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Thinking SaaS? Considering the Cloud? Here’s What You Should Know

by
John Zappe
Jan 2, 2012, 5:00 am ET

Thinking of heading to the cloud in 2012? Everyone seems to be, including some of the biggest HR vendors in the world.

Just a few weeks ago, when SAP snapped up SuccessFactors, the buzz was all about the cloud. A similar buzz ensued when Oracle bought RightNow Technologies.

Even though Wall Street reacted to the SAP/SuccessFactors deal as if the cloud had just been discovered, the reality is cloud computing has been around almost as long as the Internet itself. What the excitement is about is how HR software services are delivered, and the big deal is that increasingly, companies aren’t buying systems, they’re licensing seats.

For HR, that means SaaS. SaaS, the acronym for software-as-a-service, is the type of cloud computing with which HR professionals are most familiar. Yet, like the cloud itself, SaaS has about as many different flavors as there are vendors offering it.

Before discussing what you should know before going SaaS, let’s take a moment to talk about just what it is that distinguishes it — and the cloud — from other forms of computing.

In the old days (that would be just a couple years ago for most of us) you bought a word processing program (probably Microsoft Word or the Office suite) and installed it on your computer. Call that “on-premises.”

Today, more than a few businesses and loads of individuals are using online word processing programs and storing their documents off-site. Google Docs, which is free, may be the most popular.

Google Docs is SaaS. The documents you save to your Google account are in the cloud. Save them to your computer’s hard drive, and they are not in the cloud.

Simple, isn’t it? Ahh. If only it were. Talk to any HR vendor about SaaS and sooner or later they’ll mention “true SaaS.” While purists and plenty of others will argue with this, SaaS is SaaS. But, like Bertie Botts’ jelly beans, it comes in every flavor.

By consensus, for most companies, the right SaaS application for HR is one where multiple subscribers (clients) are on the same platform, using the same program, with everything managed by the vendor. Updates are pushed out regularly and everyone is updated simultaneously. Client data is securely segregated from each other. This is the multi-tenant architecture you hear about during vendor demos.

HR technologist and thought leader Naomi Bloom offers her own checklist of what makes “true SaaS.” Her column also describes its virtues and the benefits SaaS offers. Some, like cost savings, vendor maintenance, and management of the system, are obvious, others — accessibility, security, frequency of updates and improvements — are at least as significant.

Here’s a summary of what SaaS has to offer:

  • Price: Usually a monthly fee, quoted on a per seat or per user basis. The initial outlay is dramatically lower for SaaS than for an on-premise license. That has tax benefits since it is treated as an operating expense, and it helps conserve cash.
  • Installation: This can take from a few days to a few weeks — longer in some limited instances. Most of the time is in uploading data to the vendor, training, and in (the limited) customization of the user interface and reports.
  • System management: The vendor is responsible for keeping the system up and running, fixing bugs, and installing upgrades. The most common update (not upgrade) schedule is monthly.
  • Accessibility: Because the cloud is Internet based, SaaS operating in that environment makes it possible to access the data anywhere at any time, and, as vendors add mobile capability, on any platform.
  • Security: The vendor is responsible. Because IT security professionals are scarce and expensive, vendors can more easily hire them and spread the cost over the entire customer base.
  • Applications: With apps becoming ever more ubiquitous, cloud computing is a more felicitous method for integrating them with a vendor’s software. These integrations, which vendors tout as partnering, make it simple for an HR unit to begin using a third-party provider for such things as background checks, I-9 verifications, payroll, and the like.
  • Service: An oft-overlooked advantage to SaaS is the flexibility customers have to change vendors. While switching is always a hassle, cloud computing means a business is not tied to a particular vendor or system.
  • Innovation: Because there is one version of the vendor’s software powering all the company’s subscribers, developing new features and implementing them is easy, compared to an on-premises installation. The cost of the development and implementation is spread across the entire base, encouraging innovation. There’s also the vendor’s ability to effectively monitor how the product is being used. In most cases, vendors get little usage data from installed software. But a SaaS operation can provide gigabytes about what users do with the product.
  • Scalability: Growth is rarely an issue. One of the hallmarks of cloud computing is that the storage and usage is, at least theoretically, unlimited. You’ll pay for what you use, but when you need it, the capacity is there.

Nothing being perfect, there are issues with the cloud that don’t make it a place for everyone. The biggest, perhaps, is that with SaaS the company gives up a measure of control. Company data — including sensitive HR personnel records — is stored offsite, often in places you don’t know and will never see. You depend entirely on the vendor’s skill to keep it safe and accessible to you.

Customization is limited. Vendors design their programs to be flexible, so customers can tailor its appearance, naming conventions, fields, and workflow. But you may be out of luck if you want something the developers never planned for.

Internet traffic can slow down the flow of data. Latency, as it’s called, is merely annoying when you’re on YouTube. At work, it can cause a loss of productivity.

There may also be unexpected legal implications. Privacy rules outside the U.S., particularly in Europe, are far more stringent and may be applied to your data should it be stored in an overseas data center. Also of concern is the issue of liability for breaches. A CA Technologies and Ponemon Institute study issued this year summarized the findings about data security this way:

The majority of cloud computing providers surveyed do not believe their organization views the security of their cloud services as a competitive advantage. Further, they do not consider cloud computing security as one of their most important responsibilities and do not believe their products or services substantially protect and secure the confidential or sensitive information of their customers.

Tanya Forsheit, a partner with the Info Law Group, commenting in news reports last year, warned, “Many providers of cloud services tends to offer one-size-fits-all contracts. You shouldn’t just sign up for them. You need to negotiate.”

Weighing up the pros and cons, SaaS and cloud computing come out far ahead — for most companies — of buying, installing and maintaining an on-premises system, which is why the tide is turning away from software ownership.

When Siemens AG in 2009 turned toward SuccessFactors and its SaaS HR systems, it was a demonstration to the world that the cloud had come of age.

Speaking last year at a SuccessFactors users conference, Siemens CIO Norbert Kleinjohann said the system, which took less than six months to get launched, has 400,000 employee records and gets 40,000 daily logins. “I believe that cloud computing will be adopted by IT sooner than we expect.”

This article is provided for informational purposes only and is not intended to offer specific legal advice. You should consult your legal counsel regarding any threatened or pending litigation.

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  5. Shaun Dunphy

    Good article! However, I would challenge the statement about “An oft-overlooked advantage to SaaS is the flexibility customers have to change vendors.” Just because you are sitting on a multi-tenanted system does not mean that there is an easy route to migrate to an alternative vendor. So far, I have not seen two vendors using an identical HR architecture. Data migration will always be a pain and the complexity of moving, cleaning and mapping historical records should not be underestimated.

  6. John Zappe

    @Shaun: Completely agree with you about data migration. It is always a pain, but like spring cleaning, it’s something every company should do periodically. That said, it is way easier to change SaaS vendors than to move to a different on-premises system. The latter requires vetting by everyone from IT to the CEO who typically has to approve all the CapEx. And then you’re stuck with it for at least as long as the depreciation period. With SaaS, it’s a budget expense. There’s still the usual learning curve and other, human issues. In comparison, though, SaaS offers more vendor flexibility than does buying (or licensing) an installed system.

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