Give Us Your Billable Masses

Justifying Their Existence

"It's survival time inside IT departments," says Renee Lorton, vice president and general manager of financial and ESA products (see article end) for PeopleSoft, Pleasanton, CA. "We are living in a time when IT departments have to justify any increase in spending in technology. They are under significant pressure to demonstrate their value and demonstrate the value of what each person is working on."
"IT is a company within a company," says Avery Cloud, CIO of healthcare services provider Integris-Health. "But many of our internal processes remain unautomated. There is such a need for the integration of various parts of our business."
Cloud claims that he has been motivated by a vision he had 10 years ago that this challenge facing IT departments was going to take place. The way he tells it, Cloud began to imagine about a decade ago a world in which corporate IT departments would gain independence and begin to offer their services outside of their own company and to other organizations. "The services we provide could easily be outsourced in the form of chargeable services," Cloud says.

Although Integris-Health is not quite at that point in Cloud's grand plan to transform the healthcare provider's IT department into a moneymaking machine, it took its first step when it deployed Changepoint's second-generation PSA product in March of 2000. "We picked Changepoint because they were comfortable with [our] vision," Cloud says. "My group went out and came back with Changepoint."
The core use of Changepoint's product focuses on keeping track of project engagements, project resources, and time and expenses, says Chuck Tatham, vice president of marketing at Changepoint, of Ontario. Changepoint was the earliest established PSA vendor, with a full spectrum offering in 1997 via Lotus Consulting. Since then, Changepoint has reengineered its strategy and come out with a second generation of its product based on the Microsoft SQL platform.
"You can't take on a customer-oriented business model without running like a business yourself. We believe that anywhere there is a proportionally big IT budget, there is a need for senior management to know where their dollars are being spent," he says.
Integris-Health currently has approximately 165 IT users on the Changepoint system, and so far the benefits far outweigh the risks of being an early adopter of this technology, Cloud says. "There is always a risk in being an early adopter, but there is also an opportunity in being able to influence the product. There is already an improved perception of value in what we do for our internal customers, and it helps us portray a more professional [environment]," he says.

Since the deployment of the system about a year ago, Integris-Health already has a better handle on its current projects, including time commitment and managed resources and better information on how long it will be before being able to start future projects, says Cloud. "The system is becoming the center of the IT organization in order to manage their day."
As corporations continually strive to tighten expenses and squeak out higher profit margins, IT departments are feeling the heat to restructure and function more as independent service organizations by implementing their own business processes rather than operating simply as a traditional internal support staff. But to successfully do this, corporate IT departments need to begin functioning, for the most part, as a business first, and to get a handle on their resources, budget, projects, services personnel, and costs.

From Strategic to Tactical

Today, Integris-Health is far from alone. If a recent report from the Aberdeen Group, Inc., Boston, is correct, the PSA market is about to explode, with internal IT departments and professional services organizations (PSO) leading the charge. The PSA market will hit $3 billion in revenue by 2004, according to David Hofferberth, Aberdeen's research director. This is a sizable increase from $309 million last year and $120 million in revenue in 1999. The PSA market is expected to hit $677 million this year, Hofferberth estimates.
"A year ago, companies looked at PSA as more strategic. Now, it is more of a tactical solution," he says, adding that PSA solutions help streamline costs, reduce the amount of service people on the bench, increase utilization, and help make sure a company or IT department has the right people on the right job at the right time. "It creates better organization in the service organization, reducing costs on one side and increasing revenue on the other."
Which vendors are taking advantage of this boom? Well, the market is still up for grabs, with no PSA solution provider owning more than 10 percent of the $309 million market in 2000, according to Hofferberth's research. Some of the market leaders are Novient, Niku, PlanView, Business Engine, and Computron, all with a 7 percent share last year. Evolve and Deltek each had a 6 percent share; PeopleSoft, Account4.com, Augo, Changepoint, OpenAir.com, and Foundation Systems each held 4 percent of the market; Portera came in at 3 percent. Rounding out the market are QuickArrow, BigDog, Optimize Solutions, Opus 360, Oracle, Paradigm, and others.

The Talent Imperative

In addition to the natural need of organizations to better manage costs and resources by utilizing technology, there are also many macro factors helping to prop up the PSA market, says Halsey Wise, CEO of Novient in Atlanta.
First and foremost, there is a huge transformation taking place in the world away from a manufacturing economy to a services-oriented economy, Wise says. Secondly, the complexion of the workforce is changing from a full-time office environment to one filled with mobile workers, part-time employees, and off-site subcontractors, he says.
"Organizations need an infrastructure to allow them to manage inside their four walls and outside their four walls," Wise says. "Global enterprises have sophisticated, complex needs to manage their people," he says, adding that these factors will help drive the sale of PSA solutions.
Novient's eServices is a 100 percent Internet-based solution targeted at large global organizations. "We don't focus on organizations with fewer than 200 people to automate and optimize," Wise says.

With large consultant organizations such as KPMG, Accenture (Andersen Consulting), and EDS embracing PSA within the past year, the market is being legitimized and the way is being paved for corporate adoption, says the Novient exec. "These PSO firms legitimized the space. In 2001, there will be early acceptance by large IT departments."
Helping set this table, EDS in January selected Evlove's ServiceSphere solution in a $6 million agreement. EDS's Blusphere e-services unit will be the pilot for the rollout, which will initially involve 2,500 users all over the world, says Brad Rucker, executive director of EDS Blusphere. "We are seeing the PSA market take off among our client base. Plus, we have our own internal needs. We want to make sure it works for us before we recommend it for our clients."
Regardless of the EDS deal, Evolve sees corporate IT as the sweet spot of the market. "We believe that this market is bigger than the first two markets [large consultants and PSOs] combined," says Mark Davis, vice president of marketing at Evolve. "There are lots of [corporate IT customers] out there, and they all have the same problems. How many customers are in the Fortune 1000? The answer is 1000," he says.

The Changing Client Portfolio

For its part, in early January, Novient inked a deal to license its eServices application for use within the IT department of American Electric Power. AEP will use Novient's SPO solution to help manage its project demand and provide worldwide collaboration across its 800 IT professionals, according to both companies.
Novient divides its target customers into three areas: large professional services organizations, embedded service organizations, and internal IT departments. Currently, 50 percent of Novient's revenue comes from the large PSOs, 35 percent from embedded service providers, and just 15 percent from internal IT departments.
But it is in this last segment that Novient expects the highest growth going forward, Wise says. "Today, a large percentage of (PSA) revenue comes from professional services organizations. Increasingly, the real size of the industry is in the general enterprise. It is where the victory will be won." Also in January, Novient closed a deal with the internal IT department of Johnson & Johnson, he says.
For OpenAir.com, the general enterprise means the small and midsize companies that want to gain the benefits of Fortune 1000 systems and avoid a drain on their IT resources and budgets.

Identicard Systems, Inc., Lancaster, PA, is a perfect example. Their problem was clear: The security ID badge maker needed to keep better track of the expenses of its field sales and service representatives. So the comapany turned to OpenAir.com because their solution is Internet-based and because Identicard could simply choose the functionality it wanted, which was expense management, says Jack Yonce, database administrator for Identicard.
"We had a program we created internally, but we had to update it and maintain it every day," Yonce says. "With OpenAir's system, we now have the ability to keep track of expenses as they come in, which gives us a quicker turnaround time when turning them back out."
Deployed last July, Identicard's setup now has 50 users utilizing the automated expense system both internally and mobile, Yonce relates. The organization is now more efficient, more organized, and less frustrated.
"The more companies that embrace [PSA technology] as a market segment, the more other companies will want to use it," says Bill O'Farrell, chief executive of OpenAir.com. "We will see over time — the next three years — that banks and insurance companies will be embracing PSA technology to keep better track of how employees spend their time. They will need to manage their employee resources better," he says.
Portera chief executive Gary Steele agrees. "Internal IT organizations want to run themselves like a service organization. But they are more customer-oriented, while [true service] organizations are more profit-oriented," he notes.    

The Campbell, CA–based PSA vendor's core offering, Service Port, focuses on five modules: opportunity management, resource management, knowledge management, engagement management, and operations management. "Across the board, IT organizations have to view themselves as a service organization," Steele says. "The organizations are people-centric, and they need to be better managed. They need to keep better track of these people to make them more efficient."

A New Class of Billable Agents

Despite receiving the backing from the large consultant firms and acceptance from global, midsize, and small organizations alike, the PSA market is still in its infancy, everyone agrees. Products will mature, functionality will be added, the cost will go down, PSOs will build business practices, and more vendors will enter the market in the coming years — which will only legitimize it further, Aberdeen's Hofferberth predicts. For instance, software behemoth Oracle just entered the fray last year. All this leads to more corporate adoption, he says.
The first part of Cloud's vision has been realized. The implementation of PSA solutions is allowing some IT departments to more efficiently bill back their corporations for services rendered.

And while the pressure on IT organizations to justify their own existence is as intense as ever, PSA adoption will at least help alleviate the load, PeopleSoft's Lorton says. To show its commitment to targeting internal IT departments and brick-and-mortar organizations, PeopleSoft changed the name of its PSA business to Enterprise Service Automation (ESA), because that is where their customer pipeline lies. "This is an enormous market only just beginning to be realized," Lorton says. By arming IT services personnel with applications capable of better tracking and measuring their contribution, few doubt that the true dimensions of the market will go unrealized much longer.

Sidebar:  PowerPoints:

• PSA solutions are broadening their base of users beyond consultancies to include independent software vendors, captive IT organizations, and many others.

• To widen its appeal with captive IT organizations, a number of PSA vendors are enhancing their software's functionality, and improving its integration with back-office solutions.

• Large-scale alliances between consultancies and PSA vendors, such as the ones between Accenture and Novient, and EDS and Evolve, have helped legitimize the market and paved the way for corporate adoption.