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12 Hottest App Categories for Cloud Computing Shift

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The cloud computing/Software as a Service (SaaS) juggernaut is moving faster than you may think.

Despite concerns about security, integration of on-premise and on-demand data and systems, and governance, large and medium-sized companies around the world are rapidly shifting some of their enterprise applications from their corporate data centers to the cloud-based servers of third parties.

By 2012 between a third and almost half of these organizations will be relying on SaaS for human resources, finance, sales or other operational applications, according to a new survey.

Providing insight into this trend, more than 1,000 executives responded to a Bloomberg Businessweek Research Services’ global survey on SaaS deployment plans between November 2010 and 2012. Senior and mid-level executives from medium and large companies (at least $500 million in revenues) in the U.S. (30%), Europe (30%), Asia (30%) and the rest of the world (10%) had differing plans on whether they would switch.

They also differ on which types of corporate applications will be shifted to an on-demand delivery model during the next two years.

I’ll get to the regional differences in a minute. First let’s look at the overall applications deployment trends.

The key take-aways are:

• Non-critical applications in the human relations department are the most likely to shift to an on-demand approach. Roughly four out of 10 respondents indicated a move to SaaS for benefits administration, recruitment, talent management and other HR functions:

cloud computing app

(Source: Bloomberg Businessweek Research Services, November 2010)

The higher numbers for non-critical apps is consistent with prior Bloomberg Businessweek Research Services (BBWRS) polls, which found early adopters more comfortable
shifting non-critical apps to cloud providers.

• Critical financial applications, such as Treasury and accounts payables/receivables also will be moving to the cloud for about a third of the respondents. Note that payroll is already an accepted on-demand application, thanks to the long-standing role of ADP, Paychex and other providers of such services.

• Significant differences in on-demand plans exist among industry segments. High tech and professional services firms (accounting and consulting, for example) are more likely to move to an on demand provider for enterprise applications. Manufacturing organizations and nonprofits (such as government agencies) are less likely to opt for a third party provider.

• U.S. companies are much more likely to move to a SaaS provider for some applications (HR related) while European companies may be more inclined to shift to SaaS for Treasury and customer service applications:

cloud computing app

(Source: Bloomberg Businessweek Research Services, November 2010)

Don’t assume that the broader adoption of SaaS means a lessening of the traditional concerns over the on-demand/cloud model. If any, the survey shows that a variety of concerns are quite strong, but the benefits are perceived to far outweigh the risks.

Security remains the number one concern, by a wide margin (see bullet list below). Interestingly, the survey respondents are almost as concerned about integrating cloud and on-premise applications and IT governance issues as they are about security.

When asked to rate their level of concern about specific aspects of SaaS, on a scale of 1-5 when 5 means extremely concerned, the mean scores were:

• Security, 3.97 (that’s a very high score)

• Difficult integration, 3.69

• Governance and architectural challenges, 3.69

• Viability of providers, 3.64

• Challenge of changing suppliers, 3.63

The severity of these issues in a SaaS deployment typically are discovered after the CFO has signed on the dotted line. “A lot of companies underestimate the complexity of it all,” notes John Lucker, Principal, Deloitte Consulting. While services-oriented architecture and cloud integration tools can bring some of the pieces together, “it will be a long time before it is all seamless.”

In fact, a number of the major SaaS vendors and third parties have introduced tools to help IT managers integrate on-premise and on-demand applications and data. It will take a while before those tools and techniques have been refined to the point that the level of concern declines, though.

The levels of concern also vary by geography, industry sector and respondents’ title. One key data point: Asian executives are much more concerned about these issues than U.S. respondents.

The bottom line from the data: all of those forecasts that SaaS/cloud will radically change the role of IT departments and their data centers appear to be true. And the shift is happening faster than you may realize.

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