Shifting to a hosted software model can cut corporate IT costs and ease administration and upgrades, but managers must prepare corporate users for its significant effect on work processes and job roles, said CIOs sitting on a panel at Computerworld's SaaSCon conference in Santa Clara, Calif., this week.

The executives suggested that IT managers first assess their existing corporate application and systems infrastructure and job roles, and use that data to help determine whether to adopt a SaaS (software as a service) model.

Dean Lane, CIO of Henley-Putnam University in San Jose, said that companies should evaluate hosted products and vendors with the same criteria used for any traditional software purchase.

For example, IT managers must closely evaluate whether potential providers can meet their business needs and provide products that fit within their budgets. Also, he said, "You want to make sure [the SaaS vendor] is the appropriate size for you."

Lane told the audience of IT managers that they should hammer prospective hosted software providers with questions about their security tools, datacenter location, backup and recovery capabilities, and how the hosting facility is set up to deal with unexpected outages. He also suggested that the audience look closely at the vendor's service level guarantees.

Framingham, Mass.-based IDC last year projected that the growth in sales of hosted software will more than double the growth in sales of packed products through 2011. A Forrester Research Inc. survey found that sales of hosted software products to companies with more than 1,000 employees grew by 33 percent in 2007 compared to a year earlier.

Jesus Arriaga, CIO at Bosley Medical Group, based in Beverly Hills, Calif., said IT managers can never be too careful when investigating the background, success rates, and technology capabilities of hosted software providers that would be entrusted with corporate data.

For example, he said, "Do they actually have a datacenter [or] a garage [located] who knows where? Do the due diligence to the full extent you would with bringing in anything to an organization."

Arriga said Bosley Medical turned to hosted ERP and CRM software to deal with a shortage of personnel, changing budget requirements and the need to better align business with IT. He noted that the company is now in the process of outsourcing its Microsoft Exchange e-mail system.

Arriga also said that a hosted service is probably not a good fit for a company that uses a significant amount of customized software. "If you have a unique situation that requires a ton of customization or modification, then you definitely have to look at a different model," he remarked.

Lane added that users should closely examine the hidden challenges posed by hosted software. For example, the hosted provider controls the installation of upgrades and there may be difficulties in integrating the hosted products of different vendors. He recommends that business leaders take such challenges into account when negotiating service contracts with hosted software vendors.

Joe Lacik, senior vice president for information services at Boeing Co. unit Aviall Services Inc., in Fort Worth, Texas, said organizations must also take a close look at how the use of hosted systems will affect corporate IT operations and roles. For example, managers may find that a move to hosted systems may dramatically change the job roles of employees -- and not in a way that cuts costs.

"[Outsourcing] sounds like it's going to mean less people and lower costs, [but] I'm not convinced," Lacik said. "It just shifts workload and increases your responsibility when you go into that model."

He added that paying for such changes may negate the promise that hosted systems require little upfront costs. "The idea that you're going to make a change in technology and you're not going to have an upfront cost is a big problem," Lacik contended. "Clients need to understand what they're in the game for and what the realistic expectations are."