Much has been made in recent years of the rise of the software as a service (SaaS) model for enterprise IT. Also known as cloud computing or on-demand software, SaaS solutions are deployed in a third-party data center and accessed via Web browsers. Accessibility, affordability, and ease of use have always been key benefits of the approach. As the global economy hit bumpy terrain, those benefits became even more important.

Analysts suggest the popularity of this model is soaring. Gartner predicts that the SaaS market will reach $6.4 billion this year, a 27 percent increase over last year. In fact, many analysts are now projecting that SaaS will transform the software industry. The Economist's “Let It Rise: A Special Report on Corporate IT” (October 23, 2008) proclaims: “The rise of the cloud is more than just another platform shift that gets geeks excited. It will profoundly change the way people work and companies operate.” A May 2008 report from Merrill Lynch states that the industry is “…in the midst of a profound shift from client-server to cloud computing. The economics are truly compelling, with cost advantages of three to five times [over traditional] business apps.” And in a September 2008 market trends report, Gartner claims that SaaS is now “commonplace and having a very real impact on IT,” suggesting that users should not wait to explore SaaS opportunities.

Until recently, some considered business performance management (BPM) data to be a risky choice for access via the Web. Many organizations preferred to keep financial data within their four walls. But as the technology has matured — and as companies' business models have evolved to include new forms of relationships with other businesses, including competitors (see Organization as Network: A Modern Approach to Performance Management) — the benefits have begun to appear, for more and more companies, to outweigh the costs. The 10 most frequently cited benefits of a SaaS model for performance management are:

Greater transparency

Unlike traditional, on-premises software, most SaaS applications are available for free trial periods. This openness is often coupled with public access to other types of information that have traditionally been closely guarded, such as uptime statistics, pricing information, support cases, and training materials. The widespread availability of so much information enables prospective customers to be well-informed before they decide whether to move forward with a particular solution.

Continuous innovation

Upgrades to SaaS solutions are automatic; users simply log on to the application and receive instant access to the new features. Development cycles for new versions are shorter, as well. SaaS vendors typically provide two or three releases per year. As the applications improve, users simply “inherit” the new functionality.

Ease of use

Because SaaS applications are developed for the Web, they share many design principles with popular online consumer applications. This makes them easy for employees to learn to use, which means adoption can be faster and broader.

Global collaboration

To be effective, BPM processes must include participants throughout a company; this often means they involve people across the globe. In addition, BPM activities must assimilate inputs and perspectives from a large number of people in a short time. By their nature, SaaS solutions facilitate global collaboration. Their browser-based interfaces ensure anytime, anywhere access, and changes are immediately propagated throughout the model in real time. New SaaS solutions are extending this concept of online collaboration to include not just the numbers, but also commentary, assumptions, and other information that affects the planning and reporting process. Discussion forums and online documents enable users of a SaaS BPM product to develop an institutional repository of financial information that comprises a complete history of actual results, as well as every version of every plan, along with the what-if scenarios, assumptions, variance descriptions, and decisions that went into each plan.

Tight integration

Integrating on-premises G/L, personnel, and operational data with SaaS-based BPM solutions hasn't always been easy, but “connector” technologies have now caught up with SaaS BPM applications; they have largely addressed integration concerns.

Rapid implementations

Implementations are usually much faster with on-demand than with on-premises software. Companies get instant access to the online system; then they can quickly configure their financial model and import their actuals. While the median length of a traditional BPM software implementation is five months, BPM Magazine research has shown that many SaaS implementations take just days or weeks.

Minimal capital expenditure

Typically, on-premises software is sold using a license agreement that requires a large up-front payment for the software, followed by ongoing support and maintenance payments of around 20 percent of the license fee. SaaS vendors, on the other hand, typically offer subscription-based “pay as you go” pricing.

Lower overall cost

SaaS solutions are generally less expensive than their on-premises counterparts. SaaS vendors tend to focus their product design from the outset on efficiency. Plus, SaaS rollouts don't involve up-front spending for new hardware or for software licenses, and shorter implementations equate to lower staff and consulting costs.

Lower risk

Because of these benefits, selecting a SaaS solution often represents lower risk than buying a on-premises system. The absence of up-front capital spending limits financial exposure. And managers who give the software a trial run can make better decisions about the suitability of the application. Finally, “pay as you go” subscriptions enable customers to cancel at any time if they are not getting the expected value from an application.

Higher customer satisfaction

Traditional enterprise software companies are notorious for having aggressive salespeople who push products that the customer doesn't need. The SaaS model, in contrast, is a service-oriented rather than a product-oriented business model. Because the SaaS model is not profitable unless vendors achieve high customer renewal rates, SaaS vendors have a tremendous incentive to provide good customer service. This means vendors aim to achieve an ongoing partnership with customers, rather than a single-sale relationship.

William A. Soward is president and CEO of Adaptive Planning, a provider of SaaS-based budgeting, forecasting, and reporting solutions designed for companies of all sizes.