The first era of SaaS ends: 'Best of breed' was prelude to 'systems of delivery'

A new era

Few would argue that the enterprise software landscape is anything other than highly dynamic as the supply side responds to rapidly changing requirements from businesses' digital transformations. Assumptions around technology categories and market needs have a much shorter shelf life as a result. That is why we make a concerted effort to step back from the noise and look for the more macro changes that are reshaping the technology landscape.

One of those macro perspectives is that we are at the beginning of a new era of mass aggregation. New kinds of enterprise platforms – what we call 'systems of delivery' – are converging discrete functionalities that still define existing application categories. This shift will demote the prevailing 'best of breed' narrative and with it the view that the future of IT will be a spectrum of functionally specific apps strung together through open APIs and off-the-shelf integrations. More of the discussion will shift instead to 'best of suite.'

If we are at the start of this era of convergence, we believe the end of it will look very different in terms of the technologies enterprises use, the workflows and processes they create, and, even more consequentially, in how they design their organizations and organize their employees. Here we outline why and how we think this will happen and build on our previous analysis of systems of delivery. We also share some direct quotes in this report from recent custom surveys we've completed with 451 Research clients.

The 451 Take

Businesses can't afford a self-imposed tax on their workforces' productivity at a time when they are having to digitally transform. Doing something about the daily friction employees experience has risen up the transformation agenda over the past few years. There is an increasing sense that the prevailing 'best of breed' narrative is becoming less useful as a way to understand technology choices, and insufficient as a way to speak to the needs organizations and employees now have. Twenty years of SaaS has led us to a new era, with the supply side beginning to shift the narrative to focus on converged enterprise platforms rather than narrow 'point solutions.' The implications of this will be profound for technology investments, organizational behavior and customer outcomes.

Why now?

Many enterprises still operate on decades-old organizational principles and management practices that are less relevant in an era increasingly defined by consumers' intensifying influence on market demand and supply. Consumers themselves are even entering the production line via technology-driven ways to start new businesses, enter the gig economy and banding together in new 'maker movements.'

This hits the consumer realm before it does the workplace – it has taken SaaS 20 years to disaggregate legacy business applications and begin to piecemeal digitize manual business processes. This has exploded the number of applications available but at the same time splintered employees' focus, collaborations and workflows. Most organizations grapple with three things – practices that have accreted around discrete systems of record that are highly resistant to change, niche and narrow SaaS tools deployed to address specific pain points, and daily-used tools lower down the food chain that have changed little in decades; e.g., Gantt charts, spreadsheets and word processors.

“Everyone in the department works independently with their own goals, data sets, and technology applications. We need a unified aim.” – Senior Managers, 1,500-9,999 employees, IT, Semiconductors, Australia, September 2020

“We need better tools and technology to operate with other departments in order to improve efficiency, save time, effort and money.” – Senior Manager, 5,000-9,999 employees, Finance, Government/Public Administration, UK, September 2020

“Overall cooperation with interfaces between the departments, communication within the department and the employees needs to be worked upon.” – Manager, 5,000-9,999 employees, IT, Healthcare, Germany, September 2020

“Team alignment and goal setting should be a priority and part of the company culture.” – Senior Manager, 1,500-4,999 employees, IT, Telecommunications, Germany, September 2020.

This sclerotic mix is a clear and growing operational risk and can't satisfy the five key workforce needs businesses have:

• Strategy to execution: Having a more explicit connection between company and divisional goals and how teams execute locally, in a way that enhances alignment, speed of execution and accountability.
• Seamless experiences: A more seamless experience across employees' tools that reduces the damaging and daily context-switching across apps.
• Unlocked value: Unlocking the trapped value of their workforce's creativity by having tools that empower non-technical employees with more autonomy to design their own workflows and work designs.
• Flexible resourcing: An improved ability to flexibly manage resources in and out of projects and to appraise, develop, manage and plan around their skills base to support that.
• Diverse work modalities: The product capabilities and licensing arrangements to support the increasingly important remote and hybrid, cross-functional, agile and external collaboration work modalities.

This shift is not just a technological one. There is huge trapped value in organizational culture at the intersection of technology and employee engagement, not least for talent acquisition.

Digital has transformed the relationship between consumers and brands and it's beginning to with employees and employers. Employees are increasingly impatient with frustrating job and career experiences and want the context, control and convenience they find in their personal digital lives. Our Voice of the Enterprise: Workforce Productivity and Collaboration, Employee Engagement 2020 (click to learn more) survey reports the following:

• Only 38% of employees completely agree that their organization provides them with the tools and technologies they need to succeed.
• 35% of employees would likely (very/somewhat) leave their current role for one where there was better access to modern devices, applications and other productivity tools.
• Employees working for digital leaders (39%) are overall happier than those who work for digital laggards (27%).

This will require a very thoughtful perspective from the C-suite as they look for more fine-grained ways to manage those employees, elevate their productivity and increase their engagement.

How it is happening – CIPs and WIPs

Responding to these key business needs, the supply side is driving the synthesis of information, data and people across silos. Pre-built integrations and open APIs are connecting different systems, low- and no-code environments are opening up new workflows, new digital canvases and workspaces are combining different productivity capabilities, collaboration and communications services are embeddable and interstitial within structured workflows, new AI/ML intelligence is powering intelligent applications or new decentralized domain-driven data mesh architectures.

With these and other innovations, SaaS is upping its game with a growing number of vendors downplaying 'best of breed' and talking instead of a 'rising tide' where they become centralizing hubs in which an ecosystem of other apps are operationalized. This is symbolic of the end of the first era of SaaS, and inevitably also marks the start of a new era that we believe will be defined by those hubs maturing into fuller 'systems of delivery' consolidating different work execution capabilities and supporting highly agile work across the workforce.

Figure 1: The Evolution Toward Systems of Delivery

^{Source: 451 Research, Systems of Delivery Take Agile Mainstream To Define the Future of Enterprise Apps, 2019}

Figure 2: Why Systems of Delivery Are Distinct From What Preceded Them

^{Source: 451 Research, Systems of Delivery Take Agile Mainstream To Define the Future of Enterprise Apps, 2019}

Although we're at the start of this new era of consolidation, the evidence is there. What separates systems of delivery from preceding business systems is the focus on how work is orchestrated across domain-specific silos. With their Customer Data Platforms (CDP), vendors like Adobe, Salesforce, Microsoft and Oracle, for example, have been consolidating identity, information, insights and intelligence across the entire customer journey, toward an emerging category 451 Research calls Customer Intelligence Platforms. Recent examples of this were the acquisitions by Adobe of Workfront and Salesforce of Slack – each looking to forge new agile workflows, improve collaboration and planning capabilities along those customer journeys.

Another area where we see evidence is in the productivity space, where there's growing support for the narrative that businesses won't, after all, get the operational and productivity improvements they need simply by stringing together their content, collaboration, work management and workflow automation silos. Instead what's needed is some kind of 'work platform,' 'workspace,' 'work operating system' or one of the several other phrases currently being used – to combine more (not necessarily all) of those capabilities in one experience. Just as with CDPs evolving into CIPs, we see new kinds of workspace positioning to become fuller Workforce Intelligence Platforms (WIPs). This is a trend we have been tracking for several years, laying out our initial thinking three years ago and subsequently evidencing the workspace shift here.

A few examples include Microsoft and M365, which it describes as 'best of suite' designed to streamline and reinvent processes within an ecosystem of solutions. Citrix has pivoted significantly in the past three years, organizing its infrastructure behind a new unified workspace vision, which with its recent Wrike acquisition now stretches across structured and unstructured, tactical and strategic work. Atlassian has been building a stack from enterprise planning platform Align down to its JIRA, Confluence, Trello and other tools – another example of a possible system of delivery in waiting, as is ServiceNow because it takes on pervasive IT, customer and employee workflows.

This is happening in different ways depending on where vendors are starting, but we see work management, workflow and collaboration as key areas being absorbed, and suspect that resource management, planning and skilling capabilities could follow.

What does this represent?

Either way, the result is that the workforce is gradually being equipped with more autonomy to decide not only how a business outcome is delivered, but also how to conceive of preferred outcomes in the first place given these new capabilities. This is a tipping point – historically, business outcomes have been determined more by the limitations of technologies than what those technologies can enable.

“The [main improvement would be] non-standard cooperation between departments, a different sense of responsibility and process consciousness affecting the operations of the department.” – Director, 1,000-1,4999 employees, Digital Strategy, Construction and Environmental Services, Australia, September 2020

“We need virtual collaboration so that we can get enough ideas and solutions from everyone.” – Manager, 5,000-9,999 employees, Data Science/data analytics, Government/Public Administration, UK, September 2020

This continues the consumerization of IT for which SaaS has been such a strong catalyst. Conventional thinking in enterprise software is flipping on its head to mirror what we've seen in the consumer realm. The idea that a minority of creators and a slightly larger cohort of curators determine experiences for most users is now old fashioned in consumer tech. Everyone can be a creator. In the enterprise this is manifesting as more employees being more empowered with the means to customize how they define, design and deliver their work. The question - for a growing number of employees – becomes not 'how do I work toward this outcome under these constraints?' but 'how do I organize these technologies to give me the outcome I want?'

Figure 3: The Three 'A's Defining the Systems of Delivery Sweet Spot

^{Source: 451 Research}

Where now?

We are seeing an increasing number of technology companies now ask two important and related questions:

• First, which capabilities will be native to these widening enterprise platforms and which will be operationalized in the platform via integrations?
• Second, what will the different flavors of these platforms be and how will that influence the competitive landscape?

Because we are at the start of this era, these are the right questions, but there are no straightforward answers. That in the coming years multiple flavors of 'systems of delivery' will mature seems inevitable, given the different drivers and starting points vendors will have. Another hypothesis could be that as businesses become much more agile, their traditional organizational boundaries will diminish, the CX and EX divide will become meaningless, and customer and employee platforms will unify into singular systems of delivery. There isn't enough evidence yet to determine that trajectory with confidence, although it feels unlikely.

One thing seems sure – the competitive ground is fundamentally shifting. Up until recently – and indeed for many it still will – appear strange to think of Citrix, Atlassian, Salesforce, ServiceNow and ZenDesk as potential competition. Now however, it's less counter-intuitive to do so. Competitive lines haven't been clearly drawn, vendors are busy trying to 'category create' this future and we're still only at the start of this era, but there are commonalities in how this is evolving.