The world of IT is going through a radical upheaval and the consequences for business performance will be profound. The increasing pervasiveness of the internet and a proliferation of powerful mobile devices are fundamentally changing the relationship between IT and business.

Computing power is more mobile, dynamic and, in real terms, cheaper than it's ever been and as a result IT is omnipresent in all modern businesses. But the current economic woes and budget constraints mean that canny investment and a good eye for a return on investment are more important than ever. This is especially true for smaller companies that often have slim margins and limited IT budgets.

Small companies that invest smartly and fully leverage their technology during the downturn will increase their chances of survival and ultimately emerge as leaner, fitter and more dynamic companies once the economy recovers.

The promise of IT has never been so strong but the market has also never been as complex as it is today. This poses business managers with both an opportunity and a dilemma about where should they prioritise their IT spend. The answer will depend on the type of business and the nature of the tasks that need to be performed.

But the very first step is to select the software model that best supports business requirements. In broad terms there are three different software models smaller businesses should consider in 2009: traditional "on-premise" software, software as a service (SaaS) and software + services (S+S).

On-premise software
This is the model with which many businesses will be familiar. The software works out of the box and is installed on the user's physical desktop PC, laptop or mobile device via download, CD or disk.

In larger companies it may be stored on servers and distributed to staff as required. There are benefits to using on-premise software: companies keep their business-critical data secure and can access their data at any time. Users - or the company's IT team - can also reinstall software if there is ever a problem.

On the downside, it can be slow and cumbersome to roll out across larger organisations and traditional software often requires customisation and integration within a company's existing infrastructure. The more complex the software is, the more likely it is that there will be IT issues during the early stages of adoption, and a paralysed application can hold up the day-to-day activity of a business, losing a company sales and customers and denting its reputation.

Another issue is that software from different providers won't integrate properlyas a result of incompatibility issues. It'snot unusual for companies to be using incompatible software in a number of different departments, effectively halting the flow of information across the company. When this happens the IT department has to intervene to link the applications directly but this can be expensive and cause delays.

Software as a service
SaaS is essentially software provided purely over the internet; it is rented and delivered "on demand". With this model no software is directly installed on the user's computer or on the company's servers. SaaS is a relatively new form of software delivery for many businesses but has been around for a long time in a consumer context. Many readers will be familiar with hosted consumer services such as Yahoo! and Google email and these depend on the same technologies that underpin SaaS. It is an asset-light approach to IT and can be run through a user's browser, enabling staff to work in the field or in the office.

There are some compelling benefits to SaaS as you only need a PC and an internet connection to use a SaaS-based application and it's often cheaper and faster (at least in theory) for a company to quickly set up software. Licensing is often easier to manage as providers tend to have simple subscription models for companies to use. This will free up the IT department to concentrate on other matters.

But there are limitations to a purely SaaS-based model. The software's performance is totally dependent on a company's access to the internet. If the connection goes, so too does the flow of data and functionality of software. No internet connection means no software. Even major providers like Google and Salesforce.com have experienced blackouts, with users unable to access web-based services for extended periods of time.

Small firms have thin financial margins and any IT issues they experience can have repercussions for their business and long-term customer retention. They tend to be highly dependent on fewer numbers of customers and this makes continuity of service essential. SaaS solutions will sometimes also require modification to work with other solutions, so again there is the possibility that the IT department may need to become involved in customisation, integration and testing before software will work.

Trust is another major issue. There is no regulation or common standard to govern the reliability of these services. So if a company providing financial applications online outsources the storage of data to a third party which then goes bankrupt, the servers containing your critical financial data are likely to be impounded and lost. All too often functionality is the price paid for flexibility.

Software + services
S+S is a new, powerful, hybrid model that includes both internet and desktop components. It leverages the strengths of SaaS delivery but with the stability of a traditional desktop solution. With S+S, customisation is possible and data can be migrated across the solution depending on the user's preference. Data is backed up to the user's PC, ensuring that the application remains operational even in the event of internet issues.

The software also benefits from being able to access the power of both the internet and the user's own hardware.
S+S keeps the solution's impact on a small firm's infrastructure low while allowing access to enterprise-level functionality. Think of it as an iTunes model for the enterprise but better.

Eilert Hanoa is chief executive of Mamut ASA and vice chairman of the European Software Association. For more information visit www.mamut.com [1]