The reality: By lowering the upfront costs of cutting-edge technology, software-as-a-service systems are changing the competitive landscape for mid-sized businesses.
Until recently, the information technology systems that run leading businesses have been complex to install and often have high start-up costs. In recent years, however, a new generation of software-as-a-service (SaaS) offerings have given small and mid-sized enterprises the ability to access similar capabilities, at affordable costs.
As KPMG Enterprise Partner Brad Miller and Director Michael Alf explain, these new offerings let mid-sized businesses narrow the gap with their larger rivals. Popular SaaS offerings for mid-sized firms include enterprise resource programs (ERPs) like Oracle NetSuite, SAP’s Business ByDesign, as well as customer relationship management systems (CRMs) such as Salesforce.com. (Hear KPMG Enterprise partner Michael Hine and director Fleur Telford discuss the benefits of cloud technology accounting as part of our podcast series.) These systems bust the myth that top-tier information technology requires huge upfront spending.
But mid-sized enterprises need the will to take advantage of what’s on offer, Miller and Alf suggest. Many do not recognise the cost advantages conferred by SaaS.
SaaS eliminates the expensive front-end investment in on-premises infrastructure and license fees that often deters mid-sized organisations from buying similar software to their larger rivals.
“In the past companies would implement a big finance ERP, and maybe I had to upgrade it every 5 years, and it would take me 12 or 18 months to implement,” Miller says.
He says this encouraged businesses to “sweat” existing software assets, keeping them running long after they fell behind technology’s leading edge.
A SaaS subscription model managed and upgraded by the program creators changes this dynamic, he says. Instead of a multi-million dollar sum, the upfront cost could be a couple of hundred thousand dollars a year. But SaaS systems do more than reduce cash-flow impacts; they add a new flexibility and can bring regular capability improvements.
Miller sees this flexibility as the single biggest opportunity that the new technology offers mid-sized enterprises.
“They actually become faster than some of the established competitors,” he says. “They can compete in a different way with the big end of town... it changes the nature of information technology spending.”
Cloud-based systems are also allowing enterprises to adopt extremely cheap new systems that further enhance productivity and flexibility.
Alf adds: “There are more solutions out there, very powerful solutions, which really help your productivity, your effectiveness, your teamwork, all the challenges, for very, very little money.”
He points to the example of Slack, a collaboration system whose popularity has soared in the past 3 years. With 24/7 support and a 99.99 percent uptime guarantee, it costs US$150 per user per year. That gives mid-sized businesses large-corporate affordable capabilities thanks to their smaller numbers of users.
Taking advantage of these opportunities does require another change in mindset, Miller and Alf point out. Traditionally IT solution searches started with a tight definition of requirements which the software had to meet. To unlock the power and value of today’s systems, it is sometimes necessary to bend processes to fit the system.
“A lot of the benefits of cloud are dependent on the fact that you adopt whatever approach needs to sit with that technology,” says Miller.
Mid-sized enterprises willing to take that step can challenge bigger rivals. Alf sums it up: “The race between mid-sized and large is completely open.”
If technology is still working, the motivation to upgrade can be low. But sitting on legacy systems could be costing you more than you think, as we explore in: Myth: If the technology is not broken, don’t fix it.