Deltek Remains the Master of Its Selected Few Domains Part Four: Deltek's Differentiators

Event Summary

Deltek Systems, Inc. ( ), the leading provider of enterprise software and solutions for project-based businesses and professional services firms, remains committed to a potentially unique, high level of investment in product development as compared to other software companies. According to Kenneth E. deLaski, Deltek President and CEO, the average public software company only invests approximately 14.5 percent of its revenue in product development and, at 24 percent, Deltek customers should take this as a strong sign that the vendor is deeply committed to continued investment and improvement of each of its product suites for project businesses and professional services firms. Deltek also announced that, once again, it achieved strong profitability and cash flow for fiscal 2002, which reportedly marked the 18th consecutive year of profitability for the company. In addition, the company added more than 300 new customers during the year in a variety of industries including aerospace, construction, engineering, IT services, consulting, architecture, and project-based manufacturing.

This is Part Four of a six-part note.

Parts One and Two covered product announcements for 2003 and 2002.

Part Three provided the company background and discussed market strategy.

Part Five will discuss major Deltek's product lines.

Part Six will present challenges and make user recommendations.

Product Development Initiatives

Deltek aggressively pursued two major product development initiatives in 2001:

  1. Web-based development of the Costpoint application suite for advanced project-oriented businesses

  2. Development of a new, web-based PSA product suite for professional services firms

In addition, Deltek also developed and introduced several new application modules during 2001 and has since continued to strongly maintain and enhance its broad array of 125 existing products.

As a result, the company's product line has expanded from applications for managing the core back-office processes to the front-office and e-business of professional services and other project-based companies, many of which provide products and services under American Federal Government contracts. Deltek has also grown to nearly 700 employees in eight offices worldwide and nearly $100 million (USD) in revenues and has also contracted over 8,000 customers since its inception. Moreover, with its two decades of experience, expertise and an exceptional track record in designing, developing and providing project and financial accounting systems to professional services firms and other project-based organizations, Deltek touts a reputation for delivering functionality-rich applications and highly-responsive customer service and technical support, as seen with its 98 percent customer retention record.

Deltek Differentiators

As already mentioned, since its inception, Deltek has focused on addressing the unique business needs of project-oriented organizations, resulting in a competitive advantage relative to both larger ERP vendors that offer general-purpose enterprise software that requires heavy customization, and small off-the-shelf project-management solutions that are soon outgrown by the user company. Deltek solutions have always been very focused on fulfilling the needs of its chosen target customer—the project manager, who is responsible for sharing and tracking the revenue, expense, and profitability of a project. Conversely, most enterprise-wide business systems sold by other software vendors are general purpose in design and, without significant customization, do not address many of the unique requirements of businesses engaged primarily in providing products and services under project-specific contracts and engagements.

For a detailed comparison of project-oriented ERP vs. generic GL-oriented systems see "Project-Oriented ERP vs. Generic GL-Oriented ERP/Accounting Systems".

Project-oriented organizations have many project-specific business and accounting requirements including the need to track costs and profitability on a project-by-project basis; provide timely project information to managers and customers; and, submit accurate and detailed bills or invoices. Often this must all be done in compliance with complex industry-specific and regulatory requirements. As a result, Deltek rightfully says that all its applications have been made with projects rather than general ledger as their core.

Not many enterprise products will support the following project-based processes: job costing; managing the sub-contactor; financial reporting; managing the workforce; process time and expense; winning new business; purchasing goods and services; managing the project; and, build to order. If these high-level processes sound rudimentary, then breaking down their processes will reveal their true intricacies. The need for detail is seen in such processes as employee time, billing rates, budgeting, collections, or project proposals, all which are only supported by a few vendors besides Deltek. For example, the steps involved in the support for the build to order process reveals Deltek's solid core ERP materials management functionality: customer demand; bills of materials (BOM)/routings; engineering change notice (ECN); materials requirement planning (MRP); capacity planning; purchase requisition/order; receiving and quality assurance; fill inventory; issue manufacturing orders; final sub-assembly and finished goods; customer delivery and billing; revenue recognition, and PSR.

Furthermore, many project-oriented organizations provide products and services under government contracts, and project accounting often requires the use of sophisticated methodologies for allocating and computing project costs and revenues. There are many different types of contracts the American government uses and within each of those there are more than dozens of variations, whereby each variation will drive its own type of billings, revenue recognition and requirements for reporting back to the government customer. Because of an expected increase in defense and national security spending, Federal government contract spending and activity are also expected to increase in the next several years (see Fed Gives ERP A Shot In The Arm).

For the past two decades, Deltek has been a recognized leader in providing systems for firms that do business with the federal government. Its solutions allow customers to maintain their accounting records according to guidelines set by American government oversight bodies such as the Defense Contract Audit Agency (DCAA); Federal Accounting Regulations (FAR); and, Cost Account Standards (CAS). The government requires its contractors to collect and allocate costs in certain ways; for example, according to DCAA rules, labor costs must be recorded daily. Also, a contractor is required to keep track of several contracts simultaneously, to meet the rules for different types of contracts and to account for a number of indirect costs. Thus, of 8,000 Deltek customers, about 2,000 are federal contractors that account for more than 50 percent of the vendor's revenue. Nearly 4,000 additional customers are contractors working on state and local deals, while the remaining customers are from the commercial sector that Deltek has started to target quite later.

According to the Small Business Administration Pro-NET sourcing service database, there are tens of thousands of small and minority-owned companies doing business with the federal government. With the new emphasis on improving homeland security and expanding anti-terrorism operations around the world, many of these firms will likely experience a significantly greater demand for their services and rapid growth over the next several years.

Deltek in the PSA Market

Deltek's focus on projects also means it has the ability to provide a comprehensive offering for professional service automation (PSA), in a market which is still evolving and has fragmented offerings from a number of point solutions providers that are typically financially unsound. As a matter of fact, a vast majority of pure PSA vendors are start-up weaklings offering only some areas from the entire PSA (e.g., the bid-to-bill life cycle). These areas include opportunity and lead tracking/management; proposal automation; resource planning and forecasting; recruiting and partnering; CRM; project planning; budgeting and management; employee time and expense entry and processing; project and financial accounting; billing and receivables; HR management; document and knowledge management; BI/analytics; workflow management; collaboration management; partner relationship management (PRM); portfolio management; practice management; service sourcing; and, so on.

Thus, the likes of Deltek should benefit from the expanded use of project-oriented and professional service business application software systems due to economic trends. Service organizations traditionally have utilized project accounting more than manufacturing firms because they need to customize their services for each client and properly allocate the associated revenues and costs. Therefore, as the shift from a manufacturing-based economy to a service-based economy continues, the market for project-oriented organizations is expanding. Furthermore, the trend towards outsourcing an increasing range of activities broadens the market for project-oriented organizations as both customers and vendors need to track the costs associated with their projects.

Like other businesses, project-oriented and professional services organizations are also demanding solutions that allow them to combine their business software applications into a single integrated, enterprise-wide system. Deltek has long been providing the above-mentioned individual pieces of the PSA puzzle, which have recently been integrated into a much more cohesive whole.

For a detailed discuss of the PSA Market, see "PSA — Still An Evolving Market".

To that end, Deltek has developed a family of complementary products with a broad-based functionality that is usable in a variety of technology environments. These products are offered to larger, more sophisticated project-oriented organizations in the aforemented industries. Time is of essence for any business that bills for its services rather than sells a physical product, but it can be particularly tricky for design firms that may need to bill at different rates depending on things such as project phase, task, client type, or escalation clause. At the same time, the industry is quite fragmented with its legions of specialist contractors, and long tradition of technophobia. The vendor that can satisfy the requirements of the fastidious A/E/C sector stands the chance of selling its technology to other project-oriented businesses. The strong capabilities of the collection of project-based applications (such as the "project view" of opportunities within its CRM module, or over 15 overtime cost allocation options within its financial and project management module) have resulted in 70 percent of the 500 largest, most influential firms in the American architecture, engineering, construction (A/E/C) and design services industries to leverage Deltek's business software, solutions and consulting for automating essential front- and back-office business functions. Additionally, more than 40 percent of these firms use Deltek Front Office applications, and more than 55 percent using Deltek Back Office applications.

These companies, as well as accounting practices, law offices and other professional service firms can also benefit from an emerging CRM derivative known as client relationship management, which Deltek espouses within its marketing and proposal automation product. This derivative should help these firms track client relationships in a more sophisticated manner than referral or word-of-mouth, which were appropriate during their start-up phase

This concludes Part Four of a six-part note.

Parts One and Two covered product announcements for 2003 and 2002.

Part Three provided the company background and discussed market strategy.

Part Five will discuss major Deltek's product lines. Part Six will present challenges and make user recommendations.

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