Arming Consulting's Captives

Services automation today is focused on project management and, more recently, on portfolio project management (PPM), which constitutes the reinvented PSA. And the primary customer more likely is not the external professional services firm but the internal services organization, typically an in-house IT group charged with responsibility for managing hundreds, maybe thousands, of projects.
"What we've seen happen over the past few years is the same PSA vendors basically saying we still do PSA, but now they're talking in terms like 'project portfolio management,'" says Dave Hofferberth, research director at Aberdeen Group, Boston. PPM takes single project management to a higher level, enabling managers to view and manage the entire spectrum of an organization's projects as they would an investment portfolio. Through PPM, managers gain "better people management, better cash flow management, cost control, visibility, and an audit trail," Hofferberth explains.
Under the PPM umbrella, Meta Group Inc. of Stamford CT. includes products that coordinate, manage, and enable prioritization of project and program portfolios and related resources through a single repository with appropriate views to categorize, assess the value/risk of, and score current and future projects in the context of business objectives. Specifically, PPM products should provide coordination across five main functional areas: project, program, resource, portfolio, and process management. Vendors who provide these capabilities include Niku, PlanView, Primavera, PeopleSoft, Microsoft, Artemis, Lawson, Pacific Edge, Business Engine, Changepoint, and Evolve, according to Meta Group.

Along with the shift from PSA to PPM comes a shift in the primary market. "The big market for PSA/PPM today is the internal service organizations," notes Hofferberth. He expects his latest Aberdeen report to show that the bulk of service automation tools, as much as 80%, are being sold into internal service organizations, especially internal IT. Other growing markets include the internal consulting groups within manufacturing companies or software vendors.
For traditional consulting firms, this shift in focus to in-house service groups may create new opportunities in helping the internal IT groups implement PSA/PPM systems in the same way that they previously helped clients implement ERP solutions. "If you look at the global 5000, that's a big market," observes Hofferberth. Consulting firms experienced with implementing these solutions can ride in alongside the PSA/PPM vendors.
Driving the demand for PPM is cost control in the form new corporate governance mandates — particularly IT governance. Governance has become the byword in IT for controlling costs, and especially project costs. Under pressure from top management to show that the organization is investing its IT dollars in projects that will pay significant returns, CIOs are turning to PPM.
"With PPM, a CIO can say here are 300 projects and what's the strategic value?" says Hofferberth. Taking a portfolio view of the projects, the CIO can determine if the organization has adequate staffing levels and the right mix of skills for the workload. Armed with that information, the CIO can make intelligent decisions about retraining or staffing. The CIO could decide to kill one set of projects that won't deliver the right payback in the right time frame and put another group of projects on the back burner to concentrate the company's resources on those that will deliver what the business most needs now. In that sense, PPM "comes down to managing work, people, and money," Hofferberth concludes.

With internal service organizations starting to buy PPM, Hofferberth expects the overall services automation market to surpass $1 billion this year. Given the huge market that internal service groups constitute, it is no wonder that services automation is attracting the attention of a wide range of software vendors beyond the traditional PSA providers, including ERP and business process management automation vendors. And with today's emphasis on financial control, he expects the PSA, PPM, and ERP solutions to combine into what he calls Enterprise Service Automation (ESA), which marries the financial management capabilities of ERP systems with the service automation capabilities of PSA and PPM.
"At the end of the day, everyone cares about the financials. The PSA vendors aren't going to develop a general ledger or an accounts payable system and they know that, so they have to come out of the box with integration to leading packages such as Great Plains and Solomon," Hofferberth explains.
The emergence of ESA has indeed set off a scramble among software vendors to stake out a piece of the market. Great Plains and Solomon are both heading this way, as are Oracle and PeopleSoft. Even SAP reportedly is eyeing this market, although Hofferberth has not yet seen evidence of a big SAP push.

Lawson Software, a midrange ERP provider, for instance, picked up on this trend early and is typical of ERP vendor thinking. "We don't call our solution PSA. We refer to it as Service Process Optimization. The reason we do is that many of the types of organizations using these services don't consider themselves classic professional services organizations," says Dean Hager, executive vice president of Lawson Software's Service Process Optimization business. Specifically, Lawson is focusing on the service divisions of product companies, which may be consulting organizations, but within a product company.

From a functional standpoint, this new ESA or PPM, depending on your preferred label, looks very similar to the PSA solutions of the past. "Every service starts with capturing demand. The next thing every service has in common is the need to deliver on that demand. After that, the next thing they have in common is to do financial reconciliation around delivery. That's it. Just those three things: demand, delivery, and financial management," says Hager.
The needs of external and internal service firms may look similar at a high level, but what they actually need in practice is quite different, insists Rick Lowrey, executive vice president of Deltek Systems Inc., Herndon, VA, a PSA provider that is bucking the trend toward selling to internal service groups and continues to focus on its traditional market — external professional services companies, such as engineering firms. When you dig deeper into the operations, external and internal service companies are sufficiently different to require different automation solutions.
The difference lies in how the solutions do it, not in what they do.

For example, traditional PSA solutions manage the opportunity pipeline, primarily a sales function. The internal service group is less concerned with sales opportunity than with managing the internal demand for its services, more a discovery and balancing process than a sales effort. "The internal group does not need to convert a cold lead into a hot prospect," says Lowrey. Similarly, an external service group relies on complex billing processes to generate revenue. "Professional services billing can get very complicated, with different contract terms and different billing rates," he continues. The internal services organization instead focuses on chargeback, which requires much simpler billing.
"Billing for external service organizations is much more complex," agrees Rudolf Melik, president of Tenrox, a PSA vendor based in Montreal. "An external consulting company might use a flat charge up to a point and then shift to hourly billing or milestone billing. The internal service group needs to know what the real costs are and track those costs," he adds. Tenrox focuses on internal service organizations, particularly IT groups, as its main market.
Niku Corp. also has shifted its focus to internal IT services groups, and describes its PSA/PPM offering as a solution for IT management and governance and for internal new product development groups, explains David Hurwitz, vice president. The payback for these internal service providers can come very quickly, he notes. "In the past, reporting project status might take hours, even days. Now it is fast, painless, almost immediate. Similarly, finding and staffing projects used to take days or weeks. Now you can do it in less than one day. Any given project manager can save 10% of his time" using the Niku solution, he adds.

PSA never really caught on big with external service firms, and the market perhaps never grew big enough to support all the vendors vying for a piece. The transition from PSA to PPM, driven by hard economic times and changing industry dynamics, was the inevitable result. As PPM for internal service groups, the PSA vendors have targeted a bigger potential market, and they have latched on to a compelling issue — heightened demand for greater IT governance and management.
"PPM is the only area of enterprise applications that is growing," insists Hurwitz. Whether that growth is sufficient and sustainable, and whether the PSA vendors can hold off the ERP providers — who are driven by their own insatiable needs for growth — are questions that can be answered only over time. One thing is certain: The PSA vendors are a resilient bunch.