Moving to the cloud and SaaS is easier and simpler than many executives believe and can deliver significant business gains in a relatively short amount of time. But clearly, internal politics and personal agendas sometimes get in the way of what should be a fairly straightforward decision. Otherwise, wouldn’t more small and midsize companies have made the switch to 100 percent cloud environments by now?

There are two key decisions that a company should make when considering its cloud strategy. First, how much money do you have available to spend on technology? Secondly, how unique are your processes? These two basic questions will help you decide which applications to purchase in the cloud and which vendors to choose. Coupled with the right management attitudes, the answers will help IT achieve the maximum savings and value from cloud and Web technologies — without harming the business. Here’s how we developed our strategy at Precise.

Decision 1: Show me the money

Back in 2008, after being spun out of our former parent company Symantec and into a new private company, cost management was critical for our near-term and long-term survival. We also had 1,000 customers to support, and we couldn’t risk hurting those relationships by taking any chances with our systems and infrastructure. However, the bottom line was that we could not afford to continue spending at the same levels we had been. We needed drastic change, and fast.

To make ends meet, we needed to cut our IT budget by more than 50 percent. This was a CEO decision, and we had to abide by it. There were no politics and no management wrangling involved here: A single look at the P&L revealed why those cuts were non-negotiable.

Decision 2: Is customization really necessary?

Companies have a hard time letting go of what they consider to be proprietary. However, very few applications are so unique that they require in-house ownership. In other words: to drive a nail into a two-by-two, everybody uses a hammer.

As a software company, there is nothing proprietary in how we manage finances or in how we sell, market and support our products. We were determined to find off-the-shelf SaaS apps that could run our business. And if we needed to change our processes a bit as a result, we could live with that. To be realistic, we assumed that a minimal amount of customization would be needed to integrate applications and make minor adaptations. We asked our department heads to select these SaaS applications — we didn’t ask IT.  Obviously, IT was a valuable partner in the decision-making process, but we let department VPs make the final call because they owned those processes.

Making ends meet 

There’s one caveat here: whatever the departments chose had to fit into our budget at the time. Here’s an example of how these decisions can flip at the 11th hour. Our customer-support organization had outgrown its customer portal platform and needed a new content management solution. Our vendor for customer-relationship management had just launched a new product, but it was out of our price range. Beggars need to be diligent choosers. So, our support folks looked around and found some quality alternatives.

The vice president of customer support was about to close a deal with one of these candidates, when, unfortunately, our quarterly numbers came in lower than expected. Although the support team really wanted the product, they could no longer afford that one either. The usual cliché is that when managers have no money, the CEO tells you to be creative. Our support folks were creative indeed. They selected Drupal, an open source solution. Combined with hosting by Acquia, Drupal is affordable, and it does what the support team needs. In fact, this solution was about 85 percent less expensive than the offering sold by its closest competitor.

Bigger isn’t necessarily better

Many execs still think the size of their organization reflects their power, influence and value in the company. With the advent of cloud, SaaS and automation, this is simply not the case anymore — especially for small and midsize companies. IT can deliver more value by orchestrating products and services that other people build and run, rather than doing it all in house.

Our IT director created more value for the company by slashing his budget by 70 percent and his staff by 50 percent. This is a hard pill to swallow, but it works. Many chief information officers describe their job as supporting the business through automation, while continuously grinding down the IT unit cost. The cloud and SaaS are pivotal technology levers to help CIOs achieve these goals.

Think clearly before moving to the cloud

In the case of Precise, the decision to go SaaS all the way was easy, because we required minimal customization and our size was too small to consider economies of scale in hosting. This might not be the case for other companies. With adequate scale, larger organizations can actually drive costs down by in-sourcing rather than outsourcing. At the extreme end, consider Google, which hosts its own environment and custom designs its infrastructure down to the compute and storage units. As cloud vendors achieve economies of scale and drive their own costs and pricing down, such examples are few and far between today.

Deciding how far your company will go with the cloud and SaaS should all come down to total cost and essential application functionality. Muddying the waters with debates around control, security, user preferences and vendor relationships is an enormous waste of time and energy. Stick to the basics, get crystal clear on which apps truly require on-premise management and make the decisions that are best for your business’s bottom line.

Zohar Gilad is the executive vice president at Precise, in Redwood Shores, CA.

Image courtesy of Flickr user Radio Saigón.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Forecasting the future cloud computing market
• Quality of the cloud: best practices for ISVs
• Infrastructure Q1: Cloud and big data woo enterprises

In 2008 the company I work for, Precise (a developer of application performance management systems), was spun out of its parent company Symantec and into a private company. Suddenly, we had 1,000 customers to support, and a limited IT department. Symantec offered to sell us licenses for SAP and other enterprise software packages that we had been using. But in our new structure, we needed applications that were scaled down and easier to support. We ditched the world of licensed software and annual commitments to large capital expenses on equipment — the traditional way of doing IT — in favor of cloud, SaaS and virtualization.

As a midsize company with more than 200 employees, it was a tectonic shift. But after a year-long migration of our IT infrastructure and applications to the cloud, we shaved more than $2 million, or 70 percent, from our annual IT budget. Here’s how we did it.

Our first priority was to find a solution to support our customers, so we chose Salesforce and NetSuite for the front and back-office solutions. It took a single data analyst a mere five hours to migrate all of our data from SAP to the new systems. For customer support, we chose Drupal and for marketing we chose Marketo — both of which were seamlessly integrated using WebSphere Cast Iron Cloud Integration.

Next up, we had to deal with the Microsoft Exchange servers that we’d inherited from Symantec. Microsoft Exchange can be a bear to support with a slim staff, so we opted for Google Mail instead. The e-mail migration took about five days, and later we also moved from Microsoft SharePoint to Google Sites for collaboration. The cool thing is, employees don’t have to do everything on Google. They can still access their favorite Microsoft Office applications, such as Excel, or use Outlook front-end if they wish.

We also went through a major server virtualization project in engineering — chopping off about 60 percent of our server expenses — and switched to AT&T fiber for networking and adopted VoIP for telephony.

None of the technologies that I’ve mentioned are new or even groundbreaking. But the fact that we could adopt all of them in a short period of time, integrate them using a single data analyst and realize such financial benefits is astounding. Even five years ago, small and midsize companies couldn’t afford state-of-the-art technologies to run their businesses. That’s all changed — and the playing field for IT sophistication has leveled out.

Not only is using newer, Web technologies more affordable, but they’re also more reliable. That’s been the case at Precise, at least. We haven’t had any issues from moving to a SaaS environment. We didn’t spend a bunch of money on hordes of consultants to get everything in place. It really was that simple. I give credit to our former IT director, Sharon Cohen, for choosing the right strategy and the right partners — that’s key.

Our transition to the cloud means that today we spend less time managing all the plumbing and more time working on our own products. We’re even looking at deploying cloud-based systems for R & D. And let’s not forget, we are saving more than $2 million per year. That’s the kind of money companies of our size, which comprise the bulk of the U.S. economy, can really put to good use. We can use those savings to hire strategic new employees or bring new features and services to our customers. For midsize companies, there’s no doubt:  rip out your on-premise software apps, go SaaS and adopt the cloud across the board.

Zohar Gilad is the executive vice president at Precise, a developer of application performance management systems. Before joining Precise, Zohar held senior executive positions at Mercury Interactive, which was acquired by HP in 2006.  

Image courtesy of Flickr user AndyFitz.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• A clouded view of Google Music
• Infrastructure Q1: IaaS Comes Down to Earth; Big Data Takes Flight
• Big data 2013: key trends and companies to watch