Tracking Technology: Tuff Enough

And these figures are for software licenses only. With consulting services rolled in, Hofferberth predicts the numbers will be at least twice as much. This, despite the marketplace's ever-changing demand.

"PSA was born in a very different environment," explains Hofferberth. "There was almost an infinite amount of work for a finite number of consultants and other service professionals. This meant that the software was primarily focused on resource management."

Today consultants say that this focus is still important, but in the current tougher times, PSA can really shine as a tactical tool for cost containment and financial controls. "The early PSA offerings were more about revenue enhancement," says Hofferberth, "but now service firms need to pay more attention to things like reducing the cycle time from invoice to payment."

There is irony in the fact that the same new economic order that lays out a good case for PSA as a strong workforce management tool also makes it hard to justify yet another big enterprise software expenditure. "The early visionaries are getting penalized heavily in the market," says Ted Kempf, principal analyst with Gartner Dataquest in Chicago.

In October, for example, Evolve lost its president and CEO, John Bantleman, in a move that was widely seen as a board-level coup. Bantleman, one of the sector's early visionaries, handed the baton to Gayle Crow of Warburg Pincus, Evolve's lead financial backer.

Novient seems to be faring a little better, partly because, as a private firm, the company has been sheltered from the brutalities of the public market. "We still plan to be profitable in early 2002," says Reid French, chief marketing officer for Novient in Atlanta. "We beat our own estimates in Q3 this year, which was a pleasant surprise. But anyone who tells you they are selling software right and left is probably lying."

Novient is justifiably proud of winning the Accenture account. "We don't really compete with Changepoint," says French. "They [Changepoint] focus on smaller companies. We are good for large organizations like Accenture, where you have hundreds of projects and thousands of people. That's our sweet spot."

But it may not be so sweet. Changepoint does currently have the image of a "midmarket" vendor, but Hofferberth says that this label is a little misleading.

"'Midmarket' really refers to the number of seats [individual software licenses] being somewhere between five thousand and ten thousand," he explains. "When it comes to professional services, there may be only about twenty or so companies with over fifteen thousand potential seats for PSA software. It is true that Novient really caters to these large organizations, where their strength has been depth in resource management."

However, he continues, most of the action for PSA (95%–98% of the market) is really in the midmarket. For example, analysts, vendors, and consultants all agree that one of the most attractive new areas for PSA is in the internal IT departments of large corporations. These departments are actually service organizations in their own right, and hence ideal customers for next-generation PSA solutions.

"But think about," Hofferberth says. "The IT department of GM is under ten thousand seats. That's midmarket."

In July, Evolve announced a version of its software, Evolve 4, designed specifically for corporate IT departments. "This is one of our big stories in product expansion over the last year," says David Hsieh, vice president of marketing for Evolve in Emeryville, CA.

Hofferberth, however, thinks that the bigger story for PSA over the next year will be in financial controls. "That's where things are shifting," he says. "Last year, resource management was the big driver. Now it is about cost containment, a more tactical approach."

Whose PSA Is It, Anyway?

Initially, PSA was billed as "ERP for professional service firms," with the big consulting houses pegged as customers rather than implementers. Then the consultants started building practices aimed at offering PSA to their clients. John O'Neil, CEO of Business Engine, says that his firm's approach lays some order and logic over the confusion here.

"We work with most of the big consultants," he explains, "but our experience has been that even with the recent remake of these companies, they still operate like partnerships. It would be very difficult to get one of them to adopt a PSA solution globally."

So, O'Neil explains, pushing his product for internal use across the board at a major consulting firm is not a big priority. On the other hand, he says, the separate practices inside the giant consulting firms are great places to sell. "We go to the different practice groups and give them an attractive package — make it easy for them to use Business Engine in client engagements."

Ernst & Young, for example, is using Business Engine in its Mergers and Acquisitions practice. "Now they [Ernst & Young] are probably using their customized version of PeopleSoft to handle their own internal billing and time tracking," says O'Neil. "But the M&A group finds our software very useful in managing the client relationship and in helping the client to do things like bolt two companies together."

Business Engine also likes service organizations within larger companies. "We have been selling to internal IT departments, and to R&D divisions for over five years," says O'Neil, "and we are now starting to focus on the financial services market."

The Embedded Space

These are examples of what the analysts are calling "embedded" services — divisions within companies that serve other divisions or customers.

NCR's professional services division, for example, bought Changepoint's PSA solution for all of NCR's 4,700 consultants and the company's internal IT services group as well. "We plan to 'go live' with Changepoint early in 2002," says Joe Federer, vice president of professional services for NCR's Teradata division in Dayton, OH.

One of the juiciest plums in the embedded services market is Microsoft's Consulting Services Group, and they are ripe for the picking.

Mike Kremer, senior project manager with Microsoft Consulting Services in Redmond, WA, was at the San Francisco PSA show, possibly to do some shopping. "We do not have a PSA solution yet," says Kremer. "The one thing that is clear is that our employees are extremely dissatisfied with what we have in place right now. So we are looking at all the PSA vendors — we have decided to do it, and plan to make a decision soon."

Kremer adds that any PSA software at Microsoft will make extensive use of Microsoft Project. No surprise, but this underscores an important point that you hear from analysts, vendors, and consultants: PSA is not project management. In fact, many of the leading PSA tools today are designed to work with Microsoft Project.

Project management can be a part of a PSA implementation, but it is not what all the buzz is about. Resource management, opportunity management, billing and invoice management are the real drivers here.

When NCR's Federer was shopping for PSA, one of his concerns was the perennial problem of integration with the company's existing software. "We use PeopleSoft and Oracle for our back-end financial systems," he says.

Changepoint, a Toronto PSA vendor, passed the test, but this single issue could spell trouble for the current crop of PSA vendors as the market develops.

"One of Changepoint's strengths," says Hofferberth, "is the fact that they have always been focused on financial controls, whereas the competition approached PSA more from a resource management perspective."

In the glory days of ERP, consultants could hope to rake in five to six times the amount spent on software when they presented their bills for related services. "Those days are gone," says Hofferberth. "Now the ratios are more on the order of 1 to 1, 2 to 1 at best."

Stephen Mostov, senior manager in CGEY's ERP Service Line, maintains that consultants can do better than 1:1 with PSA engagements. "That is a little low," he says, "but it is true that the days of five dollars consulting for every dollar spent on software are over."

Mostov and Les Poinelli, vice president at CGEY, are particularly keen on PeopleSoft's new PSA offerings. "Back in 1996, we built our own PSA solution on top of the PeopleSoft project and management software modules," says Poinelli.

One of the most difficult — and important — pieces to build was a revenue recognition module. "This is a significant issue for any kind of services firm," explains Poinelli. "You are trying to automate how you define a project, the associated costs, how to recognize time and expense, and how to bill the client."

All those things, in other words, that make up the lifeblood of a services firm. They built the software first for internal use at CGEY, and then started offering it to clients. Mostov and Poinelli say that their work influenced the subsequent PSA development at PeopleSoft.

"None of our code actually made it into the PeopleSoft product," says Mostov. "But the flow in their software is very similar to the flow we developed."

In fact, they have since shelved their homegrown PSA system in favor of PeopleSoft's. "Their [PeopleSoft's] PSA package is now very sophisticated," says Poinelli. "We make every effort to implement it with no customization."

He is quick to add that there is still plenty of consulting work to do, but it is shifted away from the technology toward teaching the client how get the most bang for the buck when actually using it.

Here Come the Heavyweights

PeopleSoft is not the only heavyweight contender that has stepped inside the PSA arena. Siebel, Oracle, and SAP have all set their sights on PSA. Of these, analysts agree that PeopleSoft has the most to offer right now.

Gartner's Kempf says that a battle is shaping up. "SAP, PeopleSoft, and Oracle are all new players here. The independent vendors have a three-year lead, but they face a tough challenge from these big companies. I am convinced that some of the independents will survive, but I would not try to pick the winners right now."

SAP claims to have a mature PSA offering, but analysts and consultants dispute that. One Big Five consultant says, "SAP should buy Novient if they are really serious about PSA. It would be the best thing for both companies."

Tom Phillips, director of worldwide marketing at Oracle in Redwood Shores, CA, says that his company is committed to PSA development. "It is a category in our e-business suite," says Phillips. He adds that better analytics and project collaboration are high priorities for the next software release cycle.

Hofferberth says that PeopleSoft is about one year ahead of Oracle and SAP in PSA. "But those companies have the resources to catch up. Siebel loves this market, too."

One of Siebel's PSA customers is Deloitte & Touche's Belgium office. "We are currently finalizing our deployment," says Lieven Heuninck, a partner at Deloitte & Touche in Brussels. "Last year, we decided we needed something to replace our old homegrown system. It will support about fifteen hundred users when we go live."

Heuninck says that the system was needed because "we had no way to get a single view of projects and accounts. Our project managers need a way to quickly identify projects, see what has been invoiced, and know what revenue has been realized across our twenty-one different offices."

KPMG recently chose PeopleSoft for its internal resource management solution. "We chose PeopleSoft for the same reason many others will," says KPMG Consulting's senior vice president, Chuck Burns. "PeopleSoft will certainly be around a few years from now, but you can't say that about some of these other vendors."

And Burns remains decidedly optimistic about the market's potential. PwC partner Chet Hurwitz, who sees a real future in PSA consulting practices, strikes a cautious tone when he says, "PSA has still not reached the maturity you might have expected given its inherent attributes. I think that the market is there and will develop, but I expect it to lag rather than precede a general economic recovery."

Burns, on the other hand, says, "We [KPMG] are a public company, so I will get into trouble if I talk real numbers, but I can say that PSA is one of our most rapidly growing practices."

CGEY's Poinelli puts it a bit more conservatively when he says, "Is it [PSA] the Next Big Thing? I would say it is coming of age."