Slow on the Uptake

Using online financial-management software is less expensive and complicated than buying and maintaining applications in-house, yet CFOs at mid-sized companies have been slow to adopt it.

Unlike in-house software that requires servers and on-site IT staff to oversee installation, upgrades and maintenance, programs provided as software-as-a-service, or SaaS (pronounced “sass”), are maintained and managed off-site by a vendor. Instead of buying a license, companies pay a monthly or yearly subscription fee for applications accessed via the Internet. The price is often a fraction of the cost of licensed software.

Despite the benefits, CFOs in mid-sized companies have taken their time warming up to it due largely to legal and regulatory issues surrounding financial data management.

Before flipping the “on” switch, CFOs must be confidant that their SaaS vendor stores, manages and interprets financial data in ways that meets legal, corporate and customer needs, and that it also will accommodate future growth and changes in operations.

“SaaS may be a sexy and innovative business model, but when anything concerns financial management, companies need to move with caution,” says Nasreen Quibria, senior analyst for Aberdeen Group, a Boston technology market researcher.

Starting from Scratch
Still, CFOs are making the transition, and for smaller companies especially, SaaS is an easy choice.

One company that’s made the switch is, Steute Meditech, a $5 million Ridgefield, Connecticut, designer of controls used by medical personnel to adjust equipment with the touch of a foot.

Three years ago, when Steute split off from former parent company Schmeusal Group, a global machine safety products manufacturer, the new business’ management team opted to use SaaS for financial management, among other applications. They partnered with EasyOffice, a SaaS provider offering a variety of hosted software for small to mid-sized companies. Steute uses the firm’s Sage MAS90 enterprise resource management (ERP) program for accounting, time tracking, billing and payroll.

For Steute, one reason for choosing SaaS was that it didn’t require an in-house IT person to manage, according to Mario Tucci, the company’s CFO. “We only have five employees on our team and none of them have IT knowledge. With SaaS, if anything goes wrong, we just call the vendor,” Tucci says.

Tucci visited EasyOffice’s data center to make sure it would be secure and reliable enough to control his company’s financial data. “It was actually much better than what we have internally,” he says.

In the end, though, the decision came down to money. When Tucci added the cost of buying a server to the time and expertise required to do back-ups, upgrades, and maintenance, an in-house system was out of his budget range. “It was the difference between buying a $25,000 server and hiring an IT person versus a monthly fee that was comparable to our electricity bill,” he says.

Letting Go of Legacies
Choosing web-based software is easier for a startup with no infrastructure than it is for a company with existing in-house systems, says Joel Chaplin, CIO and Vice President of IT for Virtuoso, a Seattle-based travel network with 300 agency members.

The degree of difficulty depends on how engrained the legacy system is, Chaplin says. “If your financial management system is an isolated application, it’s easier to move. But if it’s tied into a lot of processes and applications and you already have the expertise in house to manage it, it takes a lot more effort to move it out.”

Chaplin has been in both situations. Before joining his current employer, he was a senior vice president of IT at Motricity, a Bellevue, Washington, mobile data-services company, where he oversaw the switch to SaaS financial management software from Apptio.

Motricity made the change in 2007 after a period of rapid growth that was spurred by the acquisition of multiple smaller companies. Prior to that, the company had no financial management software in place and relied on simple spreadsheets to track budgets and forecasting. For a nominal monthly fee, Apptio’s SaaS programs gave the company features such as pre-built templates, and helped it more easily track financial tasks across the business.

Chaplin also liked the access to a more advanced system without having to worry about disaster recovery, or keeping people on staff to manage the technology. “It made sense for our company,” he says.

All that ended in 2008 when he joined his current employer, which has an in-house ERP system and has no immediate plans to switch. Chaplin urges other business owners to consider SaaS before they get tied into an in-house system. “SaaS is the way everything is going to go in the future, so when you are evaluating solutions you should look at them first,” he says.

Look carefully before you choose, Chaplin adds. Select a vendor that can prove it’ll be around in 10 years, one with security and backup systems to protect clients’ most valuable data, Chaplin says.- “Choosing the right SaaS vendor requires serious due diligence.”

Do Your Homework
Deirdre Aubuchon is taking that kind of advice to heart in her search for a SaaS partner.

As CFO of GenomeQuest, a $20 million genome sequence data management company in Westboro, Massachusetts, Aubuchon is sold on the model because it’s easy to use and secure, and upgrades are painless. But to win her over, SaaS programs also have to accommodate the nuances of how she performs tasks. Aubuchon evaluated several SaaS systems that worked well enough but didn’t accommodate for the way her team handles budgets and sales projections. “It’s not that the vendors tried to mislead me,” Aubuchon says. “It’s just a matter of finding a system that fits our needs.”

Before choosing a vendor, Aubuchon encourages companies to do reference checks, find out what peers are using and ask pointed questions about the service provided and how it will meet their current and growing financial management needs.

She also recommends delegating the task of picking the program to someone with the time and technical expertise to make the best decision. “CFOs already have enough on their plate. Give the task to someone who’s eager to get the system in place – otherwise you’ll never get it done.”