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Summary
To hear the proponents of software as a service (SaaS) tell it, owning and managing your own software is so-o-o yesterday. Certainly, the considerable success of salesforce.com, whose revenues topped $497 million in its latest fiscal year, has caused many people to take a look at the idea of renting software. Although the traditional own-and-operate approach is still the way most companies acquire their software, Ventana Research believes some should consider SaaS alternatives, particularly for their finance departments. The SaaS business model has been maturing and companies – particularly midsize ones – may find this approach works well for them.

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This business model has a different value proposition than the own-and-operate approach. SaaS vendors – which almost always are the software developers – give users access to applications while taking care of its operation, security and maintenance. Their customers often can be up and running quickly because SaaS does not require an on-site implementation process. The software’s up-front costs are lower because the user does not have to buy the software and the hardware to run it, and implementation fees usually are lower than for an on-site installation. Some SaaS vendors also have embraced open source software in their offerings, eliminating some licensing costs and passing those savings along to customers.

SaaS does not have to be an all-or-nothing choice. Companies may prefer it for some, but not all, of their applications so their internal IT operations can focus on more strategic systems. Other organizations might not have the enough skilled people to manage day-to-day operations for all the software they need. This often can be the case in midsize companies, which Ventana Research defines as those having 100 to 1,000 employees. Another positive aspect of SaaS applications is that users can access the software from any location that has an Internet connection. This can be especially useful for mobile workers, such as sales or field support people, and for businesses that operate out of multiple locations, such as retailers with many storefronts. Since the business activity is taking place “beyond the firewall,” it may even be a safer approach than handling the software on-premises.

There are three categories of SaaS offerings that might interest finance departments: accounting, budgeting and other services. SaaS vendors offer accounting applications for companies too large to use Intuit’s QuickBooks but small enough to not have – nor want to have – the application on premises. In companies whose geographically dispersed sites must interact with the central ERP system – for example, midsize retailers – or situations in which a company has a part-time CFO, having the software available on the Web is handy for all involved. A SaaS-based accounting system also may be the best choice for a company that wants a comprehensive enterprise software suite – for example, enterprise resource planning (ERP) and sales force automation (SFA) – from a single vendor so they can connect supply chain management and customer resource management (CRM) to the accounting system, but does not have the in-house IT staff to manage and to maintain it.

SaaS-based budgeting and reporting software provides an alternative to desktop spreadsheets. Organizations that do not have a central data repository, especially those that have many satellite offices or branches, may find using this service is the best way to collect and share business information. The budgeting and planning process, which usually involves a variety of people, benefits from having dedicated software managed in a central location tied to a central database. Companies also can use SaaS for a range of other collaborative planning efforts, such as sales and operational planning. One currently popular SaaS application is travel and expenses (T&E) management. Many companies, in fact, prefer T&E management as a service because it can substantially cut administrative costs and improve compliance with travel policies.

On the other hand, SaaS may not be the right choice for several reasons. The software may not have enough of the features and capabilities a company needs in its industry or for the way it likes to run its business, and there may be no way to customize an SaaS application sufficiently to make it a workable alternative. Companies also should consider the data flows into and out of the software. The SaaS option is never a problem when applications have little or no interaction with other software. However, as the amount of data that the application shares with the company’s other software increases, integration becomes more difficult. Also, if the application shares critical data and the time interval used to measure whether the data is current is seconds, not days, SaaS may not be the best approach. Finally, the SaaS business model usually costs less than the own-and-operate approach initially, but the longer-term total cost of ownership may be higher. As for implementation expenses, SaaS may not offer any savings over the on-premises approach for more complex enterprise software.

Assessment
Software as a service is a workable approach to acquiring software functionality that is gaining greater acceptance in the finance function. For some companies the value of this approach may be compelling, for others it may not. The breadth and depth of SaaS options likely will multiply over the next several years, so senior finance executives, especially those in midsize companies, should keep this option in mind when it comes to buying new or replacement software.