SaaS overload is plaguing the mid-market. Over the last five years, middle market organizations in the US have adopted a kaleidoscope of SaaS applications to scale, capture market share, embrace hybrid or remote working, staff up, and verticalize operations to their respective industries.
From the SaaS vendor perspective, this is promising, illustrating that mid-market businesses (MMs) show the same initiative and investment in cloud, personalization, Future of Work, and so on, as larger enterprises. But size matters in the mid-market.
As we touched on in a previous article about reskilling, mid-market companies by-and-large do not possess the capital or IT resources needed to manage or maintain complex app ecosystems, integrate platforms, centralize UX, or extend services like AI and analytics across an entire organization.
All this has led to a proliferation of patchwork systems comprised of dozens or more isolated apps and services. Business leaders in the mid-market surveyed by Deloitte in 2019 listed "reducing IT costs and simplifying IT architecture" as a top technology investment for the next 12 months. To me, this says that MMs are acutely aware of the trappings of multi-vendor SaaS systems and in theory how to solve them.
"As recently as five years ago, most SMBs were still evaluating cloud's use to address business needs and operations," writes TechAisle. "By 2020, the cloud was no longer a future issue — 99% of midmarket organizations use the cloud to support some or all of their business processes." That said, MMs are focused on outcomes and growth, not software engineering or system integration, and through rapid SaaS adoption, these businesses have been met with soaring IT costs, data and departmental siloing, and considerable waste. As this SaaS trends report points out, by 2019 the average mid-market company used 137 unique apps, spread across 32 unique billing owners, with an average of 4.3 orphaned software subscriptions and 5.8 duplicate subscriptions.
It's clear from these figures that high costs, complexity, and waste are byproducts of a disjointed SaaS system. When, for instance, data and processes are centralized on a single platform solution, business intelligence tools can span front-office and back-office operations and customer and employee experience is streamlined. Platforms are just easier to use, too, enabling business-wide automation and process optimization. They unburden IT teams because much of the support, maintenance, and update legwork falls on the vendor, not the business. These, and the myriad other benefits of a unified suite of business apps, are clear to most mid-market organizations, and a select few have already begun moving over.
Given their IT budgets and marketability, large enterprises pull focus for software vendors away from building custom solutions for the mid-market. MMs therefore have more autonomy in choosing and designing their own systems — a daunting prospect for many, which has led to the SaaS pileup we're seeing in the segment.
Once the decision is made to move toward a unified suite of apps, mid-market businesses have three options, laid out in this piece on ERPs for diginomica:
- Ring-fence their platform with emerging apps;
- Lift and shift from multi-vendor apps to a platform gradually;
- Rip and replace the entire system at once.
Ring-fencing a platform is a common strategy for enterprises, precisely because they have the resources and engineering power to integrate suites with various emerging applications that have differing data architectures. And they have the money to license dozens if not hundreds of apps, even if their capabilities overlap. Without the big budget or expansive IT teams afforded to the enterprise, mid-market businesses pursuing a ring-fencing strategy will be perpetuating the same integration and data migration issues associated with patchwork SaaS solutions.
Option three, rip-and-replace, could work in the mid-market considering how so many businesses had to up and adopt cloud software five or so years ago. The problem here is cost, and the potential that the new platform proves too difficult to use or slow to implement. Employees will have to be trained on the new tools within the platform, leading to latency across the entire organization. This strategy constitutes a huge leap of faith for mid-market companies, and ultimately the risk might be too great in a segment where margins are already thin, competition is incredibly stiff, and agility wins the day.
The bottom line
The bottom line for the mid-market is literally the bottom line — how much is this going to cost the business, in time, in money, in resources?
To answer this question, business leaders in the mid-market need time and flexibility to test the platform approach before committing. It's for this reason that option two, lift and shift is likely to produce the best outcome. Industry analyst Denis Pombriant calls this a Surround Strategy — moving parts of a business' workload from some workhorse system, say ERP, to a comprehensive cloud platform, where things like pre-built reports and AI-based digital assistants can help business users interrogate data stored on the mother ship.
Careful not to overspend and over-complicate, MMs can incrementally move employees, customers, and business processes over to the platform, and if and when conditions improve, gradually sundown certain apps in their ecosystem. All the while, company leaders can leverage in-built business intelligence tools to evaluate the progress and ROI. To some, this strategy smacks of being too slow, but rather than replacing a system whole-cloth or managing one that is cobbled together, the lift and replace strategy for adopting a truly unified platform supports sustainable transformation without endangering business growth.