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PSA -- Still An Evolving Market

Written By: Predrag Jakovljevic
Published On: December 27 2003

The PSA Market

The market for Professional Service Automation (PSA) is still evolving with fragmented offerings from many point solutions providers that are not that financially sound either. As a matter of fact, a vast majority of pure PSA vendors are start-up weaklings, that offer only some of the following areas of an entire PSA (i.e., the bid-to-bill lifecycle), such as opportunity & lead tracking/management, proposal automation, resource planning & forecasting, recruiting & partnering, CRM (customer relationship management), project planning, budgeting & management, employee time & expense entry and processing, project & financial accounting, billing & receivables, HR management, document & knowledge management, business intelligence (BI)/analytics, workflow management, collaboration management, partner relationship management (PRM), portfolio management, practice management, service sourcing, and so on.

Also, a few relatively recent vendor announcements in the PSA market have indicated further morphing and expansion of the scope of PSA, particularly in terms of collaborative capabilities with external partners, enterprise content management (ECM) and enterprise performance management (EPM), to name some. Several vendors have even tried to distance themselves from the acronym, migrating to new catchy names (e.g., Service Process Optimization [SPO], Enterprise Service Automation [ESA], Project Portfolio Management [PPM] or Strategic Workforce Optimization [SWO]) that should indicate a deeper (e.g., with optimization logic similar to supply chain management [SCM] software that should enable allocation of people to projects based on multiple criteria such as utilization, profit, revenue, customer satisfaction, or employee preference) or broader (e.g., to include all business processes linked to knowledge workers working in corporate IT departments, professional services organizations, and/or R&D operations) framework for services delivery.

What started out as a set of applications to better manage customers' projects, astutely allocate staff and monitor their utilization rates has become an important foundation for coordinating a full range of business activities amongst increasingly virtual teams both within and outside the four-walls. Increased synergy and similarities are causing PSA, SPO and project management to consolidate into an emerging PPM market, which is the tracking and management of multiple IT projects with clarity of the costs and benefits as well as potential overlap among them. In other words, it can be seen as a project management applied collectively to a company's entire group of products, with the idea of answering the questions whether the right projects are pursued, whether the firm is spending in the right areas, and whether it has enough of the right resources.

As PSA software integrates and automates core processes related to business development, service delivery and administration for any organization that generates revenue through billable hours, the need for it is apparent particularly in these days of economic downturn when all major consulting outlets are forced to justify the utilization of every individual consultant. In addition to supporting organizations that generate revenue through billable hours, PSA software also benefits corporate IT and other internal service departments that track time for internal charge-back purposes. Recently, there has been awareness within corporate management of a need to regard their IT departments as if they were internal professional service organizations that should compete with external counterparts based on service delivery, expectation levels and cost. There has been a growing realization that the benefits of increased utilization, performance management, quicker and more accurate billing and invoicing, and greater visibility can be equally applied to any services- and/or project-based organization, whether they may be a financial services organization, government or a law firm, or an internal service organization (ISO).

The need for professional service business application software systems is expanding as a result of a number of economic trends. Service organizations traditionally have utilized project accounting more than manufacturing firms due to the need to customize their services for each client and to properly allocate the associated revenues and costs. Many organizations with significant internal development activities can benefit from the use of project accounting systems to closely monitor their progress and cost. Also, although somewhat conversely, more progressive firms may even try to boost their marketing, advertising and PR expenditure in order to gain more project contracts during the shrinking market, where, e.g., the proposal automation capability can come in handy. While project management and resource planning software applications help service organizations deliver within the budget, in a long term, these organizations need to win a new stream of projects and/or customers, which involves pre-sales CRM, marketing and proposal management, and post-sales elements like travel & expense (T&E) management.

As the number and type of project-oriented and professional service organizations increase, such businesses are demanding increasingly sophisticated tools to address their core information and accounting needs, including project accounting, employee time collection, project budgeting, project reporting, CRM, SFA (sales force automation) and proposal generation. At the same time, these organizations are recognizing that, because most aspects of their businesses revolve around their customer project relationships, they can achieve efficiencies in a number of project accounting and core back-office business functions, such as general ledger, accounts payable, accounts receivable, materials management and human resources, through the use of software applications designed to address the special needs of project-oriented organizations. 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. For a detailed discuss of project-oriented systems, see "Project-Oriented vs Generic GL-Oriented ERP/Accounting Systems"

CRM as Client Relationship Management, rather

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, should help these firms track client relationships in a more sophisticated manner than via, referral or word-of-mouth, which were appropriate during their start-up phase. In a project-based business, there are no dedicated sales teams on the road chasing and securing new business, since most senior partners and project managers bring in their own business and look after their own client portfolio. Since traditional sales calls or consumer Internet storefront ordering approach would be quite inappropriate here, the critical element of the client relationship process is proposal development to secure new business, since trying to recall the details of relevant past jobs and who worked on them can be a nightmare (not to mention trying to gather documents that are physically stored in different places by different people). To that end there is a need for a proposal management system that allows a contractor to organize projects by various categories (e.g., people, projects, designs, expertise, etc.) so that the appropriate information (e.g., resumes, document boilerplates, etc.) is easily retrievable when new proposals are prepared. Users can then track the progress of a proposal, share the information with other team members, review similar proposals, and analyze awarded jobs, while the product offer both government and customized commercial proposal generators.

Vendors

ERP vendors, particularly those with strong native human resource (HR) modules and hosting /application service provider (ASP) offerings are already in the PSA space. Some of these vendors would include Deltek Systems, Microsoft Business Solutions (MBS) Great Plains and Solomon, Lawson Software, and PeopleSoft. The early adopters' feedback has been that ERP vendors offer competitive functionality pertinent to workforce planning, project execution and cost and revenue management, resource scheduling and time & expense reporting, while they are not very natively strong in, contract bidding functionality compared to pure PSA players.

One honorable exception to the rule might be Deltek. Very detailed information about the Deltek Costpoint project-oriented ERP product is contained in the ERP Evaluation Center at http://www.erpevaluation.com/, while detailed information about the Deltek Vision CRM/PSA product is contained in the CRM Evaluation Center at http://www.crmevaluation.com/

Deltek's PSA/ERP integration message will be contested by its ERP nemeses like Lawson and PeopleSoft that have the advantage of an early market entry and recent PSA product enhancements both in-house and through acquisitions and alliances, in addition to more recent mid-market intruders like Epicor and MBS Solomon. PeopleSoft has approached the PSA space through what it calls PeopleSoft ESA suite , which includes modules in service procurement, resource management, projects, travel, time & expense management, contracts, workforce analytics, and financial analytics. Significantly, all of the components have been developed either as native applications or from the acquisition of service procurement vendor SkillsVillage in 2001.

Microsoft's intrusion in the PSA market has not been a surprise, given its pervasive project planning tool Microsoft Project has been widely used at a departmental level by managers to allocate company resources (Deltek too, for example, provides tight integration to MS Project). The current MBS Solomon 5.5 release combines the power of MBS Project Accounting Solomon and the new enterprise version of Microsoft Project 2002 products to provide externally focused, project-driven organizations with an integrated financial, project and resource management, knowledge management, time and expense, project accounting, financials, and reporting & analytics solution, based on the Microsoft .NET platform. To that end, the Microsoft PSA product seems to cover many bases, from engagement, via resource management to business intelligence/performance management. Target industries would include law firms, PR firms, system integrators/consultants, financial services, insurance, public sector, healthcare, hospitality, to name some.

Due to acquiring PSA software specialist Account4 (see Lawson Software Means Business With PSA and IPO), Lawson services automation application called Lawson Service Process Optimization (SPO) automates the business processes of professional services organizations and corporate internal and external service departments. This application can work independent of any other system or in conjunction with Lawson core business applications to add reporting and analysis, invoicing and capitalization capabilities. Lawson tailors this application for internal services departments, as well as professional services organizations and the other service industries on which it focus. Lawson Services Automation helps internal services departments within organizations to improve their service delivery capabilities, lower and stabilize costs, better align resources and investments with business strategy, and improve work efficiency and effectiveness.

This application offers additional tools to track services requests and define approval processes and allows for incorporation of best practices and facilitation of project accounting and internal billing. Lawson Services Automation for Professional Services, on its hand, helps professional services organizations, such as consulting firms, improve their balance sheets with faster cash flow and increase resource utilization and bid management. It aims at providing greater visibility into service businesses by helping customers determine which projects and clients will bring the greatest profit margins.

Furthermore, Lawson and Interface Software, makers of InterAction 5, a CRM solution for professional services, have been co-marketing their products for some time. Professional services organizations trade exclusively in intellectual capital, since, rather than focusing on the manufacture, sale and distribution of physical products, services organizations sell their knowledge and domain expertise. Therefore, they require different tools to manage the business development process and to differentiate themselves from their competition (see Professional Services Are Catching-up With CRM). To that end, Lawson's SPO solution helps to address these needs with its Opportunity Management module through the capture and reuse of prior work, matching the skills and experiences of a firm's workforce to the engagement's requirements, managing the services pipeline and providing service revenue forecasting. Once engaged, Lawson's SPO solution helps enable services firms to effectively collaborate and manage the service delivery process with its clients building client loyalty and strategic relationships that increase the likelihood for additional business opportunities.

On its hand, InterAction supports services organizations' strategic growth and client retention initiatives by aggregating, managing and delivering to professionals the Relationship Intelligence they need to uncover new business opportunities, cross-sell services, bolster client loyalty and enhance client service. Relationship Intelligence is a firm-wide asset that reveals the unique and complex connections between people, companies, relationships, experience and expertise. InterAction 5 also features bidirectional synchronization with both Microsoft Outlook and IBM Lotus Notes.

However, in a scenario similar to the CRM, SCM (supply chain management) or e-procurement markets, pure PSA players will emphasize their relevant product completeness and depth with the appropriate price tag, their expertise in handling unstructured data, and will spread the FUD (Fear, Uncertainty, and Doubt) about still maturing ERP/PSA offerings and the danger of buying irrelevant modules in an ERP/PSA bundle.

Although Deltek's reputation for high quality service and support, its ability to work directly with the customers and the ability to provide reasonably rapid implementations have constituted competitive advantages so far, its direct sales approach might not be the most appropriate for the lower-end of the mid-market, which is a similar case with many other vendors that sell directly. Conversely, value-added resellers (VARs) understand PSA well simply because they are in the same type of business as their prospects, in which case the likes of Microsoft, Epicor and Best Software have an undeniable advantage. Last but not least, all the above vendors also face indirect competition from the internal IT departments of its potential customers, given that many of its customers and prospects have attempted to develop front office systems in-house, either alone or with the help of systems integrators.

User Recommendations

While the value proposition of integrated accounting and project management and/or PSA systems cannot be debated, companies should always identify the tradeoffs they are willing or not willing to make in order to achieve which level of integration. It is important to identify the laundry list of items that might or should be integrated between the systems, such as prime contracts, subcontracts, purchase orders, budgets, change orders, budget revisions, costs, accounts payable invoices and checks, labor, billing details, forecasts, and so on. Also, the companies should vigorously clarify the meaning of integration that the vendors tout will the integrated solution contain a centralized database, for example? Also, does the integration accommodate the creation of new entries as well as synchronization of changes to existing records occur in real-time or via batch-file transfers?

Often, buying completely integrated solution is not an option when the companies have either accounting or project-management system in place, which they will not simply rip-and-replace. Thus, prospects should assess the contesting vendors' flexibility to integrate to legacy and other third-party applications, and to keep up with new versions or upgrades to both solutions. The need for built in interfaces to commonly used third-party product like MS Project, MS Office, Corel Draw, Crystal Reports, etc., should be questioned, possibly during software demonstrations.

More on a general note, professional service organizations and organizations with hefty IT staff are advised to familiarize themselves with the offerings of all relevant players. While the clear-cut PSA functionality scope is still a moving target, one should look for the following common functions: business development, opportunity management, qualification management, resource scheduling, time and expense reporting, delivery management, knowledge management, and analytics/business intelligence. From the technical standpoint, the solution should be flexible enough to accommodate both mobile and stationed users; in addition to this, both groups will typically be divided into users who need access to the bulk of the application, and those who enter more narrowly defined data. At this stage, there are only a handful of vertical solutions and ready-made interfaces to third-party systems like airlines, hotels, and credit card companies.

Differences between PSA and ERP

Although this is an evolving area with not much implementation experience accumulated so far, users should be aware of similarities and differences between PSA and ERP. PSA products are much smaller and simpler in scope than their ERP equivalents. Also, most PSA systems lack a built-in suite of development tools; therefore we expect much less room for complex customizations with source code change. However, the flexibility to tailor the system on the fly without code change ramifications remains crucial. Moreover, the "legacy systems" that PSA replaces often either do not exist or are manual practices; therefore we expect minimal data conversion. All the afore-mentioned suggests that PSA implementations should be much shorter and generally less traumatic than ERP.

On the other hand, professional service organizations tend to have an unstructured work style that would challenge any organized approach to project management. Professional service managers can typically commit much less time than their counterparts in manufacturing. These managers are the people who would be "key users" on an ERP implementation, who would attend frequent working sessions in a project war room, and in many cases even work full-time on the implementation.

In PSA implementations, client managers will likely serve only as sources of information and validation, but not as full-time team members. Therefore we anticipate PSA projects should have more of a turnkey approach. To that end, look for exceptionally strong reporting capabilities and end-user training within the product offerings.

 
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