Millions of people use cloud computing every day to send emails, host and share files, and sync their digital lives. But that’s just the beginning. Cloud computing is also penetrating the walls of the enterprise, upending IT organizations and traditional operating models. Business leaders in every function therefore need to understand the basics of cloud computing — both the opportunities and the risks.

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What is Cloud Computing and SaaS?

Cloud computing arises from the interplay of three offerings: IaaS (Infrastructure-as-a-Service), PaaS (Platform-as-a-Service) and SaaS (Software-as-a-Service). All three offerings are hosted by a service provider “in the cloud” – typically online – and delivered “as a service” to end users. Web-based email is an everyday example of Software-as- a-Service (SaaS). Instead of uploading software to an individual computer or tablet, it’s hosted on the Internet and accessed via an internet browser, largely insulating the user from the underlying technology.

The disruption is real

The business impact of cloud services is comparable to what happened in the music industry when its distribution model shifted from analog to digital— but in many ways it is much broader in scope and scale. The impact of cloud computing isn’t limited to just a few industries or a handful of companies.

Businesses of every size and shape are using cloud services to gain instant access to world-class IT capabilities, without having to spend time and money acquiring, developing and maintaining their own IT systems and applications. This new model allows large companies to respond more quickly to market shifts and emerging business opportunities, improving their agility and flexibility. At the same time, it also enables smaller companies to grow at unprecedented speed and, in some instances, to compete on equal footing with businesses that are much larger.

Excaliard Pharmaceuticals, a San Diego-based biopharmaceutical company, is one such company that was able to leverage cloud computing (and SaaS in particular) to increase its competitive foothold within the life sciences industry. In 2011 the company completed Phase II trials of EXC001 – a new drug designed to treat skin fibrosis (skin scarring). In order to progress to the next phase of clinical trials, Excaliard needed a buyer.

Using a virtual data room hosted in the cloud, Excaliard was able to securely share the results of clinical trials, study reports, and regulatory and manufacturing documents with multiple parties outside the corporate firewall. The data room helped facilitate the due diligence process and in November, 2011 Pfizer and Excaliard announced that they had entered into a definitive agreement to further develop EXC001.

SaaS extends its reach

SaaS is now widely recognized as a core component of the future business IT landscape. SaaS market share in the enterprise is growing rapidly, and major vendors like SAP and Oracle are working hard to develop cloud-based versions of their market-leading enterprise applications.

Investment markets are also placing big bets on Cloud and SaaS by providing significant late-stage funding for fast-growth companies in the enterprise application space. All of this activity suggests that SaaS is well on its way to becoming a leading delivery model for enterprise applications. Forrester Research, Inc. predicts that the SaaS market will be worth $132.57 billion by 2020, up from $13.4 billion in 2010 — a growth rate of 890% over the course of a decade.

SaaS is firmly established in the enterprise — and probably even in your own company

Large enterprises are leveraging SaaS to become more nimble and flexible. They are harnessing the power of the cloud to stay in tune with customers and using SaaS to make key business processes more efficient and improve collaboration across organizational boundaries.

SaaS is currently having the biggest impact in 4 key business areas:

•  Customer Relationship Management (CRM): SaaS is helping marketing organizations improve coordination of activities across the enterprise and present a unified face to the customer. Large enterprises are using SaaS CRM to gain a 360-degree view of their customers to help boost sales, improve segmentation and increase cross-selling and up-selling.

•  Enterprise Content Management (ECM): Companies are using SaaS to stay on top of all the content they produce, including everything from product manuals and sales contracts to emails, word documents and social media. Traditional on-premise ECM tools require time-consuming infrastructure upgrades to accommodate the need for increased storage capacity. SaaS-based ECM tools have the advantage of being rapidly scalable and make information accessible from almost any device and location.

Secure Document Management and Collaboration: Cloud-based document sharing sites make it easy to share information with others outside the corporate firewall in a secure and controlled manner. Users can access the information they need in real time, from anywhere. Targeted document management systems, like virtual data rooms, are designed to go even further, facilitating specific workflows, like M&A transactions, private placements, financial audits, litigation, and can even serve as a secure client extranet.

•  Human Capital Management (HCM): As companies become more global, there is greater need to coordinate HCM activities such as recruiting, training and succession planning across geographies. In the past, smaller market operations often had to wait years for their company’s top-down HCM rollouts to trickle down. However, SaaS turns the tables by making it economically feasible for a small market to adopt a HCM system first, and then roll up the solutions to help jump-start adoption at the enterprise level.

Yes or No to SaaS?

While there is great momentum surrounding SaaS, it’s not the only business solution. There are many factors to consider.

On the plus side, SaaS can help a large enterprise achieve the speed and agility of a much smaller company, thanks to low upfront investments, rapid implementation and easy scalability.

However, the biggest constraint to SaaS adoption in the large enterprise space is the capability gap between established enterprise applications and still-maturing SaaS applications. In some areas, such as CRM, the capability gap is already negligible— and in some cases may even favor SaaS. But in other areas, SaaS-based enterprise solutions still have a way to go.

Business leaders must carefully weigh the available SaaS offerings against their company’s unique requirements and make their own decisions. In cases where SaaS comes up short, business leaders should frequently revisit their decisions because SaaS capabilities are maturing rapidly and can quickly change the whole equation.

In practical terms, SaaS adoption is no longer a radical or experimental proposition. For most businesses, it has emerged as a viable tool in their toolbox. How and when to deploy it are increasingly crucial questions that business leaders will need to explore.

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