Software as a Service: The View from SME Finance A research report prepared by: Research performed by Saugatuck Technology with: Publication sponsored by:
About This Report This report was developed and written by the senior staff of Saugatuck Technology Inc. This report is based on independent research developed and conducted by Saugatuck Technology Inc., which is solely responsible for the analysis, conclusions, and recommendations presented in this report. The survey research for this report was developed by Saugatuck and executed by Bloomberg Businessweek Research Services. The publication of this report was funded by SAP. About Saugatuck Technology Saugatuck Technology Inc. provides subscription research and management consulting services focused on the key market trends and disruptive technologies driving change in enterprise IT, including SaaS, Cloud Infrastructure, Open Source and Enterprise Social Computing. Founded in 1999, Saugatuck is headquartered in Westport, CT, with offices in Boston, Santa Clara, CA and Frankfurt, Germany. For more information, please visit www.saugatech.com, or call +1.203.454.3900. To request a briefing with our analysts, contact Chris MacGregor at chris.macgregor@saugatech.com. i
TABLE OF CONTENTS Introduction: SaaS Becomes Critical for SME Finance SME Finance Professionals Face Significant Future Challenges Benefits Drive Software-as-a-Service for SME Finance Effectiveness of Current Systems versus SaaS Addressing the Effectiveness Gap with SaaS Making the Right Choices Net Impact: SaaS Can Fill the Gaps and Improve SME Finance Sponsor Perspective: SAP 1 1 3 4 5 6 7 8 TABLE OF FIGURES Sidebar: Defining Software-as-a-Service (SaaS) Figure 1: Finance Business Challenges Figure 2: Business Benefits of SaaS for SMEs Figure 3: The Effectiveness Gap for SME Finance Professionals Figure 4. SaaS Contributes to Finance Success 1 2 3 4 5 ii
INTRODUCTION: SAAS BECOMES CRITICAL FOR SME FINANCE Software-as-a-Service (SaaS) or Cloud-based solutions are viewed by Finance professionals as technologies that can help them accomplish critical goals, which in turn help Finance to improve the ability of their firm to succeed in business. Over 110 Finance professionals from Small and Medium-sized Enterprises (SMEs) told Saugatuck in early 2010 that they see SaaS as a key enabler to meet their future business priorities. They feel that their current financial systems are woefully insufficient in helping them to perform their responsibilities. The Finance organization sees SaaS as increasingly critical to support their evolving business goals, and is investing in SaaS for both point (non-core) financial processes as well as core systems of record. The rapid rise of SaaS for Finance has brought a fast-growing number and range of solutions providers into the marketplace. As a result, Finance professionals face an array of options in an environment where few providers have developed a strong track record to enable informed choices. And after being burned by many enterprise software vendor promises in the 1990s, SME Finance professionals remain cautious and averse to empty technology promises. The effects of bad choices remain as potentially crippling to the Finance organization as ever. Making the wrong choices will change how the Finance organization works, and can severely restrict any Finance organization s ability to improve its levels of service to the company. Selecting inadequate SaaS solutions (and providers) can also easily raise long-term costs to, and above, the level of traditional solutions. This research report provides insight and guidance to evaluating SaaS Finance solutions and providers to fit core Finance requirements. The information is based on research conducted by Saugatuck Technology and Bloomberg Businessweek Research Services, including surveys and interviews with the more than 110 SME Finance professionals noted above regarding what they demand from Finance solutions and providers to help their firms navigate the current economic challenges. SME FINANCE PROFESSIONALS FACE SIGNIFICANT CHALLENGES Figure 1 on the following page indicates the business challenges that will have the greatest impact on the Finance organization now through the next two years. The DEFINING SOFTWARE-AS-A-SERVICE (SAAS) Software-as-a-Service (sometimes referred to as Cloud-based solutions) is a means of acquiring and using software via the Internet. With SaaS, users do not need to buy, install, and maintain applications. All maintenance and upgrades are performed by the SaaS provider. As a result, the key benefits of SaaS center on reduced cost and simplified software management; there is little or no cost to the customer other than usage, which is paid for on a subscription basis. These benefits are helping to drive very rapid, widespread SaaS adoption in all aspects of business, from desktop applications to departmental solutions (such as sales force automation) to core business systems such as Finance and Human Resources. SaaS may be acquired, used, and paid for in a variety of ways. The provider may charge per use, monthly, or via annual subscription fee. Most providers offer volume licensing that reduces the cost per user significantly. The software cost is typically an operating expense rather than a capital expense (this is of particular interest to firms who need to conserve their capital). 1
number one issue is managing the organization during a period of economic uncertainty. Stakeholders are demanding more transparency on how organizations are run, and the burden is being placed on the Finance function to provide more accurate, forward-looking financial guidance. Among many critical tasks, this includes accurate, consolidated financial statements for the board of directors, senior management, and external stakeholders such as lenders. It also includes frequent, detailed, and accurate reports regarding costs and revenues, comparing business performance against forecasts, and more. Figure 1: Finance Business Challenges Managing during economic uncertainty 42% Providing more accurate forward-looking financial outlooks Regulatory compliance requirements Demands from business operations requiring better insight Competing strategic business initiatives (e.g. new lines of business, acquisitions, etc.) Leveraging technology to improve business performance 32% 30% 30% 30% 29% Reducing the cost of the finance organization 21% Changing interest rates Selecting and managing high quality business process outsourcing solutions Selecting and managing high quality IT outsourcing solutions Integrating disparate Finance functions and processes 15% 13% 11% 10% 0% 10% 20% 30% 40% 50% Source: Saugatuck Technology, SaaS Computing Survey 2010 n =110 SME Finance professionals As we can see from Figure 1, the second-greatest challenge facing Finance professionals is the need to provide more accurate financial outlooks and better insight on financial/operational performance. SMEs that are private equity-backed need to provide reports on how they are managing expenses and ensure they are investing capital wisely. Many SMEs lack credit ratings that facilitate the issuance of affordable financing - a process that is becoming extremely challenging as lenders demand more thorough financial information. Those SMEs in search of capital are finding banks asking for detailed information on current business and operational conditions. The Finance function wants to be able to query an application for financial information, not spend days working on the creation of very detailed reports. 2
BENEFITS DRIVE SOFTWARE-AS-A-SERVICE FOR SME FINANCE SaaS provides SMEs with unique business value and financial, operational, and technological advantages, such as: Integrated solutions that push the responsibility of software management to the provider. SaaS solutions can provide completely packaged solutions that include IT infrastructure, systems management, application availability, and upgrade management, all provided and managed by the provider as part of your software subscription. This can dramatically cut license costs, integration costs, and other software-related costs. And it can improve efficiencies far beyond your current solution; with many of today s SaaS solutions, users can gain access to a range of applications that are natively integrated and provided by the vendor. Speed of implementation. SaaS applications can be relatively quickly installed, and easier to implement and upgrade, than on-premise alternatives. Delivered over reliable and secure network links, SaaS enables broader availability of key functionality at much lower cost and with improved access to data and applications, especially for globally-dispersed and growing firms. Financial value. The key benefit of SaaS pricing models is that Finance professionals in a period of capital conservation do not need to come up with a big upfront capital expense (CAPEX) to start using the system. The subscription fee on SaaS is an operating expense (OPEX) that is paid for in direct relation to use, which in turn allows Finance to cost-effectively implement new functionality in a phased manner. Figure 2 below highlights the benefits of SaaS expected by our survey respondents. We see multiple tiers of reasons for choosing SaaS, but the core themes focus on simplifying software management and cost. The color coding orange, yellow, green, and blue is used to quickly and clearly identify and sort tiers of response ranges. Orange indicates the highest-ranked response tier; blue, the lowest. Figure 2: Business Benefits of SaaS for SMEs From the list below, please select the top three business benefits that you expect from Cloud Business Solutions. (Please select up to three.) Percentage Responses Simplify software management 33% Reduce capital and/or operating costs 33% Improve internal and external collaboration 21% Improve service levels 20% Convert fixed IT costs to variable costs 19% Improve management of mobile workers and geographically-dispersed business units 19% Access next-generation application functionality not available in current software 17% Reduce risk 16% Enable business process improvement 16% Increase revenue 15% Speed implementation 14% Enable focus on core competencies 13% Leverage provider s leading-edge technology 13% Speed time to market 11% Ability to benchmark performance against aggregated data of provider s customer base 6% Source: Saugatuck Technology, SaaS Computing Survey 2010; n =252 SME business and IT executives 3
As can be seen in Figure 2, simplifying software management and reducing capital or operating costs are what Saugatuck calls table stakes the bare minimum of demonstrated abilities that any provider must be able to prove to get in the door. Ranked just below these are the key abilities that are critical to making the solutions work within Finance as painlessly and as effectively as possible. These include improving internal and external collaboration and improving service levels. For example: If a Finance executive or CEO needs to approve a time-sensitive payment, and is traveling, having access to a SaaS application on a mobile device increases the effectiveness of the Finance function. EFFECTIVENESS OF CURRENT SYSTEMS VERSUS SAAS SaaS is being touted as the future of software by analysts, customers, and vendors. But more importantly, Finance professionals indicate to Saugatuck that their current financial systems fall drastically short in helping them meet their current responsibilities, never mind how well they adapt to new business challenges on the horizon. Figure 3 below presents the data from our 2010 survey that indicates the gaps between Finance professionals top-ranked responsibilities, and the rankings by those same professionals of their existing systems abilities to fulfill those responsibilities. Figure 3: The Effectiveness Gap for SME Finance Professionals Providing financial information to decision makers Improving ROI of Financial Systems Optimizing business processes Reducing process inefficiencies Maintaining an effective internal control structure and process Managing performance in the context of business risk Publishing complete and relevant information to stakeholders Mitigating risk of fraudulent transactions Recording transactions according to GAAP 38% 45% 45% 44% 45% 43% 49% 46% 51% 61% 61% 64% 74% 73% 72% 79% 79% 76% Effectiveness Gap between importance of responsibility, and current systems abilities to fulfill 0% 20% 40% 60% 80% Relative Importance of Finance Responsibilities Ability of Current Financial Systems Source: Saugatuck Technology, SaaS Computing Survey 2010 n =110 SME Finance professionals The top, maroon-colored bar in Figure 3 represents the relative ranking by Finance professionals of how important fulfilling each of a series of responsibilities is to their ability to contribute to their organization s success. The figures indicate the percentage of Finance professionals ranking each as extremely important or very important. The lower, blue bar represents the answers of the same Finance professionals when asked, How effective are your current Finance systems at helping you address each of these priorities? The figures indicate the percentage of Finance professionals ranking each as extremely effective or very effective. 4
Figure 3 clearly shows that Finance professionals see their current systems as being much less than optimal for their needs. The greatest effectiveness gaps are found among the most-important Finance priorities, including those related to providing financial information to decision makers and improving the ROI of their current financial systems. The abilities of their current financial systems can often, but not always, be improved through upgrades, including the purchase and implementation of additional modules, upgrading to newer versions, and boosting their technological integration capabilities. Unfortunately, such upgrades tend to be relatively expensive, and they rely significantly on highly-skilled resources to implement and optimize. ADDRESSING THE EFFECTIVENESS GAP WITH SAAS Saugatuck s 2010 survey and interview program with Finance professionals clearly shows that SaaS can contribute to bridging Finance s effectiveness gaps and improve Finance professionals ability to manage their key responsibilities. As can be seen in Figure 4 below, Saugatuck research indicates that Finance executives already see SaaS as a way to bridge many of their effectiveness gaps, increasing significantly the ability of Finance to deliver on its goals, particularly those related to operational improvements, ROI, and managing risk. Figure 4: SaaS Contributes to Finance Success Providing financial information to decision makers Improving ROI of Financial Systems Optimizing business processes Reducing process inefficiencies Maintaining an effective internal control structure and process Managing performance in the context of business risk Publishing complete and relevant information to stakeholders Mitigating risk of fraudulent transactions Recording transactions according to GAAP SaaS is seen as a means to help bridge the Effectiveness Gaps between importance of responsibility, and current systems abilities to fulfill 0% 20% 40% 60% 80% Relative Importance of Finance Responsibilities Ability of Current Financial Systems SaaS can Contribute to my Success in This Area Source: Saugatuck Technology, SaaS Computing Survey 2010 n =110 SME Finance professionals Recalling the effectiveness gap depicted in Figure 3 earlier, consider how Finance executives view SaaS financial solutions today. The yellow (SaaS Effectiveness) bars reveal that, in the vast majority of cases, SME Finance executives hold SaaS solutions in much higher regard than their current financial solutions. Such aggressive interest and acquisition plans have brought a rapidly-expanding variety of solutions and providers into consideration, from established Finance software providers to long-time SaaS players to complete newcomers. 5
MAKING THE RIGHT CHOICES The next question, then, is how to make the most effective choices? Every firm needs to evaluate solutions according to its own needs and budget. We find many Saugatuck clients using versions of our previously-noted effectiveness gap model as a foundational framework. The model enables firms to compare business priorities against the abilities of current systems to fulfill those priorities. It can provide a useful starting point for understanding how and where existing Finance systems limit the firm s ability to do business and to identify areas that could be improved through new solutions. This easy-to-apply type of gap analysis uses your firm s real-world needs to quickly and simply identify where, and how much, your business could be improved. This in turn can be developed into guidelines for your own firm s table stakes - the key aspects of business improvement that any solution must deliver in order to be considered. It can also help to prioritize areas of investment based on relative needs for improvement. Selecting a provider of SaaS Finance solutions is as important as selecting a solution itself. Finance professionals need to develop a checklist for vendor viability not just a feature/function and technology checklist but a holistic approach looking at vendor experience, Finance domain knowledge and commitment. Saugatuck s work with Finance professionals indicates the following to be critically important selection criteria: Finance experience. Finance professionals should look for key references and case studies, and, if appropriate, interview reference clients to ensure that key functionality exists to meet current and future Finance requirements. Integration to other systems like CRM and HR. As operational and financial data is tied to other systems of record, ensure that the vendor maintains APIs with other applications. Alternatively, ensure that a custom integration can be easily created and maintained to your required systems. Customization capabilities. The multi-tenancy architecture of many SaaS solutions allows the customization of systems to meet unique business requirements. Understand whether customization can be easily performed by a business user or whether a consultant is required to make changes. Support. SMEs that require round-the-clock support must ensure that the SaaS vendor provides sufficient call center support, and documents all time windows for application upgrades. Implementation services. The discipline of planning, organizing and managing resources to bring about the successful completion of specific client goals is critical to a successful transition to using SaaS for business. Ensure that you have a dedicated project manager who understands the services that are included in the initial implementation versus what would be considered consulting (e.g., business specific customization work). 6
Strong operations credentials and performance. Financial professionals do not want to risk their data or compliance to a vendor that has not built substantial operational credentials with other Finance clients. The operational track record of solutions vendors is an important selection criterion. This includes reviewing SaaS solution security and privacy, backup and recovery, and operational procedures. NET IMPACT: SAAS CAN FILL THE GAPS AND IMPROVE SME FINANCE Finance professionals within SMEs face the same or greater challenges as their counterparts in larger enterprises. They must conform to the same regulatory and reporting standards, but without the financial and technological resources typically available to larger enterprises. As a result, existing Finance systems tend to impose more limitations on an SME s ability to do business. This in turn leads to significant gaps between what Finance needs to do for the firm, and what those existing systems can actually support. SaaS helps to not only bridge some or all of these effectiveness gaps. It also enables doing so in a much more affordable and timely fashion, while delivering the operational and management benefits that Finance executives expect and need. SaaS therefore needs to be considered as a viable alternative for improving the ability of SME Finance groups to do what the firm needs done. It s not a question of when, as SaaS can and does deliver these benefits and improvements to tens of thousands of SMEs today on a global basis. The capabilities that Finance professionals in smaller firms need to meet their goals and to support significant business improvements are available and affordable via SaaS. Now, it s a matter of taking action: Arm yourself with information, learn about the solutions and providers, and make the decision to move ahead. 7
SPONSOR PERSPECTIVE: LOOK TO THE CLOUD Running and growing a global company today is demanding on many levels, To make well-informed decisions fast, you need streamlined business processes, collaboration across departments, timely data, and actionable insights. Your competitive advantages and your survival depend on managing costs and growing revenues while scaling and adapting quickly to new market realities and opportunities. You also need to support sustainable growth well into the future. Do you have the time and resources to build a solid yet flexible IT infrastructure in-house? If not, look to the Cloud, where Software as a Service (SaaS) may be the right fit for you. SaaS is already a broadly adopted, proven way to unify IT strategy without a costly up-front and ongoing capital investment in on-site IT infrastructure. Integrated SaaS application suites lay the foundation for greater business agility through end-to-end processes that cross departmental and functional boundaries. SaaS helps you streamline processes, maximize revenue, improve efficiencies, reduce costs, and become positioned to seize profitable new opportunities all without adding resources or investing in a large IT infrastructure. When considering SaaS, take a close look at SAP Business ByDesign. A core component of the SAP on-demand portfolio, Business ByDesign is today s most complete, fully integrated business management solution delivered on-demand. The solution gives small to mid-size businesses like yours the benefits of a large-scale business management application - without the same investment. With an intuitive user interface, SAP Business ByDesign delivers the best of SAP on-demand through a suite of robust applications for managing financials, customer relationships, human resources, projects, procurement, and supply chain. And the integrated analytics and flexible reporting options facilitate more confident decision-making. Go at your own pace and implement the entire suite or only the applications you need to address your immediate business requirements. SAP Business ByDesign is affordable, predictable and cost-effective to purchase, easy to deploy and quick to value. SAP experts in world-class data centers manage, monitor and maintain the solution, giving you the benefit of our proven track record as the global leader in business applications. With SAP Business ByDesign, you can focus on what you do best running a successful business. When you re ready to become a best-run business, visit www.sap.com/sme to learn how you can take advantage of the proven SaaS capabilities offered by SAP. 8
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