My new issue of CIO Magazine arrived today with an interesting cover story regarding Software as a Service (SaaS). The article states that SaaS is not the Holy Grail but should be looked at a one of many solutions in a CIO's arsenal.

When to consider SaaS

SaaS allows for faster implementations, the elimination of up-front licensing and infrastructure costs and tested, generic business processes. It makes sense to look at SaaS when the application isn't necessary to differentiate your company competitively. SaaS applications (CRM, HR, Purchasing, etc) tend to be very standardized as the same code base, and therefore the application itself, is shared by all companies that use it.

If the business processes involved in the application are rather standardized throughout your industry and do not separate you from your competitors, then SaaS may be a viable option.

When not to consider SaaS

Applications that integrate with your back-end (finance, BI, logistics, manufacturing) or ERP system should be approached cautiously. As these applications dictate how your company actually functions, they are typically not a good match for SaaS. Using SaaS with core business processes presents the same issues that companies faced in the 90's when implementing ERP systems. Companies are forced to change their processes to match the way the software operates not the other way around.

Application integration issues are also another area where companies need to seriously investigate SaaS. Typically the number of touch-points between an SaaS and ERP systems make integration and maintenance a nightmare.

Another aspect concerning SaaS and core business functions is availability. For "vanilla" applications like purchasing and web conferencing, if your SaaS is down it will not put your company out of business. However, if your production or finance processes are offline for a number of days, it may bring your business to a screetching halt. Companies need to ensure that core application have a high degree of availability. Nothing is more frustrating than having an application unavailable and waiting for a vendor to fix it.

The Future of SaaS

As the industry matures, SaaS may find its way into more mission critical applications but the sheer amount of customization which makes a company unique, means that there are many areas where SaaS may not be a viable option.