By Alan Radding
What's professional services automation (PSA) worth?
EDS's e-Solutions division claims $20 million in savings in its first year of using software from Evolve. That's enough to grab the attention of a lot of consulting firm managers, especially during a period of upheaval in the PSA market, but it is a difficult figure to substantiate. And here's where competitive rivalries are changing the clamor around PSA software offerings from a libretto to a cacophony.
"It all depends on how you approach it," says Tim Lambert, global workforce planning program manager for EDS's enterprise information and technology group, which has been overseeing the global rollout of Evolve across the e-Solutions group. What Lambert does know is that use of Evolve enabled the organization to improve the utilization of its consulting resources by eight percent on average. When applied across the group's 6,000-person-plus workforce, those gains could tally $20 million. However, "there are other factors that come into play," Lambert notes. But even if the actual savings fall short of $20 million, they are substantial nonetheless.
The EDS figures jive with what should be expected, according to Rudolf Melik, co-author of Professional Services Automation (John Wiley & Sons, 2002) and CEO of Tenrox, a PSA vendor. Web interfaces, quick implementation methodologies, reduced maintenance, and other advances reduce the cost and time involved while speeding the payback. A consulting firm with 1,000 consultants that uses PSA to increase billable hours by just five percent experiences more than $2 million in increased billings annually based on an average of $200/billable hour, he calculates.
This can result in a very attractive ROI for PSA. Aberdeen Group, Boston, looked at the use of the Novient PSA solution and found an average 494 percent ROI over five years resulting from increased utilization and improved cash flow cycles amounting to, on average, $16,000 per user.
Fueled by visions of this kind of payback, the PSA market is ready to soar, reports Aberdeen's David Hofferberth, research director, jumping from $600 million in 2001 to $1 billion by the end of 2003. Similarly, AMR Research estimates the PSA market to hit $1.78 billion by 2004.
Despite the attractive numbers, this is a time of turmoil in the PSA segment. A weakened economy and an ongoing shakeout and consolidation among consulting firms is generally constraining the investment in new information tools. Many of the pioneering PSA players have fallen by the wayside while waiting for the market to ramp up, or have been acquired. Lawson Software, for example, picked up Account 4 last year. At press time, Solution 6, an Australian company, acquired Novient, the reigning industry leader, while Exigen Group purchased the PSA operation of Portera, the number-three player.
To further complicate matters, the big enterprise application software players like Lawson, Oracle, PeopleSoft, and Siebel have discovered the PSA segment, and are racing into the market and delivering the thing they do best — integrated functionality. "I expect a big shift to the large enterprise application players," predicts Ted Kempf, principal analyst, Gartner Group.
A wild card in an already tumultuous market is Microsoft, which purchased Great Plains software last year and is about to acquire Navision, another midmarket ERP player. The acquisitions give Microsoft a beachhead in the midsize ERP market and a launching pad for integrated PSA, regarded as ERP for professional services. Microsoft, however, may not move into the PSA space directly. Instead, it could offer its technology as the engine underneath other PSA vendors' solutions, suggests Hofferberth.
Right now, the specialized players still lead the PSA segment. Novient tops the market with a 9 percent share, followed by PeopleSoft (7 percent), Portera (6 percent), Niku (5 percent), and ChangePoint (5 percent). PeopleSoft, a large enterprise application player, is the exception to the rule. Lawson, which entered the market in 2001, trails with a 2 percent share, Kempf reports. But in a market where even the current leaders hold only single-digit shares, the PSA segment remains wide open.
Functional integration, something sorely lacking to date, is the key to the next generation of PSA. In the past, consulting firms deployed a hodgepodge of specialized tools to improve one piece of the process or another. The larger, more sophisticated firms built Lotus Notes applications to track sales opportunities or marshal specific expertise for a project. Others used simple contact managers like Act! or Goldmine to manage sales prospecting. Or they used Microsoft Outlook and Access.
The first generation PSA tools gradually superseded these generic, homegrown solutions. But even when these tools offered functionality in multiple areas, they remained, by and large, specialized tools with strength in one particular area, such as opportunity management or resource management, Kempf notes.
The upshot: "The big ERP players are having a huge impact. The smaller players are likely to get purchased," if they don't get run over first, Hofferberth believes. Especially the small, publicly held companies "are struggling with low stock prices. They are finding it hard to reach profitability," he adds.
And it looks to get even harder for those small, specialized players. "The service industry needs an integrated solution that does for it what enterprise resource planning has done for the manufacturing industry," declares Kempf in a recent report. This is not the kind of solution a small company can deliver on its own. Such software will automate and integrate six key areas: opportunity/sales, proposal development, resource management and scheduling, project management, time and expense entry and billing, and reporting, with increasing emphasis on business analytics.
In theory, the bigger consulting firms should be opting for the integrated functionality offered by the enterprise application players while the smaller firms choose the specialized vendors, but that hasn't necessarily been the case to date. Accenture, for example, opted for Novient.
On the other hand, NerveWire, a small consulting firm based in Newton, MA, selected Oracle as its PSA provider. The young company seemed like a natural candidate for a small player with a tightly focused solution, but instead it chose the player with, admittedly, one of the biggest software footprints. "We looked at a lot of others, and they had excellent point capabilities but no integrated view," recalls Mark Greenlaw, CIO. In the end, it came down to PeopleSoft or Oracle. "Oracle allowed us to tie in CRM and HR and other functions, and we liked their vision and understanding," he concludes.
Clarkston Consulting, Triangle Park, NC, faced a big dilemma in its choice of a PSA solution. The company had outgrown its use of Access, Outlook, and Excel for time and expense tracking, and Pivotal for CRM. It was already using SAP for financials and had a big SAP practice. With SAP, a PSA newcomer, in the mix, "it was a very emotional decision," says CFO Jeffrey Stewart.
To take the emotion out, the company drew up a list of requirements. "We wanted as much functionality — contact management to invoicing — as possible in one package," notes Stewart. Clarkston surveyed the available products and invited six vendors to submit proposals. It then set up a scorecard and ranked each product. SAP quickly fell out; it lacked key functionality and was designed for a much larger organization than the 250-person Clarkston. In the end, Clarkston selected ChangePoint. "Some of its modules might not be the strongest, but overall it offers a one-stop solution," Stewart says.
Akibia Consulting, Westborough, MA, had no such qualms. Akibia has a major Siebel practice and adopted Siebel's PSA solution for its 100-plus consultants. "We needed one place where we could record projects, do time tracking, and get reports," explains Harriet Schwartz, senior consultant.
Prior to implementing Siebel, Akibia's six offices each did things their own way. With Siebel, "we now have a comprehensive view of the project, all the opportunities and contacts. It minimizes the communications disconnects between sales and delivery," Schwartz says. Akibia has not yet tried to connect either its financial or HR systems to Siebel for a fully integrated PSA solution. "The HR department is very concerned about confidential information," she notes.
For small consulting firms, even the niche PSA solutions are costly. "We looked at the PSA tools, but the cost — a few hundred dollars per person per seat per month — was just too much for a small company," says Te Wu, director/execution management at Handshake Dynamics LLC, a 25-person firm based in New York. In addition, a small company doesn't need all the sophisticated PSA functionality, such as advanced reporting and analytics.
Instead, Handshake opted for Intuit's QuickBase, an information-sharing tool provided on an ASP basis. "For $30 per month, I can set up 30 databases," Wu continues. Handshake uses the databases to track revenue, handle recruiting, and manage projects. The databases can't share information among themselves and there is no consolidated view of the data, but for a small firm like Handshake, QuickBase does the job.
Other small firms might opt for more sophisticated PSA tools provided through the ASP model, which many tool vendors offer. Larger firms generally prefer to license the software and run it on their own servers.
PSA, beyond any direct payback it delivers to the consulting firm, opens a new area of opportunity. The internal service groups of product companies represent the next, potentially far bigger, market for PSA. These internal services groups face many of the same challenges and have the same automation needs as consulting firms. A consulting firm that develops expertise through its own PSA implementation is well positioned to pursue this new market.
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