Finance & Accounting Articles

How the SaaS Movement and Cloud Computing Are Transforming Professional Services

by Christophe Primault
Published on 13 February 2012

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Professional Services companies face unprecedented customer, competitive and operational challenges today.

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Companies of every size and across nearly every industry are facing intensifying competition as a result of globalization and technological advancements. Barriers to entry are disappearing. Companies are no longer competing with just their peers in their own backyard, they must also contend with competitors from around the world. At the same time, the web is making it easier for customers to find new suppliers who can meet their needs from remote locations at a lower cost.

In response, many companies are facing severe financial challenges as a result of today's economic uncertainty, and are significantly restructuring their operations to reduce day-to-day expenses and protect their profitability. For many companies this has led to downsizing their staffs and relocating many workers to home offices to reduce the cost of corporate space. It has also meant greater reliance on third-party suppliers, offshore resources and additional channel companies.

Traditional technology solutions have failed to fulfill their promises in this rapidly changing climate. Information Technology (IT) and enterprise applications are increasingly complex and costly. At the same time, they have also become more cumbersome to use and less flexible to fit organizations' changing business processes.

Nowhere is this trend more evident than with larger, enterprise-level organizations. Increasingly, traditional client-server solutions fail to meet the complex business needs of their global, enterprise customers. In today's economy, these larger organizations demand flexibility, instantaneous customization, and ubiquitous access from their automation solutions-all while still providing a significant return on investment (ROI).

The Emergence of SaaS Spawns Broader Cloud Computing Alternatives

In 2003, Nicholas Carr questioned the value of traditional IT operating models in his infamous Harvard Business Review article entitled "Why IT Doesn't Matter." While his commentary raised the wrath of IT professionals, it also captured the attention of many corporate executives and end-users. Carr went on to publish a book based on the same thesis entitled "Does IT Matter?

In 2005, Carr published another article in the MIT Sloan Management Review entitled "The End of Corporate Computing", in which he wrote:

"…Imagine what future generations will see when they look back at the current time…won't the way corporate computing is practiced today appear fundamentally illogical-and inherently doomed?"

These ideas and trends have driven many companies to consider and adopt a new generation of web-based solutions, referred to as Software-as-a-Service (SaaS). As the term implies, SaaS converts traditional 'shrink-wrapped' software products into web-based software services.

Just as popular, web-based, consumer-oriented sites like Amazon and eBay have made it easier for people to buy and sell online, so are today's SaaS solutions making it easier for companies to perform their daily business functions via the web.

Rather than buy, implement and maintain the software themselves, users can now subscribe to SaaS solutions and take advantage of the application functionality without having to worry about the technology which supports applications.

This is an important shift because enterprise applications are often too expensive and difficult for many companies to implement. They require an upfront investment in a perpetual license, plus additional hardware and staff costs to support the applications. In fact, it is estimated that many companies spend ten times as much on hardware, staff and third-party support costs over the life of a software application as they do for the original license fee.

And, that is if the company successfully implements the enterprise application in the first place. Unfortunately, approximately a third of software projects fail to be completed, and the remainder often requires twice as much time and money than originally expected to be fully deployed.

AMR Research estimates that upwards of 30% of the enterprise application capacity that has been deployed is underutilized because companies have been forced to over-provision the software in anticipation of future demands which are often unrealized.

As a result, enterprise applications seldom achieve the return on investment (ROI) that companies expect and often require a higher total cost of ownership (TCO) than they would like. In response, companies of all sizes are trying to generate greater business value from their software investments

THINKstrategies' survey research, in conjunction with Cutter Consortium, saw SaaS adoption reach a tipping point when they jumped from 32% in 2007 to 64% in 2008. Our findings have been validated by a recent McKinsey study which found over 60% of the CIOs they surveyed are also considering SaaS to meet their IT and business needs.

Even more importantly, THINKstrategies' survey research found that over 90% of SaaS users are satisfied with the quality of these services, plan to renew and expand their use of these services, and would recommend them to their peers!

Legacy applications have never been able to achieve similar satisfaction, renewal and referral rates.

The success of SaaS has opened the door for a broader array of 'cloud computing' alternatives to traditional data center technologies. As with SaaS, cloud computing offers a more flexible array of web-based services which enable users to build new applications or support their fluctuating business requirements. The success of SaaS has also opened the door for organizations of all sizes and levels of complexity to take advantage of cloud computing. Today's cloud computing adopters and advocates include some of the world's largest and most visible companies.

Once again, Nicholas Carr has captured the historical significance of this technological development in his book, "The Big Switch", which compares today's transformation of the computing industry with the advent of the electric utilities.

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