Welcome IDC analysts Robert Mahowald and Lisa Rowen with this guest post. Robert is the Research Director for SaaS and Cloud Applications in my Software Business Solutions group and Lisa is the Program Director for HR and Talent Management Services.
We've seen more and more Business Process Outsourcing (BPO - domain outsourcing and hosting) and Managed Service Provider (MSP - traditional hosted application management) vendors decide to take matters in their own hands, and build out their own SaaS solutions as a way to compete with software vendors becoming services vendors with SaaS offerings, and as a way to lower their costs with multi-tenant solutions. The next step, it would seem, is negotiating a deal to license the kernel of a widely-used solution and building on top of that to create a multi-tenant offering.
Services provider NorthgateArinso's euHReka OnDemand solution has done just that, and is first to market with an HCM offering based on SAP's ERP HCM technology. Although not the first to sell a SaaS offering for human capital management (Workday and Ultimate Software are two of several end-to-end SaaS HCM players), NorthgateArinso's offering is unique in that it licensed core technology from SAP and developed a multi-tenant deployment and data management model as its own proprietary solution. The terms of the licensure are not restrictive, meaning that NorthgateArinso can offer euHReka to companies of any size, whether they are part of SAP's base or not. SAP is a go-to-market partner with NorthgateArinso for this deal, with both firms sharing leads, and NorthgateArinso solely responsible for closing and fulfilling the deals. The deal affords NorthgateArinso a great deal of flexibility in continuing to give its customers the choice of traditional managed BPO services (outsourced domain and technology expertise) or SaaS services (outsourced technology and development) based on a widely-used and popular SAP solution. This level of choice reaches beyond what SAP can offer to most customers today, as it has not generally made its BusinessByDesign SaaS ERP solution available.
The SaaS play will give NorthgateArinso the chance to shift from its core midmarket base into larger customers, and allows it to provide more choice to customers, who can either manage HR processes themselves using the SaaS application, or continue to have NorthgateArinso service them as part of its existing HR BPO business using the new SAP-derived solution. IDC expects many more BPO players to follow NorthgateArinso's lead by re-architecting traditional software into multi-tenant solutions because low management costs, high scalability, and quick time to market offer BPOs with a great deal of domain expertise a path to lower their cost basis, improve profitability, and get closer to their customers' technology solutions.
NorthgateArinso has built the preconfigured multi-tenant functionality into the offering, so that user data is held in isolation, assuring users of the security and privacy of their data, and this combination of HR-domain and SaaS delivery and licensing may prove a valuable advantage in selling to what has traditionally been an audience concerned with data security. NorthgateArinso will be responsible for refreshing the licensed code in step with SAP and implementing all changes/mods to the SAP core to its customers, so they are on a consistent version.
The SaaS model often turns software vendors, which have traditionally partnered with services providers and BPO firms, into competitors with these former partners, as they can build out the services delivery themselves. Line of business functions like HR (and subsegments such as talent management) have proven particularly receptive to SaaS offerings, especially ones based on proven technology. By outpacing SAP at providing its customers with SaaS flexibility SAP cannot today deliver, NorthgateArinso, with its track record as a BPO domain and technology expert, can leverage its early-mover advantage into success in the large-company HR market.


