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Advice and Information for Finance Professionals

Everything You Need to Know About SaaS, from One Dummy to Another

Lynne Sampson
Managing Editor

Are you confused about cloud? Don’t know your hosted software from your SaaS? Don’t worry, you’re not alone. I started in the technology business doing public relations, and it took me years to become the font of knowledge that you see before you. Even today, I couldn’t tell you the difference between an X-Box and a PlayStation. (I know — heresy!)

As someone who has spent long years trying to wrap her brain around the difference between configuration and customization, I was happy to see the publication of a new ebook, SaaS for Dummies. In advance of this excellent read, I thought it might be useful to summarize the different delivery models for finance software one dummy to another.

What is “on-premises” software?

In order to understand software as a service, or “SaaS,” it’s useful to look at what preceded it: the traditional, “on-premises” model of business computing. So, let’s go back to the beginning.

Think about the business applications your teams use every day to manage finances, human resources, supply chain, and any other number of business functions. The traditional IT model has involved purchasing this software from a vendor and installing it “on premises”: on a big server kept in a dedicated room somewhere (or maybe in a closet, if your business is really small).

In the on-premises model, you (meaning: your IT employees) are responsible for maintaining this server and any software that runs on it. Let’s imagine that your company purchased Traditional Finance Software 9.1 back in 1999. Your company’s IT team installed this software on the server. They rolled it out to every desktop and laptop in the finance department, so that your whole finance team could access it. They probably did a good job of this, back in ’99, and maybe you were happy with the results.

What you didn’t see was all the work that went on behind the scenes. In the on-premises model, your IT team is responsible for keeping the software up to date and available. If it went down during the middle of the financial close, they had to scramble to get it back up and running. As your finance team grew, they had to set up new user accounts. As new computer viruses were released on an unsuspecting world, they had to apply any patches released by the vendor.

(There were also a host of issues around integrating your finance system with other systems, like HR and payroll — but for the sake of simplicity and my sanity, this dummy isn’t going to tackle those problems in this article.)

Probably the most painful part of the on-premises model, as most IT people will tell you, were the upgrades. Traditional Finance Software 9.1 might have been top of the line in 1999. It probably had a user interface about as appealing as an electric typewriter, and maybe it only ran about 20 percent of the reports your finance team needed.

So the IT team set to work customizing the software to meet your specific requirements. Customizing is a messy business: it involves cracking open the source code and rewriting it — essentially reprogramming the software to make it do what you want. It typically requires hiring a third-party consulting firm, who tend to have much more experience in these types of project than an in-house IT team.

And once you reprogram a piece of software, you can’t upgrade it automatically. Why not? Because the new version doesn’t include all those lovely customizations your consultant so painstakingly programmed. Install the new version on your server, and the old version gets wiped out — special code included.

This is why upgrades only happened every 5 years or so — sometimes longer, in the case of finance systems. If you wanted to keep your custom capabilities, you had to migrate and/or reprogram them into the new version — a project that takes a long time, and costs a lot of money in consulting fees. Plus, it ate up a lot of your IT team’s hours, taking them away from other projects they could have been working on (like researching and purchasing that new supply chain software you desperately need). 

Along Came Hosting

There was another problem with upgrades: a new piece of software often required new hardware to run it. Back in the days of Windows 95, I wanted to upgrade my old desktop computer to Windows XP. But XP required a faster central processing unit (CPU) and more memory. I couldn’t just upgrade to new software on my old machine; I had to buy a whole new computer.

It’s often the same in the world of business software. In 2018, perhaps Traditional Finance Software version 13.1 is available. It looks shiny and easy to use, but it won’t run on your old server. Time to buy a new server, right?

Well, not necessarily. Companies began springing up offering to run the software for you, on their servers, and deliver it via the internet. Your finance team logs into the application remotely from their laptops. This model is known as “Infrastructure as a Service” (IaaS). Instead of buying your own servers (aka “infrastructure”), you rent it from a provider on a monthly basis. Many people refer to this model as “the cloud” — but it’s not SaaS.

What’s the difference? Well, in IaaS, you still have to buy a license for your finance application, and your IT team is still responsible for maintaining, patching and upgrading it. The main cost savings are in the hardware. Your company still carries the cost of security and maintenance of the finance software — and an upgrade to the latest version will involve the same amount of time, money and effort as it did in the on-premises model. Upgrading to version 13.1 is still a capital investment, which probably requires approval from the board of directors.

You might decide it’s easier to wait for version 14, a few years down the road — meaning it will be several years before you get access to new finance functionality.

What is Software as a Service?

SaaS is an entirely different operating model. In the world of SaaS, you don’t need to buy the hardware or license the software. Instead, you pay a monthly fee to a cloud provider, and they deliver the software to you over the internet. It runs in their data centers, on their servers, and they are responsible for maintaining it.

Patching, security, maintenance, upgrades — all of this is included as part of your monthly subscription. You don’t need to do any of it. The provider does it for you. You log into your finance system via your laptop — or even via your mobile device — and start your day. All you need is a web browser.  

And here’s the best part. Those long, painful and expensive upgrades? They become a thing of the past. Instead, the provider updates the software on a regular basis (typically, between 2-4 times a year) — similar to how you periodically receive notices to update the apps on your mobile phone. These updates contain new functionality and capabilities — often because customers like you have requested new features. So you always have the latest, most up-to-date finance software at your fingertips.

You’re never stuck reprogramming old software to force it to do what you want, because the software is always new. SaaS applications are highly configurable and continually incorporate best practices, so the need to customize effectively goes away. But if there is some feature that your business needs — that “special sauce” that sets you apart from your competitors — you can build it using Platform as a Service (PaaS). Unlike custom code, PaaS enhancements sit outside the core finance software, so when you upgrade from one version to the next, the capabilities still work. You don’t need to reprogram them.

Why Does SaaS Win?

To the dummies among us, it might seem like the differences between “hosted cloud” (IaaS) and true cloud (SaaS) are splitting hairs. But the distinctions are important, because IaaS doesn’t offer the same benefits. In the SaaS model, the benefits are well documented:

  • 3.2x higher return on investment (ROI) than on-premises software
  • 52% lower total cost of ownership (TCO)
  • Zero risk of technology obsolescence
  • Upgrades several times per year, vs. once every 5-10 years (or longer)
  • Security and patching managed by the SaaS provider
  • No hardware costs
  • No more capital investments to purchase new software — the monthly fees become an operating expense
  • Continuous innovation

It’s not that running Traditional Finance Software version 13.1 in a hosted IaaS environment is necessarily a bad idea, or bad for your business. It’s just that running finance SaaS — such as Oracle ERP Cloud (including Oracle EPM Cloud) — is better. And with new upgrade programs available from providers like Oracle, it’s the last upgrade you will ever do.

Moving to SaaS is now easier than ever. Your competition is already doing it. So look into your options around finance in the cloud, and don’t get left behind. Nobody wants to be a dummy.

Want to get smarter about SaaS? Get the ebook, “SaaS for Dummies.”

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