Questioning McKinsey on SaaS adoption predictions for financial applications

by admin on April 7, 2006

in Cloud Computing/SaaS

Mackinsey2006

Zoli Erdos is taking issue with McKinsey over predictions unveiled at Software 2006. The report authors say:

Out of 34 application areas we have examined, only nine are unlikely to see some SaaS adoption over through 2008.

These are the sludgy green areas on the graphic. Included are financial applications and document/records management. If that’s true then I really am wasting my time. But I don’t think this is the whole story. As I said in comments at Zoli’s site: I’ve no idea how McKinsey comes to this conclusion but at first glance it appears as an example that smacks of siloed thinking. Accounting IS commoditised infrastructure. At that level there is no reason to consider it an on-premise jewel. Assuming that is what McKinsey means by financial apps.

One of the most common objections I hear to using a SaaS alternative for accounting centres around security and confidentiality. Neither of these arguments makes a lot of sense to me. First, we routinely outsource payroll – probably the most sensitive information about any business. Online banking is increasingly seen as routine. So what makes your debtors listing so precious as a piece of information that might become compromised? Second, we can secure data. That’s one reason why SaaS players make a big deal of their security models. To users it’s a feature that needs exploring. Third, most business decisions have a financial impact. Therefore, the more seamless the integration between financial apps and say CRM, the better. A mixed model where some apps are hosted and others are on-premise directly impacts the cost of implementing and maintaining the necessary links.

On document/records management I’m even more flummoxed. I can see how companies and accountants would view their records as highly confidential. But why, given there is already a push to retain documents in electronic only formats, would you not consider a SaaS alternative? If it is because of perceived security issues in the broader sense (e.g. what happens if they go out of business?), then SaaS could still serve as the ultimate backup. If it is a ‘not under my control’ argument, then I have to ask the question: Why does that matter? Is it your core business to be a guardian of information? I don’t think so.

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Zoli Erdos April 7, 2006 at 2:51 pm

Dennis, you're right, I jumped on financials, and did not pick on document management. The funny thing is, those numbers in the financial apps are the result of real business activity that may very well have been conducted in the CRM, procurement..etc systems.

And again, document management… wow.. our external interaction is often on hosted platforms (email), sales contracts are largely in hosted systems (CRM)… I could go on.

Interestingly enough businesses lost more confidential data from inside the firewall to disgruntled ex-employees than due to "exposure" to SaaS providers.

Stefan TÃ&par April 7, 2006 at 3:24 pm

Dennis, very good points here. It always makes me smile to hear people tell me about their security "issues" with SaaS.

I usually ask them, if they have multiple firewalls, privat IP space, Raid-5 servers, data encryption, VPNs, and several physically secure locations where their servers and firewalls, routers etc. are housed and are looked after 24 hrs a day?

At this point most people agree with me that their data is infact safer with me (WinWeb) then with them at home and/or in the office. Most people do not even do a backup.

Is our system totally safe, no it is not. But then nothing ever is!

On Demand CRM April 17, 2006 at 7:43 pm

CRM is a back-office Application? At least that's what the chart said!

CRM is a customer facing application, Accounting and Human Resources is a back-office application.

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