Term Paper: Enterprise Architecture

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Enterprise Architecture

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The Disruptive Innovation of Software-as-a-Service

on Enterprise Application Architectures

Re-aligning the economics of enterprise software, Software-as-a-Service (SaaS) is changing the nature of how enterprise application architectures are planned, deployed and managed in organizations globally. SaaS is the application delivery layer of the broader cloud computing protocol stack that includes Infrastructure-as-a-Service (IaaS) at its base, followed by Platform-as-a-Service (PaaS) at the midpoint. SaaS is at the top level of the cloud computing architecture, providing Application Programmer Interface (API) support for user and machine interfaces (Beimborn, Miletzki, Wenzel, 2011). When the term cloud computing is used, it refers to this entire protocol stack. Enterprises are increasingly reliant on cloud computing due to the cost advantages over traditional enterprise applications. Foremost among the many economic factors favoring cloud computing, the nascent business models in SaaS-based application deployment support a wide spectrum of operating expense (OPEX) based pricing and payment approaches including usage-based pricing (Bala, Carr, 2010). These payment models are re-ordering the enterprise application landscape, a key finding from the research presented in this analysis. The economics of cloud computing in general and SaaS specifically is complimentary to the lessons learned from the text Enterprise Architecture a to Z, illustrating the plethora of business models, pricing approaches and strategies both long-established companies and start-ups are taking in this market. The contributions of this analysis to the text include a more detailed and precise census of business model variations in cloud computing in general and SaaS specifically. At the cloud level, the variation in business model by structural component including Infrastructure as a Service (IaaS) expands far beyond the boundaries of the book's scope, providing insights into how the build-out of cloud architectures in the enterprise will proceed. From the application standpoint, the research in this paper provides insights into how SaaS architectures will redefine the enterprise by reducing the barriers to application adoption. In addition, SaaS will revolutionize the internal development time cycles for applications that enterprises are creating on their own.

How SaaS Economics Are Re-Ordering Enterprise Software

Traditionally enterprise software is a capital expense, often requiring enterprises to define comprehensive budgets for review and approval by corporate task forces comprised of senior management members before any investment is made. The process for this capital expense approach can take from three to twelve months and is often a factor in scope creep and expanded definition of enterprise systems with Enterprise Resource Planning (ERP) being the most prevalently expanded (Wu, 2011). In addition to the capital budgeting required for ERP systems, there are also annual maintenance fees that average between 18% to 22% of the purchase price of the software (Wu, Lan, Lee, 2011). This proceeds beyond the text, which has defined maintenance revenues from the standpoint of continual investment in enterprise applications alone, instead of part of the SaaS business model. In reality the maintenance payments of any enterprise it customer are the subject of much debate internally, with SaaS-based applications providing the opportunity to break away from legacy applications and increase overall application performance. The continual ratcheting up of maintenance fees by on-premise applications providers including Oracle are driving SaaS adoption, a key point not made in the text.

In addition to these costs, there is the particularly challenging aspect of change management, or gaining the cooperation, trust and participation of those most affected by the new system. Change management plans must however be created in order for any enterprise system to attain a high level of adoption and be successful in changing the direction and performance of an enterprise business (Bala, Carr, 2010). Implementing any new enterprise system therefore is one of the most challenging, difficult and risky decisions any senior management team can make. Often the success of enterprise systems, specifically ERP platform, is mixed (Finney, Corbett, 2007). Even when up to ten times the amount of investment is made in change management and system customization of ERP applications relative to original cost, this 10:1 ratio still fails to deliver consistent results (Gargeya, Brady, 2005). With the median price of a new ERP system being well over $2.5M from industry leaders Oracle, SAP and others and the potential disruption of an enterprise being so great, senior managers often retrench and only incrementally add new features to their largest and most complex systems (Gargeya, Brady, 2005). This often results in the enterprise-wide goals and objectives that their ERP system was originally designed for being marginalized and not achieved. The long-term effect is mediocre business performance because the underlying enterprise application architecture is not aligned to business goals, objectives and strategies.

As enterprise-based SaaS applications initially are piloted to evaluate their integration, workflow support, and roles-based attributes relative to existing enterprise systems, it executives are able to quantify the financial benefits of the business models behind these applications as well. What it executives are discovering is that the potential exists for SaaS-based applications to drastically reduce operating expense budgeting approval times and constraints, but instead paying only for the computing and application time used (Benlian, Hess, 2011). The majority of SaaS-based pilots today are also being paid for from operating expense budgets, which often means they are approved at the department,. Not senior management level (Beimborn, Miletzki, Wenzel, 2011).

When operating unit and business unit senior management can pay for SaaS applications the balance of power is about to change in many it organizations. This is precisely how the economics of SaaS software is shifting the power of purchasing, customizing and measuring the value of applications delivered away from it to the business units. The compelling factor that drives business unit managers and leaders to risk even a pilot implementation on a SaaS-based platform is the speed that these applications can be delivered and the cost-per-user model which can get as low as $20 per user per month (Wu, Lan, Lee, 2011). It is a well-known fact in the SaaS enterprise software industry that Customer Relationship Management (CRM) leader Salesforce.com just needs to earn $8 per user, per month in order to attain break-even (Bala, Carr, 2010). All other SaaS vendors also know this to be the case and actively strive to reduce the cost per user per month through vertical integration of their operations, often relying on alliances and partnerships with data centers and service providers (Gray, 2010).

One aspect of the SaaS enterprise application architecture that continues to be of concern to even the most vocal supporters of this technology is security and stability of applications, incouding protecting data (Cusumano, 2010). This is the area that is causing SaaS as an enterprise application infrastructure to be second-guessed and questions in terms of its viability for company-wide deployment. There are several approaches companies are taking to overcome this limitation. First, the use of SaaS-based applications entirely internal to a company, often called private cloud computing, has become pervasive due to security concerns over public-based cloud implementations (Doelitzscher, Sulistio, Reich, Kuijs, Wolf, 2011). Second, it executives are discovering that Customer Relationship Management (CRM), collaborative workflows and e-purchasing, all strategies that require an intensive amount of external company coordination, are best suited for SaaS as an enterprise application architecture as of right now. Figure 1, it Executive's SaaS Application Intentions, illustrates how market researcher Forrester predicts adoption of each wave of applications on this platform will progress.

Figure 1: IT Executive's SaaS Application Intentions Source: Forrester Research Forrsights Software Survey, Q4, 2010

As ERP is one of the most complex areas of any enterprise that must be highly customized to meet specific operational, process- and role-based information needs, it is not anticipated to attain greater than 18% adoption in two years. This is quite a difference than the more collaborative and externally-facing systems including CRM and ePurchasing. The ability of the SaaS enterprise architecture to scale as a sales and supply chain platform is evident. Given this analysis it is evident that on-premise ERP-based systems will be continually complimented by, yet not replaced with SaaS-based applications. It is a force that is re-ordering the economics of enterprise software however and will continue to for the foreseeable future. The texts' outstanding coverage of security and operating systems provide a strong theoretical foundation for multitenancy and the growth of cloud-based applications. The ability to scale in enterprises with SaaS applications securely is entirely predicated on multitenancy and its implications on enterprise security as well.

Conclusion

The disruptive nature of new business models is evident in any industry where technical innovation is part of the value chain. it's the same in enterprise software today, with many of the aspects of the value chain changing drastically. The catalyst of much of this change is the re-ordering of business models and the corresponding shift away from capital expend-software to applications that can be pad for using operating budgets. This shift is also re-aligning the politics and power in it departments, with the business units driving the spending agenda. While there is never a complete shift from… [END OF PREVIEW]

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