For years, I’ve been pointing to ADP payroll services as a model for successfully delivering data-sensitive, shared services that should give corporate decision-makers in small- and mid-size businesses (SMBs) greater confidence in the new generation of Software-as-a-Service (SaaS) solutions emerging in the market.

For a while, ADP was hesitant to assume the mantle of major SaaS vendor. But, it has recently embraced the concept of the Cloud and is actively promoting its Cloud-based services. In fact, ADP is now happy to use the growth of its Cloud-based services as an important indicator of the growing acceptance and adoption of a widening array of ‘on-demand’, business service alternatives.

Last week, ADP announced that over 3,600 organizations are now using ADP’s Workforce Now® Express Payroll service which was introduced only 12 months ago. The company said it has seen nearly 50 percent sales growth since July 2011 alone.

ADP Workforce Now Express Payroll is specifically designed for organizations with 50 to 150 employees. The Cloud-based service can be implemented in 10 days or less, unlike many traditional payroll services that used to take far longer to deploy and manage.

ADP’s Research Institute found that adoption of the company’s Workforce Now Express Payroll service reflects broader market migration toward third-party services. According to its research, 48 percent of companies with 50 to 150 employees processed payroll in-house in 2011, a substantial drop from 59 percent who performed payroll functions inhouse in 2007. The proportion of companies ‘out-task’ their payroll rose from 41 percent to 52 percent during the same four-year period.

To be honest, I would have thought that an even greater percentage of businesses rely on ADP or another third-party payroll service to perform this function. It seems to me that there is little to gain doing this work inhouse, and a lot of economics as well as added expertise that can be exploited by using a proven payroll provider.

Of course, not all of today’s payroll companies are delivering their services via the Cloud. But, ADP’s success will compel more to consider this go-to-market option. And, the more payroll companies that boast about the virtues of Cloud services, the more receptive corporate decision-makers will be toward Cloud-based alternatives to satisfy a broader set of their business needs.

It is for these reasons that we’ve seen a flurry of acquisitions by behemoths, like Oracle and SAP, of key Cloud players, RightNow, Taleo and SuccessFactors. You can bet that companies like ADP and other business service providers will also attempt to accelerate their move to the Cloud and expand their portfolios with additional Cloud services via acquisitions.

The escalating competitive pressures will create a buyer’s market for SMBs seeking Cloud services. And, the success of established vendors, such as ADP, should give decision-makers in these organizations more confidence that adopting Cloud alternatives is a good move.

Disclosure: This post was written as part of the IBM for Midsize Business program, which provides midsize businesses with the tools, expertise and solutions they need to become engines of a smarter planet.

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