SaaS Economics, Competitive Moats, And Interrogatory Configuration | In Full Bloom

Written by Naomi Bloom | Originally published at In Full Bloom on October 22, 2016.  

[You may also enjoy the Firing Line with Bill Kutik® episode on this.]

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There’s been a lot of discussion across the enterprise IT and financial analyst community about the long term economic viability of the SaaS business model. And the enterprise IT community continues to debate the merits of the various flavors of SaaS architectural and infrastructural models. These discussions have ranged over the:

  • fundamentals of profitability in enterprise software;
  • reality that many to most so-called SaaS vendors (both faux and “Blooming”) are not yet profitable;
  • landrush by SaaS vendors to grab market share and to grow as rapidly as possible;
  • spending by SaaS vendors of sometimes huge sums on customer acquisition against a revenue recognition requirement that expenses those acquisition costs on the front end but only allows revenue recognition over the life of the contract; and
  • much more.

If the economic viability of your so-called true or faux SaaS vendors matters to you — and well it should — read on.

When you contemplate further the economics, significant future profitability appears to emerge for those vendors which are able to meet the following challenges:

  1. Reduce dramatically the cost of customer acquisition, from marketing to sales to contract signing;
  2. Reduce dramatically each customer’s time to production and, therefore, time to revenue for the vendor;
  3. Reduce dramatically each customer’s ongoing implementation costs and time as they take up innovation delivered by their vendor and revisit existing capabilities as their organizational needs evolve and change;
  4. Maintain very high customer satisfaction rates — see #3;
  5. Maintain very high customer retention rates, which I do believe are related to but are not the equivalent of very high customer satisfaction rates; and
  6. Achieve very low operational costs and error rates.

Doing all of this at the same time produces IMO the secret sauce of true SaaS economics and, in doing so, creates an enormous competitive moat for vendors who can’t achieve this. Enter Interrogatory Configuration, my recommended approach to creating this moat and the really important and related benefits for both vendor and customer.

Interrogatory Configuration (yes, I know that’s lousy branding, but I’ve never claimed to be a clever marketeer) addresses the first three challenges very directly and has a positive impact on the last three. That’s why I’ve been pushing these ideas — some would say harping on them — since long before the beginning of SaaS in HR technology. Frankly, I was pushing these ideas from the late 80’s, long before they were possible to execute as they require very specific architectural foundations which, until recently, did not exist within enterprise HRM software.

So what is interrogatory configuration? Interrogatory configuration is easy to explain but VERY difficult to do, at least for complex HRM software. Basically it’s a piece of software (think TurboTax) which poses questions to the client ‘s business analyst (who could be a 3rd party, including the vendor’s implementation services person or that of a certified partner), provides a context for those questions along with the implications of selecting from among the available answers (e.g. explaining what types of organizational structures use what types of position to job relationships and why), and then, based on the selections made (and all such are of course effective-dated and subject to inheritance where appropriate), it does the configuration of the base application without manual intervention of any kind. Interestingly, Google filed a patent for a VERY limited example of this in 1997, which was awarded in 2001, in which they make clear that you can’t do this unless the underlying architecture, the software to be thus configured, is composed of objects that can be manipulated dynamically.

Highly configurable, metadata-driven, definitionally developed, true HCM SaaS is a wonderful thing. But even in configuration, all of the available choices have to be analyzed, selected, tested and implemented, individually and in combination with other choices. And this must be done with care and a deep knowledge of the downstream implications of various configurations, not only during the initial implementation but also every time business needs change, software upgrades are applied (even when applied as SaaS mostly opt-in updates), regulatory rules appear and/or change, including retroactively, new executives bring new perspectives, etc.

More Talmudic than Socratic, this question/answer dialogue continues, with each exchange doing one set of configurations while setting up the next set, until the customer has implemented fully the set of capabilities/business rules/coding structures/workflows/etc. that will be their implemented software as of the selected effective date. An interrogatory configurator is designed to work prospectively, so that you can see how a partially to fully configured application will look and behave before committing those configurations to take effect. For those configurations that are permitted to be changed retroactively, with the attendant retroactive processing once they are approved for implementation, the interrogatory configurator is also intended to work retroactively.

Without interrogatory configuration, every time those hand-done configurations must be changed, all those choices must be re-evaluated against the needed changes, and then new choices made, tested and implemented. Furthermore, the implications of each configuration change for downstream processes must be analyzed and actions taken to at least inform users of those implications. So, while we may be able to eliminate most of the programming implementation work by having great configuration tools delivered with our HRM software, without interrogatory configuration we have by no means reduced the business analyst time, effort and expertise needed to keep things running properly. And great HRM business analysts are really scarce, perhaps even more so than great HRM software developers.

Now imagine that the interrogatory configurator is an integral part of the marketing to sales cycle, allowing for a high degree of self-provisioning, at least for less complex organizations (notice I didn’t say small or quote headcount). And even for the most complex organizations, imagine how much configuration could be done with data gleaned during the sales cycle so that a usefully configured application could become a sales cycle tool which blends seamlessly into the actual implementation once agreements are signed. To the extent that SaaS vendors proceed down this path, the whole dynamic of the sales to implementation processes, not to mention the role, staffing and economics of the systems integrators (SIs), are changed substantially, to the benefit of both the customer and the SaaS vendor.

Customer satisfaction and retention rates are driven by many factors, from having wonderful and useful product capabilities to having a very sticky user experience, and there’s a lot of room here for unique approaches by different vendors and/or for different market segments. Running a brilliant operating environment means building tools for everything from provisioning to payroll scheduling, tools which cannot be bought “off the shelf” and which are themselves complex applications. So one thing I advise all buyers to consider is how far along their proposed SaaS vendor is in having industrialized every aspect of operations, for much of which you must have the right SaaS architecture in the first place.

When I see cost comparisons between on-prem and true SaaS, it’s almost always done on a TCO basis from an IT cost perspective.  But that doesn’t value not only having new functionality but also having it delivered almost continuously. It doesn’t value how much more effective vendors can be in meeting customer needs by aggregating data on feature usability and usage so as to inform their product roadmaps. And it certainly doesn’t value the ability of true SaaS vendors to aggregate benchmarking data which can then be fed right back into their interrogatory configurator, if they’ve got one, and into the analytics-rich, decision-making capabilities of their applications. So there’s a lot more here to consider than just TCO unless your business is so stagnant that you really don’t want or need agility or innovation from your systems.

There are SaaS vendors in our space that have architectures which can’t scale operationally, SaaS vendors which don’t have great operational tools, SaaS vendors whose agility is more about fixes than innovation, and so on. But I think we have some good to great SaaS vendors which will be quite profitable (or already are) because they’ve approached this new business model with the right stuff. And I would add that prospects/customers should be running for the exits from any SaaS (or so-called SaaS) vendor which isn’t well down the path of being able to meet successfully my six challenges above.

The bottom line. Reducing dramatically the elapsed time, complexity and cost of HRM software sales and implementation, not to mention ongoing configuration, is an important enough response to the six challenges above for HRM SaaS vendors and BPO providers — and creates a big enough competitive moat — to justify building interrogatory configurators. Doing this requires having the right underlying software architecture, one which enables effective-dated configuration without writing any procedural code. It also requires the product’s designers to know and be able to express the patterns of good practice in a whole range of HRM areas, from organizational designs to hiring practices, and the good practice combinations of same. And there’s an enhanced opportunity here for incorporating all manner of exogenous data, from salary surveys and hiring patterns to commentary on which organizational designs are common in specific industries — and why. If your vendors aren’t pretty far along on this, it may be too late for them to get started — or their underlying architectures just won’t support this. And if you’re a prospect for new HR technology, be sure to find out if your short list vendors are far enough down this path to ensure that they will remain viable and that your needs will be met. I’d also you’ll watch my Firing Line with Bill Kutik® episode on this.

About the Author:

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Naomi Bloom is a leading independent voice, business and platform strategic advisor, market influencer, blogger and speaker about enterprise HR technology and outsourcing. After many years acting as a change agent and HRM delivery systems strategist/coach for global corporate clients and as a consultant on business strategy and product/service design to several generations of HRM software vendors and HR outsourcing providers, Ms. Bloom now limits her consulting practice to strategic advisory roles with vendors whose management and products are market movers and as a provider of competitive insight and due diligence to the investment community. Naomi built the only vendor-neutral HRM domain model and application architecture “starter kits.” Licensed across the industry from 1995 through 2013, Naomi’s IP has been considered to be not only the state-of-the-art but also a primary contributor to many of today’s best practices in HRM enterprise software.

Naomi is a formidable advocate for the HRM and HRM delivery system end-user community, focused entirely on achieving breakthroughs in organizational performance outcomes through effective HRM enabled by great HR technology. She is well-published, to include via her blog InFullBloom.us and is a much sought after, compensated speaker/author for her thought leadership, presentation effectiveness, clarity of vision, and humorous delivery. Naomi has been a general session speaker at the annual HR Technology Conference since its inception in 1989, a main stage speaker since its 2nd year at HR Tech World Congress, and is the author of Human Resource Management and Information Technology: Achieving a Strategic Partnership, which was published in 1984. In 1995, Ms. Bloom’s industry contributions were recognized with IHRIM’s Summit Award, and in 2011, Naomi became a Fellow of the Human Resource Policy Institute at Boston University. Ms. Bloom is a member of The Enterprise Irregulars and founder/chairman of The Brazen Hussies of HR tech.

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Source: SaaS Economics, Competitive Moats, And Interrogatory Configuration | In Full Bloom

HR Tech Is So Dynamic and Still Has Very Much a Work in Progress

Interview with Bill Kutik

Today our interview is with Bill Kutik, one of the top four HR Technology influencers in the US, and the industry’s leading producer of shows – live and online.

For 19 months, his independent broadcast-quality video series called Firing Line with Bill Kutik® has featured monthly interviews with leading HR tech thought-leaders on YouTube.

Since 1990, he has been monthly Technology Columnist for the US trade magazine Human Resource Executive (you can read his columns at Human Resource Executive Online®).

But he’s probably best known as founding co-chairman (sometimes called “The Father” or even “The Godfather”) of the magazine’s famous annual event, the HR Technology® Conference & Exhibition, the world’s largest held every October in the US. He began it in 1998 and stepped aside for new leadership in 2013.

The Bill Kutik Radio Show®, his previous online talk show with industry leaders, has suspended new shows but many people are still listening to its 183 podcasts in the archive at HRE Online.

In 2012, the magazine named him one of the “10 Most Powerful HR Technology Experts.” He previously wrote for The New York Times and has a BA degree from Harvard University.

The interview is hosted by Alexey Mitkin, Founder, Publisher and Editor-in-Chief, The HR Tech Weekly® Online Media Co.

  1. Hi Bill, and first of all thank you very much for this interview with The HR Tech Weekly®. You run the TV show well known among the business audience as Firing Line with Bill Kutik®. What are you trying to accomplish with it and how do you make decisions on inviting your guests? And curiously, what do you feel today to be at the opposite side of the table?

Hi Alexey, thank you for inviting me.

When I started planning the TV show in late 2014, I realized that all the various shows I had produced since 1998 (HR Tech, the Radio Show) were all based on the same bedrock principle: Guests talk about what they’re thinking and doing, not what software they’re selling or which software they might be using.

The analyst relations executive at Workday, Geoff McDonald, asked me to repeat that after I said it because he thought it was the best description of “thought leadership” he had ever heard. I was flattered.

Because I came to HR technology from years in commercial journalism (doing work for The New York Times and The Boston Globe), I have brought with me some values that are now sadly considered old-fashioned. Namely that articles (or blogs), conference presentations and interviews (audio or video) should be in the best interests solely of the reader, listener or viewer – the audience – and definitely not necessarily in the interests of any vendor involved.

I was ruthless about that at HR Tech, where happily the owner Ken Kahn completely supported the idea that we never sold speaking slots to vendors. Imagine, attendees are already paying to see the content. Should anyone sell it a second time so it’s no longer in their best interests?

So I started Firing Line with Bill Kutik® to continue providing HR practitioners with objective information about the latest technology trends without marketing or favoritism. It was the same with the Radio Show, which I did for seven years.

Decisions on the guests for both are made simply based on who can best deliver value to the audience.

As for being on the other side of the table… being a good interviewer means taking second chair to the person being interviewed. Teasing out and highlighting what they know. Since much of what I do are interviews and panels (except for my columns), I don’t get to do much of the talking. So I love whenever the roles are reversed! Look how much more I get to say here than you do, Alexey!

  1. You provide the HR Technology Column at Human Resource Executive Online®. How do you choose your topics to be covered there and what other projects do you undertake?

Being a columnist is the most difficult job in journalism. Others only write when something happens; columnists have to fill the space (in my case) every four weeks, even if nothing has happened.

Of course, HR technology is so dynamic that I can’t think of a month when nothing happened. Because I like my columns to be in-depth, I often write them after attending full-day analyst meetings or multi-day user conferences. That gives me the kind of perspective a good column needs.

Thirty years ago, I learned from the world’s leading computer industry commentator (an old college friend, Esther Dyson) that vendors do most of the innovation in the industry. Certainly there were terrifically innovative end-users like Cisco and Walmart, but they were the exception.

So my columns tend to focus on what the vendors are doing. In addition, I try to use them to explain to the practitioners how the software industry works. Think about it. Practitioners may buy new solutions every three years or so from someone who sells them every day! The match-up is so unfair. I try to level the playing field. In that regard, one of my favorite revelations was that salesmen for large, on-premise enterprise software regularly asked for four-times the price they were willing to settle for!

Now that’s exactly what the street urchins in Cairo trying to sell you cheap souvenirs do. It was never universally true, but I was shocked to discover it and thought it important to tell HR practitioners about it.

  1. You started the HR Technology® Conference & Exhibition (also known as ‘HR Tech’ which probably gave the name to the whole industry). What was the mission behind the idea to establish such an event in 1998, how it was changing during the time and what other events should HR managers keep their eyes on?

The mission from Day One was to help make HR practitioners more tech savvy. Not to understand the bits and bytes of it, but to understand the business benefits that technology could bring them. And offer that to them from their colleagues, senior HR executives, and not from vendors who too often do the educating at other events, sometimes to their own benefit.

Our mission enlarged, when I realized there was a vast audience of HR generalists who somehow thought technology did not apply to them. We started a major campaign – with the help of the most popular U.S. bloggers at the time such as Laurie Ruettimann, “HR Ringleader” Trish McFarlane, “HR Capitalist” Kris Dunn, “HR Bartender” Sharlyn Lauby and Dwane Lay – to convince them their career advancement required it. I’m often guilty of exaggeration, and I remember once writing that if they didn’t get tech savvy, “They should start looking for a large cardboard box and nice place under a highway to live in it.” Over the top.

HR Tech was almost alone at the beginning. Now there are similar events around the world: Australia, China, India, Dubai, Bahrain, Norway, Amsterdam, Paris and London. I was once invited to an event in Moscow, but organizers never got beyond a brochure (which I still have) describing me in Russian. I love that because all four of my grandparents came from Russia, where I’ve been told my family name translates into “little cat,” not kitten. “Kooteek”: a term of endearment.

And don’t forget the show that started it all organized by IHRIM (International Association of Human Resources Information Management), begun decades earlier than HR Tech. Its next annual conference is scheduled for March 2017 in Toronto.

  1. SAP, Oracle and Workday, sometimes called as SOW, deliver most integrated and complex HR Tech solutions on today’s market. What are the core advantages they have, in terms of daily HR needs?

What I like to call the “Big Three” specialize in meeting the most complex needs of global corporations with more than 5,000 employees. Among the advantages they bring is being able to deal with specific HR needs in dozens of countries, especially in payroll.

Our largest analyst firm, Gartner, often publishes a “Magic Quadrant,” which graphically compares the “ability to execute” and “completeness of vision” of all HCM vendors. The leaders are in the upper right corner of the four-box labeled “leaders.”

The Big Three are always there. But practitioners too often make the mistake of tearing out the leaders box and making it their short list. Without considering that their company, for example, may have just one location in the US with just 600 employees. So that’s not necessarily the way to go.

  1. What are the market expectations from HR technologies to appear in the nearest future? Briefly.

Everyone is touting predictive analytics, most especially “proscriptive” analytics that suggest what you should do to fix a situation revealed by the data. HR departments need to move very slowly on this and insist that vendors go beyond their canned demo. And instead, load the company’s own data – say from 18 to six months ago – and then test to see if the predictions turned out right in the last six months, which HR already knows! Still very much a work in progress.

  1. Do we really need all that ‘bells-and-whistles’ HR Tech vendors deliver as stand alone, OEM or integrated solutions?

It’s often said that most people use only 10 percent of the functional capabilities in Microsoft Word. In my case, I know that’s true because it is marvelous software for writing a book, keeping track of footnotes, re-numbering as they are added or removed, automatically putting them at the bottom of the correct pages, or even aggregating them for a section at the end.

The same is true of HR software. But with SaaS, customers are generally not paying for the capabilities they’re not using and someday may use them. Many are terrifically useful, and I’m glad they are there.

  1. You follow the evolution of the recruiting systems since 1988 when it was ever evolved to the present digital times. In this new era, which are the powerful approaches to be used as effective recruiting solutions? What recruiters should never sweep aside and take to the future? Only applicants…

I was present at the birth of the first Applicant Tracking Systems (ATS) in 1988, as you mention. What has happened in that last 10 years is the ATS has come to be seen as the essential, but largely administrative, system involved in the Talent Acquisition process. Much like an HRIS, HRMS or what’s now called Core HR is essential but not very strategic.

And just as with Core HR, where people realized the real strategic advantage was in the programs that were attached to it (later called the Talent Management suite), the center of value in recruiting has moved away from the ATS to what were once called “edge applications” but now more often are called “Recruitment Marketing.”

I love to point out that the reason an ATS is called an Applicant Tracking System is it cannot deal with candidates who have not yet applied. Yet the very best recruiters are spending time dealing with them, not just sorting through applications and resumes.

I admit that focus on candidates can seem a little like the famous Groucho Marx joke: “I wouldn’t want to join any club that would have me as a member!” But the War for Talent is all about identifying and attracting candidates, not just throwing out a baited fishing hook (job board postings) and hauling into the boat everything that bites on it.

Obviously, I could go on and one about this topic. But I’ll spare your readers and hope they have stuck with us this far.


If you want to share this interview the reference to Bill Kutik and The HR Tech Weekly® is obligatory.