Hello, Financial SaaS; Good-bye, IT

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Software as a Service (SaaS) has already shaken up the sales force automation (SFA) and customer relationship management (CRM) markets by delivering quickly deployed, more-than-good-enough functionality at a low price. SaaS in the form of Salesforce.com nearly single-handedly put Seibel out of business, sending the once dominant CRM player leaping into the saving embrace of Oracle.

Now SaaS is poised to do the same with finance systems. Already the finance software big boys like SAP and Oracle are scrambling to come up with SaaS look-alikes to counter inroads being made by emerging SaaS finance players like Workday, Intacct, Host Analytics, and NetSuite.

Driving CFO interest in SaaS is not some sudden breakthrough in technology but Y2K. Remember Y2K, the millennium change of date that led many to revamp their financial systems for the four-digit date field rather than risk potential problems? Well, many of those Y2K-compliant finance systems, installed from 1996-1999 in the run-up to Y2K, are 10 years old or older and, probably, badly in need of a major overhaul if not a complete replacement, notes Bill McNee, CEO, Saugatuck Technology, a research firm based in Westport, CT.

Has your finance operation changed much in the last 10 to 15 years? Do you anticipate it changing going forward? If so, you need to start thinking about updating your existing systems, a disruptive, costly, and often failure-prone IT undertaking. Unless, of course, you look at SaaS.

SaaS is based on an old idea, harking back to the days of time-sharing and, more recently, to application service providers (ASP). In short, SaaS providers run software on their servers somewhere on the Internet. You access and run the software using only a Web browser. The benefits:

· Highly configurable for each user, almost to the point of customization

· The latest proven, well-tested functionality, automatically updated and enhanced

· No IT stuff to buy, install, and maintain

The tech advance that made SaaS possible is multitenancy. This is a way of partitioning the software so that every SaaS customer gets what appears to be a private, secure system, its data shielded from all the other customers. This results in massive shared economies of scale. The SaaS vendor maintains one piece of code running on one set of servers that thousands of customers can share. The litmus test of SaaS, then, is multitenancy; if the provider doesn't have it, it ain't SaaS and it won't be as cheap. (It's probably a single-tenancy ASP trying to masquerade as SaaS.)

In a report last spring, Great Expectations: SaaS Strategies in the Finance Organization, Saugatuck predicted that usage of SaaS-based core financial systems of record (including Finance /Accounting systems, Human Resources) would reach 40 percent or more by year-end 2010. And as the finance group's responsibilities evolve in more strategic directions, they also can turn to SaaS products for Business Intelligence, Corporate Performance Management, Business Process Management, and a slew of specialized point products to manage anything from compliance to governance.

When it comes time to revamp those Y2K-era systems, companies will have no shortage of SaaS options. For example, Intacct delivers SaaS financial management and accounting applications to automate complex financial processes, including tasks like accounting, contract management, revenue recognition, financial consolidation, and reporting. One customer even uses it to roll up finances for its international subsidiaries with its U.S. operations to view consolidated financial statements securely and in real time.

The payback from SaaS is its ability to deliver the latest, proven functionality configured pretty closely to your specific needs but without the need to invest in IT hardware or deploy and maintain software. Is SaaS perfect? No: It often omits esoteric functions, integrates awkwardly with other systems, and can't be customized except through configuration. For most finance operations, however, SaaS is good enough. So good, in fact, the CFO might even start wondering why they need an IT group at all. ###

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