The SaaS Revolution and Global Payroll
May 15, 2013
There seems to be an ever increasing take up of Software as a Service (SaaS) applications by enterprises in recent years. Cloud-based software, delivered to users by means of the internet, has many advantages. Its adoption and use frees IT staff from day-to-day application management and support and enables them to focus on adding strategic business value, modelling the use of IT to the benefit of the company and its competitive advantage. In addition, enterprises are attracted by the lack of a need for capital outlay for software or the servers, machine rooms and so on required to host it.
At the same time, procurement becomes less of a trial, and user participation in software selection, and subsequent buy-in, is increased. Risk is removed from the selection process as implementation and application proving is quick, vendors are attuned to the needs of users to ’try before they buy’ and the service can be easily and cheaply discarded should it fail to meet requirements. SaaS applications seem to offer great value, charged as they are by means of a monthly subscription fee, often low to start with and steadily more expensive as vendors charge extra for the additional features or further scale that customers will eventually require but can do without when getting started. There are no costly installation overheads and training of staff is usually online. Costs can be low and predictable, though caveat emptor applies, and enterprises that enter into standard contracts with vendors should be mindful not to end up with ‘shelf-ware.’ It’s all too easy to get locked into multi-year inflexible contracts, and SaaS customers should be pushing for contracts that accommodate changing user and capacity requirements at least once a year.
In addition, scalability, an inherent advantage of SaaS applications, should enable incremental expansion by small increments. Systems administration and maintenance are the problem of the vendor, so new features are immediately available, all users use the same version of the software, data is stored offsite, backups are automated and upgrades, and maintenance releases and patches are seamlessly installed. No longer are users limited to accessing their applications from their desk, as SaaS-based applications are accessible from laptops, tablets and phones, enabling staff access wherever internet is available, encouraging staff mobility and increasing availability and productivity.
A nascent market
No surprise then that IDC predicted in their August 2012 Worldwide SaaS and Cloud Software 2012–2016 Forecast and 2011 Vendor Shares report that enterprise cloud application revenues reached $22.9B in 2011 and are projected to reach $67.3B by 2016. Remarkably, IDC also predicts that SaaS delivery will significantly outpace traditional software product delivery, growing nearly five times faster than the software market as a whole and becoming the significant growth driver to all functional software markets. Moreover, it is predicted that by 2016, $1 of every $5 will be spent on cloud-based software and infrastructure.
Indeed, Louis Columbus last year contributed an article to Forbes entitled Cloud Computing and Enterprise Software Forecast Update, 2012 in which he cited Gartner in their September 2012 User Survey Analysis: Using Cloud Services for Mission-Critical Applications report as claiming the three most popular net-new SaaS solutions deployed are CRM (49%), Enterprise Content Management (ECM) (37%) and Digital Content Creation (35%). The three most replaced on-premise applications are Supply Chain Management (SCM) (35%), Web Conferencing, teaming platforms and social software suites (34%) and Project & Portfolio Management (PPM (33%).
This might suggest that certain applications segments are more SaaS-worthy than others, perhaps because there is more commonality of application requirements from country to country, industry to industry or function to function. Maybe application development has been faster-paced in some application segments, lagging behind in others or perhaps there are obstacles, practical or emotional, to the adoption of SaaS for certain applications.
The advantages of SaaS applications to enterprises seem overwhelming, what’s not to like and what is hindering adoption across the board?
Arguments against Enterprise SaaS
Security is usually first out of the bag. As data is stored in the cloud, security is often mooted as the major concern. While mobile working is an important attribute of SaaS, doing so implies sensitive data has to be stored online on third-party servers. This can be an issue for applications that require unquestioned security and confidentiality and consideration should also be given to the inherent risk of losing valuable data should a SaaS vendor go out of business. There are other concerns. Latency, it might be argued, dictates that the SaaS model is not suitable for applications that demand very rapid response times, data integration of application datasets is complicated and switching between SaaS vendors is difficult, as to do so may involve the painfully slow task of transferring very large data files over the Internet. Finally, service-level agreements are of the greatest importance and yet often don't even exist. SLAs of close to 100% must be demanded and there should be clear recourse when failures occur and there should exist adequate disaster recovery, essential and yet often overlooked or assumed.
So, SaaS may not apply universally. High security applications and high or assured availability applications will remain the preserve of on-premise software, as will applications that do not, by their nature, lend themselves to the single instance, multi-tenant model; applications, for example, that require significant customization, especially the customization of logic.
Where does that leave payroll? SaaS-based HRM/HCM applications have developed momentum. Niche applications focused on learning and development, performance management, expense reporting, commission calculations, time and attendance and a variety of other tasks are ubiquitous. Also, SaaS-based integrated HCM suites have gained prominence with Workday, the best, but not only, example of the breed. Workday delivers HRM integrated with financial, talent management, time tracking, recruitment and payroll capabilities.
The payroll capabilities are, though, limited to the processing of payroll in the United States and Canada, which is typical. Third-party payroll connectors allow the integration capability for local, or in-country, payroll providers to upload the results of locally processed, often manually calculated, payrolls. For a multinational, a truly global enterprise, this often reflects the way in which they are used to working, whether they calculate payroll themselves or outsource to the large payroll service bureaus. Remarkably, no company has, until recently, tackled the automation of payroll on a global scale and the reasons are multifarious.
An evolving view of Payroll
Traditionally, payroll has been seen as a tactical, not a strategic task. It requires lots of local domain expertise and, consequently, has been tackled country by country in an inconsistent way. Aggregation of results and business information has, at best, been at the highest level. Technology, where used at all, has been utilized only for the largest payrolls, and on-premise solutions have been dedicated to serve only the world’s major economies.
This is changing. Globalization means that multinationals are employing increasing proportions of their staff in countries in which employment costs are lowest. This is having the knock on effect of modernizing economies and increasing standards of living, and that then creates new markets as global disposable income becomes more equal. Big data initiatives are demanding access to data from which real business intelligence can be derived, and demanding a consistent and centralized approach to all business functions. Staff costs represent a huge proportion of corporate expenditure, and payroll is fast becoming a strategic, not just a tactical, function, no longer only visible when things go wrong but a contributor of data from which can be derived the information and intelligence to gain competitive advantage.
Payroll automation is, though, expensive to develop and maintain, so the development of truly global-capable systems has been shied away from by the HRM/HCM and ERP vendors. Moreover, as the development of such systems would be disruptive to the way in which the payroll service bureaus profitably service the status quo, they too have neglected the opportunity. It takes a specialist with vision, ambition and pedigree to tackle global payroll but it also required a platform revolution, a revolution that is now upon us - SaaS. Payroll automation requires SaaS as global payroll is not only complex but is continually changing as local legislatures exercise fiscal policies to economic and political ends.
SaaS will become ubiquitous, across all general enterprise business functions and yet the market remains nascent and we are only just witnessing the advent of SaaS technologies that enable wholesale change to business practices in some areas. Corporate functional heads are being required to do more than a good and efficient job; they are increasingly required to make a strategic contribution. The emergence of SaaS is driving business change, not just replicating what was previously on-premise, in The Cloud, and payroll, and the approach to payroll automation for multinationals pioneered by CloudPay, is a prime example. After all, cloud technologies, like all other enterprise software offerings, deliver the most value when they support and serve to accelerate a business to its strategic goals and objectives.