BANAGLORE, INDIA: Indian SMEs share common needs of low total cost of ownership, predictability and long term protection of their investments. Regardless of their business models, the industries they belong to, or their geographic location, they are searching for solutions that will help them gain a competitive advantage.

Prognosys eServices, a leading market intelligence and research solutions firm; and Ace Data Devices, a small enterprise specializing in storage and data consolidation systems are no different. In these volatile times, they were seeking the right software to provide the necessary business insights to adapt quickly to the changing market conditions and run their mission-critical business processes.

Wary of large resources commitment, they nevertheless needed a flexible and scalable business solution. Their search finally ended with the discovery of an on-demand business solution that offers software-as-a-service (SaaS). This helped the two companies improve transparency and efficiency of their business operations and support international growth all while helping to reduce the IT costs.

The Ace Data and Prognosis eServices examples are not isolated cases. In a survey of 530 CIOs and IT decision makers conducted by Springboard Research with enterprises across the Asia Pacific, 20 per cent of the respondents claimed that they are already using SaaS based ERP while 35 per cent of potential SaaS buyers are interested in procuring SaaS based ERP within the next one year. According to Springboard Research, the Indian SaaS market will grow at a CAGR of 77 per cent from 2006 to 2010 to reach $165 mn by 2010.

Small to midsize companies need to be flexible, and be able to anticipate and adapt to unpredictable economic shocks and market shifts whether around the corner or around the globe. If an SMB cannot respond quickly to the changing market dynamics, they risk losing business and their very survival is at stake.

So, when is the right time to focus resources into IT to make those operational improvements that can directly or indirectly impact profit? When will the cost of change be worth it? Are there signs that tell when the time is right? When is there a potential for a greater RoI in operational systems? What are the business conditions that should trigger such a change?

The answer is that the best time to make changes in IT is when business conditions dictate to do so. It may be while establishing a new location, sales channel, supply chain, or business model; when serving new markets; or when faced with sudden sustainable growth, more aggressive competition, more disciplined governance or financial reporting, or more stringent performance goals; or when preparing for a recession; or when responding to the increasing expectations of customers.

Any one of these conditions may be the reason, but more than one would be a strong argument for closer examination of the long term use of the current IT solution. If the legacy IT solution lacks functionality and adaptability to dynamic market conditions, the time is right to consider a change to improve business operations and boost financial performance. The reasons may be many. Prognosys eServices improved its salesforce effectiveness to focus on achieving big deals with SAP Business ByDesign, while storage specialist, Ace Data, leveraged it to find empowerment through information to deliver better customer service. According to Frost & Sullivan, SMEs like Ace Data and Prognosis eServices account for 88 per cent of the Indian SaaS business today.

How to Do it?

Two approaches are familiar purchasing a software package from a vendor or market partner, and engaging a systems integrator to select and install the software and integrate it with other softwares in the data center. Both involve purchasing software, paying annual maintenance, implementing and integrating it or having it implemented or integrated, and then running and maintaining it or finding a vendor to manage those tasks.

But the third approach, which is SaaS, has become a market phenomenon. Widely touted, SaaS allows businesses to acquire, use, and pay for business functionality. Its best known characteristics are its relative speed to implementation and low upfront costs for acquisition and deployment. As a result, it has been widely adopted for a variety of business and IT functions.

SaaS is typically purchased on a per-user, per-month basis with no large initial outlay of capital to license the software. Year-long and even multi-year discounted commitments are often negotiated which significantly eases the burden for small-to-midsize companies. With SaaS, one does not pay for shelf ware as one would with vendor software, but for the seats of users who actually need to use the software.

The most significant benefit of SaaS is that it is a completely scalable business resource that does not require large capital expenses. For example, if the needs of the business expand significantly, it is simple to add licensed seats without any worries about purchasing additional computer hardware, software, or networking, or hiring additional trained IT technical staff to manage it.

The Advantages of SaaS

Before making any decision, the advantages of SaaS must be considered in terms of financial value, new technology, and improved operations: