of a core service can be changed at various levels. The changes in the BOS will
affect the demand for resource capacities and thus will cause an increase or decrease
in sufficient resource capacities.
Additionally, insufficient capacities may be caused due to increases in the sales volume of IT service units, increases in the SLAs defined in the sales specifications, or,
decreases in the maximum capacity of internal resources. Thereby, the predictability
and pace in which capacities become insufficient and need to be extended depend on
various factors (e.g., initial workload of internal IT and human resources, or increasing unit consumption of other IT service portfolios sharing the same resources, such
as the LAN).
total costs of
IT production
alternative
extension of
human resources
extension of
extension of
max. bandwidth
max. CPU power
100
200
300
400
500
600
700
800
1,000 1,100
hourly unit
consumption
1,200 1,300 1,400 1,500 1,600 of core services
Exhibit 103. In-House – Cost pattern of growing hourly unit demand for core services
Exhibit 103 exemplifies a possible cost pattern caused by an increase in the hourly
service unit consumption of core services. With increasing consumption, the workload
of the CPU rises entailing a decline in sufficient CPU power. As a result, the service
levels of the core services decrease. To retain the service levels as defined in the sales
specifications, in a first step the maximum CPU power would need to be extended.
The costs of this undertaking would be added to the total costs of the IT production
alternative. Furthermore, with increasing hourly service unit consumption of core services, the total data volume stored on the server also increases, as each service unit
creates new transaction data. Thus, the available capacity of the storage space falls
requiring the extension of the server’s storage capacity. The extensions of both IT
resources would increase the demand for maintenance services. Additionally, the increasing hourly unit consumption of core services would also raise the demand for
support services, such as the service ‘help desk’. Consequently, the sufficiency of labor capacities would decrease. At the start of a growing long-term decline of labor
capacities, the increase of labor demand can be managed with unused labor capacities
and overtime. However, eventually the number of IT employees must be increased. In
consequence, the annual fixed costs for human labor will rise. Thereby, the pace at
194
which the maximum capacity of internal resources increases depends on the initial
workload of the human resources. The abrupt rise of labor capacities would initially
increase the volume of unused capacities, unless the internal IT service provider can
utilize the capacities in other IT service portfolios.
As well as capacity shortfalls due to increasing unit consumption, other reasons may
occur. For instance, the available capacity of IT resources may suddenly decrease due
to hardware failures, or power outages. The maximum capacity of the internal human
resources may decrease due to contract termination, or sickness. If the internal IT service provider plans to assure the same service levels during these unexpected capacity
shortages, additional resources must be available. For instance, to be prepared for a
power shortage, an internal emergency power generator must be available. Furthermore, if on the weekend the same SLAs as during the week must be provided, the internal human resources must be on standby mode increasing the labor costs. Thereby,
in particular the costs of unused labor capacities will grow.
In the in-house solution, changes in the total lifetime costs of the IT production alternatives are caused by altering resource numbers, as well as the changing one-time and
recurring costs per resource. As illustrated before, the number of resources may be
affected by modifications in the sales specifications and sales plans.
A large portion of the total production costs of an in-house solution is caused by server and end-user licenses. Depending on the end-user numbers, its portion of the total
costs may change. Contrarily, due to comparatively low hardware prices, the portion
of hardware costs is rather marginal in the total account. The prices per IT resource
are determined by the SW and HW vendor but may be negotiable. For each new upgrade, the internal IT service provider must invest in new IT resources. Thus, with
increasing numbers of upgrade cycles, the costs for hardware and software grow. Thereby, the HW and SW prices may increase between the upgrade cycles. In addition to
direct costs of IT resources, costs of hardware and software support may occur. The
support costs may be increased by the software vendor if the software is no longer
compliant with the releases supported by the vendor.
Whereas, the costs of the IT resources are determined by the hardware and software
vendors, the IT service provider defines the salaries of the internal human resources.
Thereby, the salary range is subject to regular prices in the market. Internal differences in the salary occur because of variances in the experience and skill level of the IT
employees.
195
Manufacturing View of IT-Solution 2: SaaS
In the SaaS solution, changes in the BOS of core services will occur for the same reasons, as in the in-house solution, namely due to changes in the sales specifications and
replacements of internal resources and external services. Thereby the internal IT service provider is less flexible in the creation of the BOS for core services. The internal
IT service provider can configure the functionality of a SaaS service. Moreover, it can
add, or replace pre-defined SaaS services. However, the SaaS service and the Internet
service are mandatory preliminary IT services in the SaaS BOS. The composition of
the capacities used to produce the particular SaaS service can only be modified by the
SaaS provider. Thus, the internal IT service provider cannot directly influence the
service levels of a SaaS service. Similarly, the internal IT service provider cannot
control the Internet service if changes in the service levels occur. Nevertheless, the
internal IT service can still control the resources, which remain in-house, such as the
LAN or the client PCs. Similar to the in-house solution, the available capacity is affected by the unit consumption, changes in the sales specifications, or unexpected
outages of resources.
total costs of
IT production
alternative
additional monthly
fees due to exceeded
maximum data volume
per end-user
100
200
300
400
500
600
700
800
1,000 1,100
hourly unit
consumption
1,200 1,300 1,400 1,500 1,600 of core services
Exhibit 104. SaaS – Cost pattern of growing hourly unit demand for core services
Exhibit 104 illustrates the affect a growing hourly unit demand for core services may
have on the production costs of a SaaS solution. In contrast to the in-house solution,
increasing hourly unit consumption has no direct impact on the availability of the
SaaS service. In general, SaaS providers guarantee the same service levels with no
extra charges for any volume of hourly unit consumption. However, with increasing
hourly unit consumption also the transaction data produced by the core services increases. Thus, the maximum storage capacity, which the SaaS provider arranged with
the customer company, decreases faster. As soon as the agreed maximum storage is
reached, many SaaS providers charge extra fees. Additionally, depending on the price
model between the Internet service provider and the internal IT service provider, the
Internet service may be limited in the maximum hourly bandwidth or the total band-
196
width per month. Nevertheless, also the maximum bandwidth of the Internet service
can be extended for additional fees. As in the in-house solution, increasing hourly unit
consumption will increase similarly the demand for support services. However, the
demand for maintenance services will increase slower due to fewer maintenance services, which still have to be provided by the internal IT service provider (i.e., management of SaaS providers, network management, monitoring and control). Thus, for
instance, in the above exhibit, the need for a new IT employee might not be reached
until an hourly consumption of 3,000 units.
The total production costs of the SaaS solution depend on the number of internal resources and external services, as well as the cost rate per resource or external service.
Thereby, the same assumptions, which were made for the costs in the in-house solution, are valid in the SaaS solution. For instance, the costs per resource would be the
same in the in-house and SaaS solution for the LAN and IT employees.
In contrast to the in-house solution, no costs for software licenses or server hardware
occur in the SaaS solution. Instead, the customer company pays recurring subscription
fees for the SaaS service. A common price model amongst SaaS providers is thereby a
user per month pricing. The fees must be paid for the duration of the contract, which
is often on an annual basis. Whereas in the initial contract, subscription fees are rather
low, in contract renewals SaaS providers often increase their subscription fees.
Electro Ltd.: Creation of IT Production Scenarios
Controlling performs a monte carlo simulation by changing the value range of the
before described influencing factors. Thereby, for each scenario, controlling determines the total costs of the IT solution, actual costs of the IT services, and costs of
unused capacities (see Exhibit 105). The output of each scenario is used to determine
the overall cost efficiency of the two IT solutions under changing circumstances, as
well as to calculate the final selling prices of the IT products (see Exhibit 100, p.189
and Exhibit 101, p.190).
risk
20%
48%
32%
50%
…
total costs of
scenario 1:
- total costs of
- costs of unused capacities
scenario 2:
scenario 3:
scenario 4:
…
in-house
SaaS
assumptions made in the previous phases (see Exhibit 85, p.160)
CHF 3,489,496
CHF 3,868,242
CHF 2,943,800
CHF 3,636,770
CHF 545,696
CHF 231,472
annual increase of core services units by 10%
annual increase of end-user numbers by 4%
increase of SaaS subscription fees by 30% after third year
…
Exhibit 105. Scenarios of IT production alternative
197
5.7.1.2 Influencing Factors for IT Development Alternatives
The outcomes of IT development alternatives are affected by various influencing factors. As illustrated in Exhibit 106, on a high level, the same factors and relationships
among them are applicable for the in-house and the SaaS solution.
SW
functionality business
alignment
prices / salaries of
internal resources &
external services
procurement of
development & test
environment
(in-house or SaaS)
+
+
+
+
need for
customization
& testing
+
+
+
sales prices of
IT product &
IT services
+
+
-
first delivery
date of IT
product
demand for
internal human
capacities
+
costs of IT
development
alternatives
number of
development
& test- users
+
sufficient internal
human capacities
-
demand for
external human
services
+
extension of
external
human
services
Exhibit 106. Contributing factor diagram of IT development alternatives
Nevertheless, differences occur on a detailed level, in particular, with regard to the
procurement of the development and test environments. In the following, the influencing factors and relationships determined by the customer requirements, as well as the
variations in the IT projects of in-house and SaaS solutions are described.
Customer Requirements
When developing scenarios of IT development alternatives, the role controlling must
consider in particular three situational factors, which are affected by the contractor’s
expectations: namely the SW functionality/business alignment, the first delivery date
of the IT product, as well as the sales prices of the IT product and IT services. Depending on the contractor’s willingness to adopt the business processes to the packaged software/SaaS solution, the degree of alignment differs, affecting the need for
customization and testing activities. Furthermore, an earlier first delivery date of the
IT product increases the demand for internal labor capacities at one time bucket.
Thus, in order to be able to complete the project on time, internal IT service providers
often source external consultants for higher prices compared to the internal salary of
the IT employees. Finally, as the IT development costs will be allocated to the costs
of IT services [Übernickel 2008, p.54], they are affected by the price expectations of
the contractor. If, for instance, the contractor requires a price reduction of the IT
product, the IT development costs, or other costs that have an impact on the total costs
of the IT solution (e.g., IT production costs) must be decreased. Otherwise, the inter-
198
nal IT service provider’s contribution margin of the IT product and IT services will
decrease.
Manufacturing View of IT Solution 1: In-House
In addition to labor activities for customization and testing, further human capacity is
required to evaluate software and hardware offerings, and to set-up the development,
test and production environment. Thereby, the HW and SW costs of the development
and test environments decreases, if after completion of the IT project, the IT resources
can be reused in other projects. If this is the case, the costs are variable depending on
the duration of the development and test phase. Otherwise, the costs must be completely allocated to one project and thus remain fixed regardless of the duration of the
development and test phases (see in-house scenario 1 & 2 below).
Manufacturing View of IT Solution 2: SaaS
In contrast to the in-house solution, in the SaaS solution, additional labor expenses
necessary to evaluate and to select SaaS providers, as well as to set-up the development and test environment are rather small. This is because the internal IT service
provider will negotiate prices with a lesser number of suppliers, and no timeconsuming installation of hardware and software is required. The price models of development and test environments differ among the SaaS providers. Some SaaS providers may charge only a monthly subscription fee per development- and test-user.
Other providers may charge subscription fees for the total number of the final endusers. Due to the variable price model, the costs of the development and test environment rises linearly with the number of users and the project duration.
Electro Ltd.: Creation of IT Development Scenarios
Controlling develops several scenarios of the two deployment alternatives. For the
final cost rate calculation of the IT services (see Exhibit 101, p.190), it considers scenario 2 of the in-house solution (project end date December 31st), and scenario 2 of
the SaaS solution (project end date January 30th 2008) solution as highly relevant.
in-house
SaaS
st
scenario 1: end date of IT project by December 31 2008
- total costs of IT project
CHF 210,000
CHF 119,300
CHF 177,800
CHF 110,300
scenario 2: end date of IT project by January 30th 2008
- total costs of IT project
scenario 3: decrease regular availability of internal IT resources by 20%
scenario 4: price reduction of IT product ‘IT support for marketing’ by 3.5%
…
Exhibit 107. In-House & SaaS: Scenarios of IT development alternatives
199
5.7.2 Decision-Making by Customer Company
In the final phase of the proposed method, the contractor of the customer company is
again involved in the decision-making process [Scheeg 2005, p.172]. This involvement is necessary due to possible changes in the prices and SLAs of the IT product
and IT services to which the contractor agreed in the first phase (see Chapter 5.2). As
is typical for decision-making with various goal variables [Laux 2005, p.16], the inhouse and the SaaS solution often meet the price and service level requirements to
different extents. Thus for both IT solutions, the contractor compares prices and evaluates service levels with regard to their impacts on the company’s business processes
(see Exhibit 40, p.88).
Final Decision-Making by Internal IT Service Provider
product management
determines sales
prices and SLAs
contractor
requests changes
in sales prices and
SLAs
Final Decision-Making by Customer Company
IT solution 2: SaaS
IT Product Contract
IT Product Contract
IT Product Contract
IT product:
IT Product
Contract
IT support
for marketing activities
IT product:
IT product:
CP_056
price:
CHF 150 user/month
IT support
marketing
firstfor
delivery
date:activities
March 2010
price: CHF 150 user/month
price:
CHF
290 end-user/month
first
delivery
date: March 2010
included core services:
first delivery date: February 1st 2010
- login
core services:
- logout
support services
- login
- login -- view customer profile- enable user
- logout
- logout-- segment customers - train user
-- view customer profile
- view customer
profile
-…
- support user
-- segment customers
Sales Specification – Core
- segment customers
- set-up
business unit
Sales
Specification
-…
Service
-- perform
email support
campaign
included
services
Sales Specification
IT
service:
-…
-- enable user Sales Specification
IT service:
included support services
IT service:
view
Sales Specification
-- train user
viewcustomer
customerprofile
profile
support
-- enable user
view service:
customer profile
Sales Specification
availability:
90% (24/7)
-…
IT
service:
availability:
(24/7)
enable
user 90% 90%
-- train user
Sales Specification
availability:
(24/7)
response
time:
IT service:
view customer
profile
response
time:< <1second
1second
- price:
CHF
250
end-user/month
-…
response time: < 1second
view
customer profile
core
service:
- service hours :
availability: 90% (24/7)
view
customer
profile
availability:
(24/7)
Mo-Fr 9.00 -18.00
response90%
time:
<
response
time:
< 1second
- availability:
98.88%
(24/7)
- delivery time:
1second
- response time: 0.45 sec.
30 min. to 3hours 45 min.
- customer satisfaction: 80-97%
IT Product Contract
IT product:
IT Product
Contract
IT support
for marketing activities
IT product:
IT product:
CP_056
price:
CHF 150 user/month
IT support
marketing
firstfor
delivery
date:activities
March 2010
price: CHF 150 user/month
price:
CHF
315 user/month
first
delivery
date: March 2010
first delivery date: January 1st 2010
- login
core services:
- logout
support services
- login
- login -- view customer profile- enable user
- logout
- logout-- segment customers - train user
-- view customer profile
- view customer
profile
-…
- support user
-- segment customers
Sales Specification – Core
- segment customers
- set-up
business unit
Sales
Specification
-…
Service
-- perform
email support
campaign
included
services
Sales Specification
ITITservice:
-…
-- enable user Sales Specification
service:
included support services
IT service:
view
Sales Specification
-- train user
viewcustomer
customerprofile
profile
support
-- enable user
view service:
customer profile
Sales Specification
availability:
90% (24/7)
-…
availability:
(24/7)
IT
service:
enable
user 90% 90%
-- train user
Sales Specification
availability:
(24/7)
response
time:
IT service:
response
time:< <1second
1second
view customer
profile
- price:
CHF
30/user
-…
response time: < 1second
view
customer profile
core
service:
- service hours :
availability: 90% (24/7)
view
customer
profile
availability:
(24/7)
Mo-Fr 9.00 -18.00
response90%
time:
<
response
time:
< 1second
- availability:
99.3%
(24/7)
- delivery time: 30 min.
1second
- response time: 0.90 sec.
- customer satisfaction: 99%
contractor
- analyzes SLAs impact on the company’s business processes
- selects solution with optimum price / business impact ratio
Exhibit 108. Final Decision-Making by Customer Company
The information on the prices and SLAs can also be used to negotiate price reductions
with the role account management [Scheeg 2005, p.172]. For instance, a 6.5% price
reduction of the IT product ‘IT support for marketing activities’ could be offered to
the marketing manager if he agrees to a 2% decrease of the core services’ availability.
The requirements to modify the IT product are collected by role account management,
200
which forwards it to controlling for new price calculations. The updating of the IT
product contract is repeated until the contractor places, or cancels the final IT product
order. In the following, the influencing factors, which are relevant for the contractor,
are elucidated for the IT product and the sales specifications.
5.7.2.1 Influencing Factors for IT Product Contract
In a first step, the contractor evaluates the IT product contract. Relevant information
for the contractor is the price of the IT product, and the first delivery date. As the IT
product is composed of different preliminary IT services the first delivery date and the
IT product price differ between the two IT solutions. Due to no need to install software of the development, test and production environments, the development project
of the SaaS solution is often shorter than the development project of the in-house solution (see Exhibit 70, 135). Thus, in the SaaS solution, the first delivery date can be
provided prior to the first delivery date of the in-house solution. The price of the IT
product is affected by various influencing factors (see Chapter 5.7.1.1). Thereby, in
this thesis, the price of the IT product is composed of the production costs of the core
services, the SW license prices or SaaS subscription fees, development costs, as well
as a contribution margin. Support services are billed separately.
When evaluating the differences between the first delivery dates of the IT products,
the contractor determines how urgent the availability of the IT product is for his endusers, and if the benefits of an earlier delivery date will justify the additional costs.
Electro Ltd. Updated Contract of IT Product
Electro Ltd.’s marketing manager and customer contact manager evaluate the updated
information initially defined in the IT product contracts (compare to Exhibit 38, p.85).
ID
IT products
CP_056
- price
initial prices & SLAs
st
CP_057
CP_058
January 2010 1
IT support for sales activities
- price
st
February 2010 1
IT support for service activities
- price
st
March 2010 1

in-house prices & SLAs


st
February 1 2010
st
January 1 2010


CHF 270/end-user
th
March 15 2010
st
February 1 2010


CHF 370/end-user
st
May 1 2010
st
March 1 2010
SaaS prices & SLAs
Exhibit 109. In-House & SaaS – Updated IT product contract
As illustrated in Exhibit 109, the prices now differ between the IT products (i.e.,
CP_056, CP_057, and CP_058) due to varying selection of core and support services
and diverse sales plans. In the initial price determination, the same price was offered
for all IT products regardless of actual usage of the core services. However, in the
201
updated IT product contract, the price of the IT product CP_058 is significantly higher
than the other two. This is because the end-users of IT product CP_058, i.e., the employees in the call center, use the core services more frequently than the marketing
and service employees. Furthermore, for each IT solution a different price is provided
due to varying BOS of the core services.
5.7.2.2 Influencing Factors for Sales Specifications of IT Services
In addition, to the IT product contract, the contractor evaluates the updated sales specifications of each core and support service referenced in the IT product contract.
Core Services
In the sales specifications of the core services two SLA’s are of particular relevance
for the contractor, namely the availability and the response time. As illustrated in
Chapter 5.5.1, in general the same SLA’s can be provided for in-house and SaaS solutions. However, the SLAs will most likely differ if the internal IT service provider is
rather small, and thus cannot leverage the same economies of scale as large internal
IT service providers or SaaS providers. Moreover, differences in the SLAs will exist,
if the internal IT service provider is rather large and thus can leverage the same economies of scale as a SaaS provider. In this case, the internal IT service provider is more
flexible regarding IT resource capacities and maintenance services, which both affect
the assurance of the defined SLAs. Contrarily, a SaaS provider operating a multitenant architecture is more restricted in its SLAs as it provides the same SLAs to all
customers. Additionally, compared to the SLAs of an in-house solution that is completely based on a local area network, the SLAs of a SaaS solution might be further
reduced due to the dependency on the Internet.
If differences between the SLAs of the core services exist, the contractor must understand the impact each service level has on its business processes. For instance, if the
customer company does not operate its business on weekends the lower availability,
due to no stand-by of internal IT personnel, does not have any implication for the
business. Thus, the differences in the core services’ availability between the SaaS and
in-house solution would not influence the decision-making. Furthermore, an end-user
does perceive any differences between response times, as long as the response times
are below one second [Menascé et al. 2004, p.99]. However, a response time above
one second, distracts the end-user from its actual task, decreasing the productivity of
the end-user. Thereby, the negative impact on the productivity grows with increasing
frequency with which the end-user consumes the core service.
202
Support Services
The contractor evaluates the support services that are provided in addition to the core
services. Whereas the SLAs of the support services, ‘enable end-user’, ‘change request’, and ‘upgrade software’ differ between the two IT solutions, the remaining
support services are equal. In the context of this dissertation, it is assumed that the
contractor must pay in addition to the price of the IT product, separate prices for each
support service consumed by the end-users. The additional prices are justified as support services have different consumption drivers than core services.
• Enable End-User. The service ‘enable end-user’ differs significantly in its SLAs
between the in-house and the SaaS solution. The reason for this is the need to install software on the client workstation, and the higher risk that problems occur in
the installation process. As consequence, in the in-house solution, the internal IT
service provider will determine a higher selling price, and a longer duration time.
Furthermore, in the in-house solution, the SLA for the average customer satisfaction will be set to a smaller value than in the SaaS solution. If problems with the
installation occur, also more time from the end-user is required to complete this
task. This time will be perceived as negative from the end-users.
• Train End-User. Unless the service is outsourced to the SaaS provider, this service
is produced in the same way in both IT solutions. Thus, the same price and service
levels can be offered for both IT solutions.
• Change Request. If in both IT solutions the service ‘change request’ is performed
by the internal IT service provider, it will have the same SLAs with regard to delivery time and price. However, differences in the SLAs may occur due to a higher
rate of uncompleted change requests in the SaaS solution. Current SaaS solutions
are more limited in their ability to customize. Thus, more often change requests
cannot be fulfilled entailing a lower average customer satisfaction rate.
• Help Desk. The service levels and prices do not differ between the two IT solutions as long as this service is still offered exclusively by the internal IT service
provider.
• Upgrade Software. For the customer, the service ‘upgrade software’ differs largely
between the two IT solutions. In the in-house solution, the customer is more flexible in determining the upgrade rollout date and therefore can schedule the date
outside critical business times. On average every 18-24 months an upgrade is conducted. However, in in-house solutions upgrade projects often resemble development projects. Thus, the price and the delivery time of this service are significant.
203
Furthermore, when considering an in-house solution, the contractor must be aware
that a high involvement of key users, i.e., business employees, is required for the
design and testing of the service. For this, they must be withdrawn from their regular work. In consequence, the contractor will have a decrease in revenue and will
be less satisfied with the in-house upgrade service. The customer satisfaction of
the contractor will further reduce, as the in-house upgrade project is a complex
undertaking with a high risk of failure. Finally, often after in-house upgrade
projects end-users undergo a learning process to adapt to the changes made in the
new release. During this time, the end-users will be less productive in their business. Against this, in the SaaS solution the upgrade is performed by the SaaS provider with little affect on the end-users. However, in a pure SaaS solution, the contractor will have no influence to determine the upgrade rollout date. Thus, the customer satisfaction level of the contractor may decrease due to concerns about possible system outages occurring during critical business time.
Electro Ltd.: Update of Sales Specifications
For both IT solutions, the role Product Management updates the prices and SLAs. Exhibit 110 depicts the selected services provided by the two IT solutions.
ID
name
initial prices & SLAs

in-house prices & SLAs
SaaS prices & SLAs
core services (compare Exhibit 43, p.90(initial SLAs) to p.146 (availability) and p.148 (response time)
CS_001
CS_006
- availability
- response time
perform email campaign
- availability
- response time
99.9% (24x7)
sub second


98.88%(24/7)
0.45 seconds
99.3% (24/7)
0.90 seconds
99.9% (24x7)
6 minutes for 850,000 emails


98.88% (24/7)
max. 10 min
99.3% (24/7)
max. 5 minutes
support services
SS_003
enable end-user (compare Exhibit 45, p.92 (initial SLAs) to Exhibit 67, p.128 (delivery time) and Exhibit 91, p.174 (costs)
- price
CHF 50 / service 
CHF 250 / service
[D] CHF 30 / service
- service hours
Mo-Fr. 9.00-18.00 
Mo-Fr. 9.00-18.00
Mo-Fr. 9.00-18.00
- delivery time
30 min. 
30 min. – 3 hours 45 min.
30 min.
95% 
80-97%
99%
SS_015
change request (see Exhibit 49, p.96 for initial SLAs)
- price
CHF 500 – 10,000/service 
500 – 10,000 CHF/service
500 – 10,000 CHF/service
- service hours
Mo-Fr. 9.00-18.00 
Mo-Fr. 9.00-18.00
Mo-Fr. 9.00-18.00
(no service hours during
(no service hours during
software upgrade)
software upgrade)
- delivery time
minor changes: 1 week 
major changes: 3 months
97% 
97%
80%
SS_019
Upgrade software (see Exhibit 50, p.97 for initial SLAs)
- price
CHF 120,000/upgrade 
CHF 120,000/upgrade
CHF 3,000 /upgrade
- upgrade intervals
18 months
18 months
6 months
on weekends, date may be 
on weekdays, date may be
on weekends, date is de- rollout date
chosen by customer
determined by customer termined by SaaS provider
- delivery time
maxi. 3 months 
3 months
1 week
90% 
80%
90%
Exhibit 110. In-House & SaaS – Updated sales specifications
204
5.8 Conclusions
The proposed method for IT-service-oriented investment analysis aims at providing
answers to the research question how internal IT service providers can reach a sound
decision between in-house (i.e., packaged enterprise software deployed internally) and
Software-as-a-Service solutions (i.e., software owned and deployed by a SaaS provider). In the following, the method is analyzed regarding the fulfillment of the defined
requirements, known limitations and the need for further research. Concluding, future
trends relevant in the context of the method are elucidated.
5.8.1 Fulfillment of Requirements
The requirements defined in Chapter 5.1.2 are reached as followed:
1. Methodic Approach. The proposed method explains for each phase, which roles of
the internal IT service provider and the customer companies are involved, which
activities must be performed, as well as which input documents are required and
which output documents must be developed. To facilitate the understandability of
the method, a comprehensive example of a fictitious company illustrates the output
documents of each phase.
2. Customer Orientation. The proposed method strictly distinguishes between phases
that require the involvement of the customer and phases that are only relevant for
the internal IT service provider. In the first phase, the IT service provider collects
from the customer the requirements regarding functionality, quality and quantity of
the IT services. In phase 2, further customer involvement is essential in the preselection of feasible IT solutions. However, in the phases 3-5, no further customer
participation is needed to create the information model of the manufacturing view.
In the final phase, the customer company is involved in the final decision-making.
Thereby, the customer is engaged in purely business relevant discussions.
3. Service / Product Orientation. The proposed method analyzes the IT solutions
from a service-oriented point of view. Thus, the competing IT solutions are decomposed into the services, which are required for the realization of IT development and IT production alternatives. Information is generated regarding the expected consumption of each individual service, the capacity required to produce
each service, the production costs of each service, as well as the distinct benefits,
which each service can offer to the customer. The granular approach allows evaluating various future scenarios, which can show on the level of individual IT services to the level of the entire IT solution the consequences of changing as little as
one influencing factor.
Conclusions
205
4. SaaS Characteristics. The proposed method illustrates the differences between the
in-house and the SaaS solution. Thereby, the outcomes of the first phase, which
covers the sales view of an IT service portfolio (i.e., sales specifications, and sales
plans) are equal for both IT solutions. Nevertheless, in the subsequent phases differences in the outcomes (i.e., blueprints of IT production lines, BOS, MPS, workload profiles, and costs) occur. These differences in the manufacturing view often
require the update of the initial IT product contract, as well as sales specifications
and sales plans of the IT services. Thus, not only the costs but also the benefits
(i.e., the fulfillment of the SLAs) often vary between in-house and SaaS solutions.
5. Costs Analysis. The proposed method is based on a comprehensive cost evaluation
taking into account development costs, as well as operational costs of the two IT
solutions. Following, the approach of IT product-oriented cost accounting, the
costs of the two IT solutions are determined on the level of individual IT service
units. The high granularity of cost information allows an accurate cost allocation to
various cost hierarchy levels (i.e., IT services, IT products, customer groups, etc.),
increasing the cost transparency and enabling the creation of ‘what-if’ scenarios.
6. Benefit Analysis. As in-house and SaaS solutions differ in the production of IT services, it is often difficult to create IT solutions with identical value propositions.
Thus, for a sound evaluation of the two IT solutions, in addition to costs, the benefits of each IT solution must also be considered. In the proposed method, the customer company identifies the benefits of each IT solution by analyzing the impact
the different SLAs and required customer involvement have on the business.
5.8.2 Limitations & Need for Further Research
Companies can derive substantial benefits from the application of the proposed method. Nevertheless, prior to its usage companies should consider following limitations.
Compared to traditional investment analysis, such as the Total Cost of Ownership
(TCO) or qualitative questionnaires (see Chapter 3.3.2), the proposed method is like
activity-based costing rather complex and cost-intensive [Hansen/Mowen 2006,
pp.48/49]. Due to the high granularity level of allocating costs to cost objects, the proposed method goes beyond broad cost assumptions and manually manageable small
number of cost factors. The identification of cost centers and cost objects covering
different cost hierarchy levels is a large undertaking [Maher et al. 2006, p.238]. Thus,
for a cost-efficient employment of the proposed method subsequent recommendations
can be given.
206
• Application of Complete Method in Ambiguous Decisions. As the application of
the method is rather cost-intensive, the complete method (phases 1-6) should only
be applied for ambiguous decisions. In more obvious decisions that can be reached
based on qualitative information, only phase 1 and phase 2 should be executed. An
obvious decision for a SaaS solution could be reached, for instance, if the company
has small user numbers, and average SLA requirements [Maoz/Desisto 2006].
However, decisions are more difficult when equally indications pro in-house and
pro SaaS exist, e.g., small user numbers and high SLA requirements, which are not
met by available SaaS offerings. In these cases, companies must analyze thoroughly the service portfolio, total costs and benefits, as well as influencing factors of
each deployment option. Exhibit 111 illustrates selected factors that can be used to
identify, which phases should be executed in the investment analysis.
end-user
numbers
volume of
service units
consumption
behavior
contract
duration
…
IT skills
obvious decision
pro in-house
 application of
phases 1 and 2
many
ambiguous decision
in-house versus SaaS
 application of complete method
(phases 1-6)
many
…
many
…
many
obvious decision
pro SaaS
 application of
phases 1 and 2
few
high
high
…
high
…
small
small
constant
constant
…
constant
…
dynamic
dynamic
long
long
…
long
…
short
short
…
available
…
available
…
…
…
not available
…
…
…
not available
…
not available
Exhibit 111. Application of proposed method
• Reduction of Complexity. In order to reduce the costs of the proposed method, the
level of granularity can be reduced, entailing a decrease in the data collection effort [Hansen/Mowen 2006, pp.142/143]. For instance, in the capacity requirements
planning of IT resources, the core services could be classified into groups with different CPU times (see Exhibit 112).
transaction group
Trivial
Medium
Complex
percentage of
total transactions
45%
25%
30%
average
CPU Time
0.04
0.18
1.20
average number of
inputs/outputs
5.5
28.9
85.0
maximum average response time
1.2
2.5
8.0
Exhibit 112. Summary Statistics for a database server
[Menascé et al. 2004, pp.41-44]
However, the reduction of complexity will also result in less accurate data. For instance, if core services are grouped only according to CPU times, the business impact information on the level of individual IT services will get lost.
Conclusions
207
• Usage of Existing Cost Information & Application of Accounting Software. The
complexity of the proposed method can be further decreased if the method is based
on cost information already existing in the company [Scheeg 2005, p.137]. If the
company has no reports on its IT costs, the application of the method is not economical. The application of the method can be further facilitated if it is automated
with cost accounting software. Due to the adoption of common industry concepts,
ERP or CRM applications can also support the employment of the method.
The proposed method focuses on the investment analysis of in-house and SaaS solutions. Thereby, a particular focus lays on enterprise applications, which are provided
in a pure SaaS model (see Chapter 2.3.3), and which require further customization
efforts from the customer. If the method is applied for other SaaS variations, it must
be slightly adjusted. For instance, if a customer uses the method to compare an inhouse solution to a SaaS solution based on an offering of the SaaS provider Taleo (see
Exhibit 14, p.35), the BOS of the service ‘upgrade software’ must be adjusted. Although Taleo owns and operates the IT systems, the upgrade can also be performed by
the customer. In this case, the service ‘upgrade software’ will resemble more the one
of an in-house solution.
The comparison of in-house versus SaaS solution represents only one application area
of the proposed method. Adjusted to the specifics of other selective outsourcing types
(Chapter 2.3.1), the method could be applied for numerous IT investment decisions.
5.8.3 Outlook
Against the background of the current economic situation, the cost pressure in information management will remain prominent in the next years. Thus, the improvement
of cost-efficiency will linger a highly relevant topic in IM. For the realization of costefficiency, integrated cost accounting of development and production alternatives play
an important role. Furthermore, with the increasing agility of IT customers, the IT service providers’ need to predict and to adapt quickly to future changes is crucial in order to persist in current IT markets. Additionally, the growing competition amongst IT
service providers will empower significantly IT customers, demanding for higher cost
transparency and individual IT prices based on actual service consumption, as well as
improved customer orientation [Übernickel et al. 2007b].
The customer numbers and application areas of Software-as-a-Service are expected to
continue to grow [Desisto 2008]. Thereby, the compatibility of SaaS solutions, and
therefore the difficulty to compare SaaS solutions to packaged software deployed internally will grow due to further improving functionality and SLAs. Moreover, the
difficulty of evaluating in-house and SaaS solution will increase due to higher granu-
208
larity and hidden costs of the SaaS pricing models [Herbert et al. 2007b]. Additionally, the advancements in IT service integration of various SaaS providers (e.g., as realized in Salesforce.com’s AppExchange platform) will attach further cost factors to
the total cost of a SaaS solution. Thereby, the SLAs of the IT services, which are integrated to composite applications, will most likely differ due to varying production
processes and data centers of the IT service providers.
Besides the increasing cost pressure in IM and advancements in SaaS solutions, a further trend, i.e., Software Oriented Architecture (SOA), will increase the relevancy of
investment analyses based on individual IT services. Unlike inflexible and difficult to
integrate monolithic enterprise software, SOA decomposes the functionality of enterprise application into small service modules [Schmidt et al. 2005, McGovern et al.
2006]. Thereby, web service standards, such as simple object access protocol (SOAP),
Web Service Definition Language (WSDL), Universal Description Discovery and Integration (UDDI), can be applied to bundle the services of different IT service providers. A comparison of the costs and SLAs of the varying individual IT services or service bundles will provide a sound knowledge for SOA investment decisions.
A further trend that would benefit from the proposed method is cluster computing.
The concept of cluster computing represents the collaboration of a group of computers, which are formed to a single computer [Gannon et al. 2005, Kacsuk et al. 2007].
In general, the computers are linked to each other over a local area network. A specific form of cluster computing is grid computing. Computer clustering is applied to increase the availability and response time of service requests. Furthermore, cluster
computing can be used to increase the total utilization rates resulting in a cost decrease
of unused CPU power. As the CPU power is used to generate one IT service unit is
used from several computers the costs can no longer be derived from one single computer. Instead, it must be based on the actual consumption of CPU power.
As illustrated above, a trend towards further decomposition of services is recognizable. As a consequence, the distribution of fix and variable costs will change. Whereas
today, a large portion of the total costs are fix costs [Uebernickel 2008], the abovedescribed trends will increase the portion of variable information management costs.
With increasing portion of variable costs, the value of the proposed method increases.
Summary
209
6 Summary
In recent years, Software-as-a-Service solutions have gained in momentum due to substantial advances in technologies (e.g., security, network storage, broadband, clustering, grid technology, etc.). The number of enterprise applications provided as SaaS
solutions and the number of SaaS customers constantly grows. As a consequence, similarly, small and large companies consider in-house, as well as SaaS solutions for the
support of their business processes. The comparison of the two deployment solutions
proves difficult as they are solely based on qualitative factors and broad cost assumptions.
To address the need for more sophisticated methods to evaluate in-house versus SaaS
solutions, the dissertation proposes the method for IT service-oriented investment
analysis. The method is designed for internal IT service providers, which analyze the
deployment solutions for their customers, and which will be responsible for the future
deployment of the in-house solution, or the management of the SaaS solution. Following the IIM framework, the method transfers well-known industrial concepts to IT decision-making. In particular, the adopted approach of product-and service-orientation
increases the transparency of costs, benefits and risks of both IT solutions, enabling a
sound investment analysis.
Based on the engineering science business engineering, the IIM framework, and the
outsourcing concept Software-as-a-Service, the requirements for the IT serviceoriented investment analysis were derived. Requirements for the proposed method included the realization of a methodic approach, customer-orientation, service/productorientation, SaaS characteristics, as well as the consideration of costs and benefits. The
requirements were used in two ways: first, as criteria to evaluate existing investment
analysis approaches relevant for in-house versus SaaS decision-making, and second, as
design guidelines to develop the proposed method.
In the evaluation of investment analysis approaches for in-house versus SaaS solutions, five approaches were identified (i.e., decision theory, sensitivity analysis, SaaS
investment analysis, IIM cost accounting, and MRP II). None of the approaches met
fully the defined requirements. However, each of the methods contained relevant concepts, which were incorporated into the method. In addition to the theoretical contributions, two companies, which conducted investment analyses evaluating in-house versus SaaS solutions, were presented as case studies. The case studies demonstrated that
the outcome of the investment analyses are company-specific and depend on various
criteria. Thereby, costs and software functionalities of the IT solutions were of particular relevance for the final selection of an IT solution.
210
Summary
The IT-service oriented investment analysis is composed of six sequential phases. The
first phase analyzes customer requirements and documents the requirements in IT
product contracts. Thereby, an IT product contract references sales specifications,
which inform about the specifics of each IT service included in an IT product, as well
as sales plans, which determine for each IT service the purchase volume. Based on this
knowledge, in phase 2 IT solutions can be identified and pre-selected for a further
quantitative evaluation. Phases 3 to 5 establish an information model consisting of the
manufacturing requirements for each individual IT service, as well as the predicted
workload and costs of each resource. In the final phase, this information is used to develop ‘what-if’ scenarios of possible future situations. The evaluation of the different
scenarios is applied to identify cost-efficient IT solutions, which fulfill the defined
SLAs, and to determine save sales prices of the IT products and IT services. Each
phase of the method describes the involved roles of the IT service provider, activities,
input and output documents. The method is illustrated with a comprehensive example
of a fictitious company.
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Curriculum Vitae
Curriculum Vitae
Susanne M. Glissmann
Education
2010
Dr. Oec. (equiv. to a Ph.D. in Business Administration)
2004
Diplom-Wirtschaftsinformatiker (equiv. to a dual BS & MS in
Economics & Computer Science)
1998
Abitur (German university entrance qualification)
Work Experience
since 2010
Research Scientist, IBM Almaden Research Center (CA/USA)
2008 – 2009
Postdoctoral Research Fellow, IBM Almaden Research Center
(CA/USA)
2007 –2008
Visiting Scholar, Logic Group, Computer Science Department,
Stanford University (CA / USA)
2004 – 2007
Research Consultant, Institute of Information Management,
University of St. Gallen (Switzerland)
2002 – 2003
Software Engineer, Metastorm, formerly CommerceQuest
(FL/USA)
1999 –2001
Software Engineer, Horak Software- und Systemberatung
GmbH (Germany)
1999
Junior Software Engineer, SIT System- und InformationsTechnik GmbH (Germany)

IT Service-Oriented Investment Analysis

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