By Alan Radding
A year ago, we heard barely a peep about professional services software. Today, the software segment has its own name, professional services automation; an acronym, PSA; and a dozen or more vendors scrambling to stake out their claims. And the field is likely to get more crowded — much more crowded, in fact — as customer relationship management (CRM) vendors, one of the industry's hottest market segments, turn their attention to the professional services arena.
It's not that there hasn't been professional services software before. Large professional services firms such as KPMG and Ernst & Young were early adopters of technology. In particular, they quickly latched onto groupware technologies such as Lotus Notes to coordinate and share the expertise of their vast armies of consultants. They built best-practices databases and skills databases. They used groupware to facilitate collaboration on large projects. But PSA goes beyond groupware.
"We're now seeing software that is an extension of project and program management augmented with billing and
management accounting," observes Liz Shahnam, senior program manager, Meta Group, Stamford, CT. The upshot: Consultancies suddenly find themselves sorting through a myriad of options, piecing together a variety of old and new tools in an effort to satisfy customers and maximize profitability.
It's All About Workforce Management
Like any businesses, professional services firms have long used a variety of generic software. E-mail systems kept consultants in touch with each other and with managers, as well as with their clients. HR systems helped organizations track and manage the consultants, along with their skills,
experience, and training. Contact management systems helped firms manage the sales process by capturing contact information and generating follow-up ticklers. Scheduling and calendaring software assisted in setting up meetings. Project management software, such as MS Project, enabled project managers to create schedules and monitor progress. Often these systems ran as standalones, used by some individuals but not others.
By comparison, today's PSA products "are really about workforce management," observes Navi Radjou, software analyst, Forrester Research, Cambridge, MA. Workforce
management includes skills discovery, scheduling, and skills optimization. It enables professional services firms to gain maximum leverage from their inventory of consultants.
A primary difference between the new generation of products and the earlier groupware built around technologies like Notes or Microsoft Exchange is infrastructure. "The new products require far less infrastructure," explains Steve Weissman, president, Kinetic Information, Waltham, MA. The earlier tools could do anything the new PSA tools can do, but you had to build it yourself. They were tool sets, not finished, ready-to-go PSA solutions, and they required an entire infrastructure consisting of specialized servers, databases, and applications, as well as skilled technical staff to deploy and maintain them.
The new PSA tools, on the other hand, promise solutions ready to run right out of the box, with minimal infrastructure or technical skill. "Some are even offering the software on an ASP basis," Weissman continues. With an application services provider (ASP), a professional services firm doesn't need to buy, install, or maintain any software at all. It simply rents as much of the software as it needs, accessing the software via a browser over the Internet. Whatever infrastructure is required either is already in place or is the ASP's headache.
To Become ERP Equivalents
The new PSA products also differ from the early professional services tools in the level of integration they offer. In the past, individual consultants or project managers used their favorite tools. The new PSA solutions sport integrated functionality and are deployed across the firm, enabling management to monitor exactly what is going on.
In addition, the new tools take a more business-oriented approach, skipping the collaboration and groupware functions altogether. They promise to help professional services firms manage sales, monitor engagements, and handle the time recording, invoicing, and accounting, explains Shahnam. These are capabilities that support the professional services firm's own internal business operations.
"The professional services market needs have changed," notes Radjou. Today, professional services firms need to manage
complex, multifaceted, global client engagements. They need to synchronize multiple consultants working in parallel. Projects are highly dynamic, with requirements and terms often changing on the fly. "Companies may be revisiting commitments every week. They may be renegotiating contracts in real time," he continues. In addition, professional services firms face a highly competitive environment, which forces them to keep close track of costs,
optimize the use of their consultants, and take steps to maximize customer profitability.
A new generation of software vendors has emerged to address the needs of the current professional services market. The new solutions typically combine sales force automation and contact management, customer relationship management, and change management, time and expense tracking, and invoicing. PSA solutions, in effect, are jockeying to become ERP equivalents for professional services firms.
Analysts cite Action Technologies, ChangePoint Corp., Evolve Software, Loon Technologies, and Niku Corp., as players to watch. These companies are scrambling to differentiate themselves in an increasingly competitive market. Also expected to jump in are companies like Oracle, Siebel, SAP, and other big ERP and CRM vendors.
"If this were an election, only two percent of the voters have cast their vote, so it's really difficult to call at this point," says David Hofferberth, a senior analyst with Aberdeen Group of Boston. Having last fall completed a study examining the rapid expansion of the PSA market, Hofferberth emphasized that many professional services organizations are at this point still taking a wait-and-see approach.
"There is just so much happening with technologies, and the market is so immature, that there really isn't one player blowing everyone away at this point," says Hofferberth.
Among the pure PSA plays, Action Technologies' Matrix combines all aspects of professional services automation and is optimized for managing highly dynamic consulting relationships. Loon Technologies' Contrast focuses on time and billing. Evolve Software's Servicesphere offers resource management, opportunity management, and billing. For its part, Evolve has gained an early foothold inside the e-consulting sector, having signed deals in the last nine months with Zefer, Scient, Lante, and Whitman-Hart/US/Web.
Niku is seeking to gain an early Web advantage, as it seeks to become the leader in Internet-delivered PSA solutions. ChangePoint promises a comprehensive solution encompassing marketing, sales, service delivery, billing, and support. It recently partnered with Corio, an ASP, to serve as its host for firms that prefer the ASP model. (Ironically, Corio uses Matrix internally — see below.) For all companies, the Internet and the ASP model will play an increasingly critical role.
The Rise of the ASP
Selecting the right PSA solution is a tricky undertaking. Managers are faced with choosing between all-in-one solutions like Matrix or piecing together best-of-breed solutions that combine PSA offerings from multiple vendors. They also must decide between licensing and installing the software or renting it from an ASP.
For example, Banyan Worldwide Services, Westborough, MA, is making the transition from a software company to a professional services firm. To support its professional services operation, the company needs a variety of capabilities, notes Scott Kitlinski, CIO. These include knowledge management, collaboration, opportunity management (sales), resource management (scheduling, planning, skills inventory), and delivery management (time and expense tracking, billing, and accounting).
Previously, Banyan had built its own PSA on top of the Lawson manufacturing ERP package, "but it didn't quite fit as a professional services answer," Kitlinski explains. For its new PSA solution, the company reviewed the leading players in the market. It also looked at the PSA claims of several big ERP players.
One concern, Kitlinski discovered, is the immaturity of the PSA market. "We not only have to look at what the vendor does now, but also at the vendor's vision for 18–24 months from now, and compare it to where we are going," he explains. In addition, Banyan also looked at the vendors' financial
stability and resources, seeking reassurance that "they can execute and deliver what they promise."
As of this writing, Banyan has not made a final selection, but this much has been decided: The company will rely on MS Exchange 2000 for knowledge management and collaboration, which it will separate from other functions. For the remaining pieces, Banyan will turn to one of the new PSA vendors.
Other professional services firms have turned to other solutions. For example, Corio, Inc., an application services provider based in Redwood City, CA, opted for Action Technologies' Matrix for its own consulting operations. "Matrix really is about managing commitments and fulfillment," says Mark Richards, director, program office. With 300 people today and adding staff at the rate of 50 each month, Corio is counting on Matrix to help it manage its own growth as well as its customer engagements. "Matrix gives us a process and coordination," he adds.
Cyberplex, Inc., Toronto, adopted ChangePoint as the core piece of its information systems infrastructure. "ChangePoint is our customer-facing information system," notes Rob Payne, CTO. IT uses ChangePoint for time tracking, expense management, project management, and management reporting. It relies on MS Exchange for communications and collaboration. The key appeal of ChangePoint is its flexibility. "We didn't have to change our business," Payne adds.
At Logicorp, Edmonton, AB, "we're projecting a 50 percent increase in sales for professional services and a 20 percent decrease in order processing costs" as a result of implementing Astea's ServiceAlliance, reports James Porter, director, business operations. ServiceAlliance handles sales and
scheduling and tracks the engagement through completion. Still missing, however, is full customer relationship management, which is next on Porter's PSA agenda.
Which tool is right for a given organization depends on a number of factors, including the organization's size, rate of growth, process orientation, and existing systems infrastructure. If the organization, for instance, already has a satisfactory groupware, collaboration, or e-mail messaging infrastructure in place, it will likely continue with it. Others may continue to use tools such as ACT contact management and MS Project, but augment them with time and expense billing. Some will opt for more comprehensive PSA solutions, while others may prefer a fully configured CRM solution. There is no one-size-fits-all PSA solution, and, concludes Corio's Richards, "no one tool does it all."
Sidebar: Power Points:
• Today, professional services firms need to synchronize multiple consultants working in parallel on projects that are highly dynamic, with requirements and terms often changing on the fly.
• PSA products augment workforce management strategies, including skills discovery, scheduling, and skills optimization. They promise professional services firms maximum leverage from their inventory of consultants.
• A number of new application developers are now scrambling to differentiate themselves inside the PSA market. Also expected to jump in are veteran application players like Oracle, Siebel, SAP, and other big ERP vendors.
Sidebar: Gearing Up for PSA's Rapid Climb
The market for PSA solutions will meet some early skepticism until one or more of the leading professional services firms adopts PSA solutions and can quantify the real benefits, according to David Hofferberth, a senior analyst from Aberdeen Group of Boston.
"There are lots of impressive offerings out there, but none are blowing the others away right now, because the technologies are being improved upon so quickly," explains Hofferberth, who says the early adopters of PSA solutions will be IT professional services firms that have already experienced the benefits of enterprise resource planning (ERP) software.
"Besides having a variety of players introduce offerings into the PSA space, we see players such as Evolve and Niku dedicated to it, and this has caused an increased awareness of it," says the analyst.
Hofferberth's research suggests that the market is just beginning a rapid climb. Aberdeen currently estimates the potential size of the PSA market to be close to $1.6 billion. With sales of PSA solutions estimated to be just over $100 million in 1999, the research firm anticipates an annual growth rate of 85 percent over the next five years.
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