Event Summary
Deltek
Systems, Inc. (www.deltek.com
), 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 Six 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
Four detailed Deltek's differentiators.
Part
Five discussed major Deltek's product lines.
Challenges
While we believe that the Deltek's strategy to shore up its current install base and target new related markets has been sound, one should never discount fierce competition in the highly competitive and rapidly changing market for enterprise application software. Deltek's products are targeted toward a wide range of project-oriented organizations, and the competition that the vendor encounters varies depending upon the customer's size, industry and specific system requirements.
The
principal competitors of Deltek's larger implementations of enterprise-wide
products include Oracle, PeopleSoft (including J.D.
Edwards), Geac, Lawson Software,
and inevitably SAP. Competitors of the smaller implementations
of its enterprise-wide products include Microsoft Business Solutions
(i.e., Great Plains and Solomon), Epicor
Software, Timberline Software Corporation (recently
acquired by Best Software), and many others offering industry-specific
products, such as Wind2, BST Consultants and
Axium in the A/E/C sector. These products have some nifty features
like an electronic stopwatch for time collection spread among several projects
or built-in warning systems that issue alerts when projects are over budget
or when the firm is going to overpay a subcontractor. Moreover, Deltek Time
Collection competes with electronic timekeeping systems offered by vendors including
Kronos, ADP, Ceridian and
Oracle. Its front-office applications face competition from well-known companies
such as Siebel Systems and Goldmine Software Corporation
in addition to the aforementioned ERP competitors that have lately espoused
their CRM applications.
Many of the above competitors have significantly greater resources such as financial, technical, and marketing, than Deltek, and, since experiencing a deceleration in their core business, these companies have refocused their marketing and sales efforts to the upper-middle market where Deltek actively markets its products. Consequently, one should expect such competitors to implement increasingly aggressive pricing programs. Moreover, certain competitors, particularly Microsoft, SAP, Oracle, PeopleSoft, and Siebel, have well-established relationships with many of Deltek's current and prospective customers. Additionally major accounting and consulting firms may also have an incentive to recommend such competitors over Deltek thus increasing competition. All the above vendors, while possibly inferior regarding project-oriented, government-compliant, or service industries focus, will have influenced some customers' purchase decisions by offering more comprehensive horizontal product portfolios, touting a superior global presence, and multi-national product capabilities, which are still the hurdles for Deltek to overcome.
One should keep in mind that in many of Deltek's markets, particularly the US federal government, customers are inherently US-specific and will likely remain so. Also, within these target verticals, Deltek contends that its competitors are not offering significantly more comprehensive horizontal product portfolios. Still, the multi-company and multi-language features have been introduced quite belatedly and only in the Costpoint 5 release. This has likely meant many missed opportunities in the past, and possibly in the future as these new features gain traction.
Therefore, Deltek has yet to show its strategy and technology can "travel abroad", especially to Europe where it needs to sow many more seeds if it is to fulfill its global ambitions. There is certainly no debate about the company's insignificant international presence, since a quite lesser portion of its total revenues comes from sales outside of the North America. This is despite the company launching its international push nearly a decade ago with the establishment of a direct UK presence; however, it has had a limited success, admittedly struggled to support customers. That kind of profile flies in the face of the accepted economics of the packaged software market where a vendor of Deltek's size has at least 30 percent of its revenues flowing from outside of its domestic market.
Thus,
despite Deltek's leadership within its segment, many competitors may have an
advantage due to their larger customer bases in the overall enterprise applications
market, greater name recognition, and substantially greater financial, technical
and marketing resources, in addition to their greater international presence.
Deltek competes with numerous other software companies including pure-play PSA
players (e.g., Evolve, Niku, Novient,
SharpOWL, OpenAir, QuickArrow,
Tenrox, Changepoint, Portera,
Maconomy, Unit 4 Agresso, Business Engine),
emerging client relationship management software vendors (e.g., Interface
Software and Time Matters) and, companies offering
specific solutions that directly compete with a portion of more comprehensive
product offering. Likewise, the functional gaps are narrowing by the day (see
Big
ERP Players Courting Government Agencies). Moreover, as Deltek attempts
to penetrate other strategic commercial vertical and PSA markets, it will likely
encounter competitors with substantially more experience in those markets. Also,
some prospects from commercial sectors may find Deltek's products too rigid
given the products have had to abide by rigid regulatory requirements and, thus,
embed many features that are not required by commercial sector prospects.
For
example, while Deltek seems well-entrenched in the upper mid-market and within
large enterprises, Microsoft Solomon Project Series, which
has been Solomon's landmark functional part, is notable opposition that focuses
on project-based activities for small-to-medium enterprises. It has tools for
project structure definition and budgets, time and expense (T&E) entry, allocations,
flexible billing formats, change order control, contract administration, local
and web-based project analysis, employee utilization/realization, proactive
alerts and work flow. Solomon modules housing these functions are Project Controller,
Analyzer, Project Budgeting, Time & Expense for Projects, Flexible Billings,
Contract Management, Employee Utilization, Project Allocator, and Communicator,
respectively.
The
Project Controller module enables costs per project to be collected and charged
from one system, while account categories are user-defined. The module maintains
original budget and estimate at completion (EAC), and calculates burden, overhead,
general and administrative (G&A) costs, fee and billing rates. The Analyzer
module is a set of tools for project managers, which pulls together information
such as labor, travel and materials for detailed analysis, and maintains two
revised budgets (EAC and forecast at competition [FAC]). Like in all other modules,
data is viewable on-line and can be drilled-down from the report summary level
to the individual transactions that make up the summary figures. It can also
create graphs and export data to Microsoft Excel. The T&E module
features costing methods and labor classification that are designed to accommodate
government, project and billing requirements. The Flexible Billings module creates
and generates invoices in different formats, whereby more than one project can
be recorded in one invoice. Billings can be scheduled as per contracts, and
there is the provision for deferred revenue recognition. The Communicator Module
is another nifty feature providing user-defined alerts to warn when an action
is required, and to even escalate alerts via e-mail if the proper party does
not respond. The module also can maintain all the parameters of a project and
keep them in check, while the number of documents, such as timesheets, invoices,
or budgets can be reviewed and approved or rejected on-line. Additional enhancements
to the project accounting capabilities include new indirect rate calculation
and new audit trail tracking abilities for contractors with the US federal government,
particularly those subject to DCAA audits.
Furthermore, while Costpoint has long been very competitive with other major ERP systems regarding features and capabilities for project-oriented businesses, the market has lately become more focused on the need for web-based applications. The lack of a fully web-enabled system has for some time hindered Deltek's potential growth objectives causing the vendor to lately increase its development with respect to the web-based development of Deltek.Costpoint, which is slated for full release in late 2004.
Recently
though, Deltek has indirectly benefited from the commodification of technology
and almost all the aforementioned competitors now provide web-based solutions
and portals as a matter of course, as seen in PeopleSoft and Lawson's diminished
emphasis on their pure-internet or web-addressable product architectures in
exchange for an increased interest in vertical focus. Still, the perception
of being a technological laggard when compared to Lawson, PeopleSoft, and even
BST Software will hover over Deltek for some time. It will
have to be repeatedly dispelled until the so-called NGC release supporting rapid
multi-platform support and Java 2 Enterprise Edition (J2EE) becomes generally
available some time in the future. To be fair, BST mostly competes with Deltek
Vision and one could nowadays make the argument that Vision's technology is
possibly more advanced because it does not require the use of Microsoft
ActiveX control.
Thus,
Deltek faces the challenge of continued investment in either redeveloping legacy
or acquiring new vertically-astute technologies, while holding back on operating
costs. This brings us to a burden of still outstanding R&D work-in-progress,
which may prompt some observers to question Deltek's investment in R&D as virtue
out of necessity rather than innovation. The picture becomes more complex because
Deltek incorporates application software licensed from third parties into its
own software products (albeit most, if not all vendors incorporate third party
tools). For example, BI Tools, including Impromptu and Power
Play, are both licensed from Cognos Corporation, and the System1 report-writer
and Intelligent Query are also licensed from a third party.
Furthermore, in order to support Oracle, SQL Server, and Centura relational
databases, Deltek Costpoint contains certain native router software licensed
from Centura. Additionally, Deltek Costpoint customers must license applicable
database software from Oracle, Centura, or Microsoft, either directly or through
Deltek, which may not be particularly attractive to customers desiring a turnkey
solution.
Moreover,
the Enterprise Planner product is licensed from Adaytum Software and is closely
interfaced with Deltek Costpoint and Deltek GCS Premier, while Deltek Employee
Expense still utilizes software from Necho Systems Corporation. Deltek's NGC
product will utilize development and deployment software from BEA Systems, Inc.
and Actuate Software Corporation to achieve the web-enabled
and web-reporting components of this most recent version. The enterprise-based,
e-business applications for Employee Self Service and eProcurement are based
on applications from Workscape Software Corporations and E-Plus
Corporation, respectively. As mentioned in part
5 of this series, Deltek's Major Product Lines, Deltek terminated its OEM
agreement with E-Plus in 2003 and is evaluating the internal development of
this functionality versus purchasing it through an external OEM agreement.
Need to Clarify Technologies
Thus, in addition to attempting more market visibility and noise in its new target segments (as opposed to largely a word-of-mouth strategy in the past), Deltek will have to further clarify the above hodgepodge of disparate technologies. Despite grouping its offering within the three major branded groups of products, Deltek's offering still resembles a detailed restaurant menu giving customers a plethora of choice: one might still have trouble tracking all the interdependencies and integrations.
Deltek
will play its distinct advantage over many competitors in the PSA market with
its new, integrated solution, Deltek Vision, and given that many other solutions
are front-office PSA, Deltek has a much broader offering that automates all
of the core business processes within an organization, including the back-office.
Still, as in the case of CRM, SCM or e-procurement opportunities, the major
applications vendors have also acted on the opportunity to encroach into the
PSA space. For more details see "PSA
— Still An Evolving Market.".
Furthermore,
Deltek's competitors, 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 and 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).
Also, in a scenario similar to the CRM, SCM and e-procurement markets, pure PSA players will emphasize their relevant product completeness and depth with an appropriate price tag, as well as their expertise in handling unstructured data. They will also spread the FUD (Fear, Uncertainty, and Doubt) about 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, ability to work directly with the customers, and provide reasonably rapid implementations have so far given it competitive advantages, its direct sales approach might not be the most appropriate for the lower-end of the mid-market. VARs understand PSA well simply because they are in the same type of business as their prospects, giving the likes of Microsoft, Epicor and Best Software an undeniable advantage. Last but not least, Deltek (and its competitors) 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
Indeed, Deltek remains an enterprise applications vendor of choice for project-based businesses, and, with its recent product deliveries, has taken critical steps to create more value for its customers. Deltek should expend the marketing effort required to insure all its customers, prospects, and partners fully understand the value proposition of its evolving products. It should also continue to further invest in technology to insure that integration, migration paths and web-enablement are available across all its product lines. Existing Deltek customers should evaluate the latest product additions as a way to add value to their existing back-office applications bearing in mind the possible impending integration effort. These companies should also consider adding front-office functionality in their requirements list. Ultimately, some project-based professional service companies might find this portfolio holding significant value in terms of both cost savings and increased efficiency.
Prospective customers should evaluate Deltek if they are a mid-market and low-end Tier 1 company within the following project and service-based industries considering business applications (both web-based and client/server network dependent): government contractors, A/E/C, management consulting, IT services/system integrators, aerospace and defense (A&D), research and development (R&D), non-profit, project manufacturing, and accounting organizations. However, these companies should bear in mind Deltek's products state of affairs and its roadmap to the future, which may allow them to benefit from considering competitive offerings.
Given Deltek offers many different strokes for different folks, many factors will determine the appropriateness of certain Deltek's products. Typically, larger prospects are leaning towards Deltek Enterprise and Deltek Vision while smaller prospects might find that Deltek GCS Premier and Deltek Advantage are better with a more cost-effective fit. If you have a significant part of your business is derived from US federal government contracts and you are subject to regulatory requirements like CAS or review by the DCAA, you will need an accounting system that is fully compliant and that can handle mandated costing, reporting and billing structures. Deltek Enterprise and Deltek GCS Premier should fit the bill.
Deltek Enterprise has also been designed to handle the complex requirements of multinational companies, and at present, it is the only solution that can fully handle the nuances of multi-currency accounting and currency valuation accounting. Deltek Vision is expected to have this functionality in early 2005. Also, if project manufacturing, materials procurement, or materials ordering and shipping is a significant aspect of your business, Deltek Enterprise will again be the primary solution you will want to look at, since it is specifically designed to integrate project and financial accounting with project manufacturing and materials management capabilities. Thus, Deltek Enterprise might be a good fit for A&D manufacturing, system integration, shipbuilding and repair, construction, and other industries where build-to-order is the requirement.
However, companies looking for a single vendor offering holistic, broader packaged extended-ERP functionality and with particular industry focus outside of Deltek's project-driven, professional, technical services, and construction markets, may benefit from evaluating other products at this stage. Large companies with complex supply chains and business process requirements such as complex product life cycle management, sourcing, plant maintenance, call center or field service should consider enterprise applications vendors with products and channels better suited to support those needs. It should be noted, though, that Deltek has numerous satisfied clients in categories outside of its target market.
Furthermore, while each of Deltek solutions have reporting capabilities and employee self-service capabilities (employee time and expense) that are fully web-based, only Deltek Vision, Deltek CRM, and Deltek Time Collection are Deltek solutions that have been recently been released or rewritten and are 100 percent web-based with no installation required on the client PC. Also, certain Deltek products like Deltek CRM and Proposals or Deltek Employee Time and Expense Solution may be attractive stand-alone solutions with best-of-breed features.
As seen earlier, Deltek products are built upon proprietary, as well as industry-standard components. Over time, as industry standards evolve, the vendor will be required to re-design products to incorporate new industry standards. Thus, the users of its older product versions should also approach Deltek and inquire about their required impending effort to upgrade to a new product that is browser-based, provides connectivity to wireless devices, is a 100 percent Java- or .NET based, and has XML-enabled interfaces, as some new major enhancements. Despite the plausible product roadmap and the company's viability, any organization evaluating any of Deltek's products should keep itself informed, and consider existing functionality only while making sure that what they buy today will keep abreast of future technological developments.
Larger professional services firms, such as architecture, accounting, engineering, consulting, planning, and advertising, win future business through effective integrated accounting, project control, billing, employee time and expense tracking, billable time, and a knowledge-base of work, resumes, and performance of past engagements. Deltek Vision integrates all of these requirements into one web-based system. Smaller firms will also want to consider Deltek Advantage as a simpler, lower-cost solution to handle all of their accounting, billing, employee time, and expense needs. Professional services firms having multi-currency or significant government contracting requirements should still consider the Deltek Enterprise solution or other competitive products.
Detailed
information about the Deltek Costpoint and Deltek GCS
Premier products are contained in the ERP Evaluation Center
at http://www.erpevaluation.com/,
while detailed information about the Deltek Vision product is contained in the
CRM Evaluation Center at http//www.crmevaluation.com/