Deltek Systems, Inc. has become North America's principal provider of enterprise software and solutions for project-focused organizations. In mid-2005, Deltek announced that New Mountain Partners II, L.P. would make a majority capital investment in the company. See Mountainous Investment Transforms Enterprise Management Software Vendor for more information about this investment and its implications. This move, while certainly enhancing Deltek's prospects in terms of strengthening its global position, is not necessarily a change in fortunes.
Part Two of the series Mountainous Investment Transforms Enterprise Management Software Vendor.
Changes for the Better
What has changed, however, stems from 2005 being a landmark year marked by the expansion of a seasoned executive team, along with the advent of financial backing by New Mountain Capital (sponsor and manager of New Mountain Partners). In 2005, Deltek's management team welcomed new executive leaders, whose extensive expertise and strategic vision are expected to prime the company for continued growth. In addition to Parker, seasoned industry leaders Jim Reagan and Bill Clark joined in executive vice president (EVP) capacities, and also serve as chief financial officer (CFO) and chief marketing officer (CMO), respectively. Carolyn Parent also joined Deltek as new EVP of worldwide sales. Carolyn Parent also joined Deltek as new EVP of worldwide sales. From 2006 onwards, Deltek plans to further its momentum by continuing to enhance a winning product portfolio and by expanding into new project-oriented vertical and international markets.
Deltek recognizes that most organizations run their enterprises by using a sort of closed-loop, corrective action process, which consists of disjointed "predict," "measure," and "control" phases. While some product-based businesses may already have software solutions for creating a closed-loop process, most still need solutions to replace manual workarounds, and Deltek has embarked on a mission to garner a one-stop-shopping portfolio.
Accordingly, in March 2006, to enhance these development prospects, Deltek announced the acquisition of Welcom, a Houston, Texas (US)-based provider of such solutions, which allows Deltek to immediately provide important earned value management (EVM) capabilities to its broad government contracting customer base, and also to deliver comprehensive project portfolio management (PPM) solutions for many other project-focused organizations worldwide. The acquisition has also added more than 250 Fortune 1000 companies (including marquee names such as General Dynamics and BAE Systems) to Deltek's existing base of clients. Founded in 1983 (like its later parent, coincidentally), Welcom has been developing and selling project management tools to upper-end customers for whom complex project management is a critical business requirement. Its client list includes major manufacturers in the aerospace and defense (A&D), transportation, telecommunications, and architectural, engineering, and construction (A/E/C) industries, and its established presence in the European, Asian, and Australian markets should also create additional channels for Deltek to continue its much-needed expansion outside the US. In addition to cross-selling opportunities in the near future, the acquisition eliminates Deltek's need to interface with the likes of Microsoft Project, Meridian, or Primavera, and allows it to keep a bigger share of the customer wallet to itself.
Welcom products, including the Cobra EVM and Open Plan PPM products, will continue to be developed, licensed, maintained, and supported by Deltek. While they will continue to be sold as standalone products (owing to interfaces with some enterprise resource planning (ERP) systems like SAP or former Baan [now SSA Global LN]), these products will integrate important portfolio analysis, risk management, cost and earned value management, and project collaboration functionality with Deltek's enterprise management solutions. The Open Plan product is a feature-rich, multiproject resource and cost modeling and reporting tool, which includes many tools for mid-level and top-level managers for displaying project status and cost with a traffic light metaphor (green, yellow, red). A project manager can use the professional version of the tool to schedule multiple projects simultaneously, whereas later versions will include an e-mail adviser which will enable mail messages to be sent based on alert conditions.
In general, PPM entails a strategy for management of a portfolio of related or interdependent projects, with the intent of limiting redundant work efforts, and optimizing decision-making and resource skills across projects. The idea is to take a holistic view of projects and their relationships, and to focus on the potential for project benefits to be controlled across the enterprise. Such applications are used for automating and optimizing the initiating, planning, scheduling, allocation, monitoring, and measuring of the activities and resources required to complete projects. Portfolio management capabilities enable the tracking of an aggregate of projects, products, programs, and initiatives, in order to oversee resource profiling and allocation, which in turn are useful tools for making ongoing investment and prioritization decisions, and for tracking risks as part of an overall portfolio.
PPM tools are high-end, multiproject management tools which help organizations to manage the scope, time, and cost of discrete sets of related people-based processes (projects) on an individual and portfolio basis, with integrated time reporting, executive information reporting, and project accounting interfaces. In the greater scheme of things, PPM can include the breadth of horizontal and vertical solutions, such as construction management, facilities management, professional service automation (PSA), aspects of information technology (IT) governance solutions, and so on—all developed around the idea of successful project completion and delivery as the business raison d'tre. For more information, see Project Portfolio Management for Service Organizations: Bridging the Gap between Project Management and Operations.
While EVM has long been a US Department of Defense (DoD) requirement for defense manufacturers, it is becoming increasingly more common with commercial, non-defense, project-based manufacturing sectors. In fact, there are indications that many US federal organizations besides DoD (such as the Department of Transportation [DoT] and the National Aeronautics and Space Administration [NASA]) have been lowering the project value threshold which mandates the use of EVM reporting (from $50 million [USD] to $5 million [USD]). In 2005, the US Office of Management and Budget stated its intention to enforce EVM in IT projects at federal agencies, including compliance with American National Standards Institute/Electronics Industries Alliance (ANSI/EIA) standard 748. While defense agencies have been applying this standard for some time, the US Civilian Agency Acquisition Council and the US Defense Acquisition Regulations Council have proposed a revision to federal accounting regulations (FAR) to standardize use of EVM across the government.
These moves stem from the buyers' needs for assurances that they are using a contractor who can deliver; on the contractor side, these enterprises certainly will not stay in business if they can't deliver as required. Thus, EVM compliance may give both parties a measure of confidence that project goals can be met. However, the use of EVM is a major shift from the traditional project accounting practice of merely (and occasionally) ensuring that actual costs are in line with the estimated cost, and few companies outside the defense arena have sufficient knowledge and maturity to use it. By introducing the dimension of time (in addition to cost and performance elements, all integrated within the project scope of work), EVM attempts to prevent project cost increases, which are often due to scheduling problems, by highlighting the need to identify problems before they are past the point of no return, whence considerable delay and cost result.
Consequently, all project participants need to learn of variances immediately. They do not have the luxury of waiting until, say, the end of the month, to discover that a project is in jeopardy. To that end, an EVM solution must show variance to the estimate at completion (EAC) (although there is an overwhelming number of similar indicators) of a project as soon as a significant change occurs. In other words, EVM concretizes project progress so that one can look at project evolution and compare how much has been spent to how much should have been spent. Thus, EVM is good at exposing the fact that a contracting company does not have a good project plan, or that it has a good plan but may be unable to follow it. Again, although the private sector might benefit from harnessing EVM systems (both for improving competitive advantage and for internal risk management), implementation requires significant education and familiarity with the concepts, along with dozens of formulas, and key performance indicators (KPIs) and their meanings. Additionally, implementation requires everyone to start reporting their time and achievements, every day, by hour, against a set of activities—all of which is a major change management issue. For more information on the qualities and operating characteristics of EVM (some of which are described in ANSI 748), see Federal Contract Management and Vendors' Readiness.
In October 2005 the company also acquired competing financial management software firm Wind2, thereby increasing its customer base to 11,000 firms, and furthering its dominance in a number of key vertical markets. Both firms shared a focus on A/E/C companies (as well as government contractors, IT services firms, and management consultants), and have thus often directly competed in these markets in the past. The acquisition has allowed Deltek to strengthen its leadership role in the professional services market, while adding approximately $10 million (USD) in revenues. In fact, of Deltek's record 25 percent revenue growth in 2005, 2 percent was attributed to the Wind2 acquisition alone. In addition, this acquisition added more than 3,000 customers to Deltek's former base of 8,000 clients, including such marquee names as Custom Research, Inc., Apex Environmental, Inc, and MCW Consultants, Ltd. Deltek has also welcomed Wind2's over eighty employees from five locations, including a training facility in Fort Collins, Colorado (US), and four branch offices throughout the US and Canada.
Today, Deltek clients represent more than 81 percent of the 500 largest revenue-generating A/E/C firms in the US, as ranked by Engineering News Record (ENR) in 2005. Furthermore, nearly 65 percent of the largest federal government contractors are Deltek clients, as ranked by Washington Technology. Of Deltek's total install base, the A/E/C clients represent about 60 percent; government contracting represents about 20 percent; professional services or management consulting represent about 8 percent; and nonprofit organizations, IT services (or systems integration [SI]), and project manufacturing organizations contribute a few percentage points each.
Deltek has a history of successful and astute acquisitions in the space, starting with the 1998 acquisition of Harper & Shuman, Inc., formerly a renowned provider of accounting software to A/E/C firms. This acquisition, which included the Advantage and CFMS product lines, in addition to adding 2,800 firms to Deltek's install base, was a major step in supporting Deltek's strategy of providing comprehensive business solutions to firms in the A/E/C industries.
In early 2000, Deltek unveiled its vision and launched its initiative to become the vendor of choice in the then emerging market for PSA software. To that end, Deltek acquired A/E Management Services, Inc., including the RFP GenTrak product line, which was a marketing, proposal, and opportunity tracking automation system for A/E/C companies. In late 2000, Deltek acquired Semaphore, Inc., a major developer and distributor of advanced financial and project management software and services for over 2,000 A/E/C companies and other professional services firms. That acquisition doubled Deltek's market share of the A/E/C industry, and gave it a 72 percent share of the firms listed in ENR's top 500 design firms.
Back to the Future?
As with the aforementioned acquisitions, Deltek pledges to continue to support and maintain all Welcom and Wind2 products, including Cobra, Open Plan, WelcomHome, WelcomPortfolio, WelcomRisk, Wind2 Award, and Wind2 FMS (the financial management system renamed as Deltek FMS), a modular, Microsoft Office-compatible product which complements Deltek's broad product line of project-based solutions for professional services firms of all sizes. These solutions include Deltek Vision, Deltek GCS Premier, and Deltek Costpoint.
Providing a good example of how Deltek manages acquired products is its acquisition of Harper & Shuman in the late 1990s, which was in line with its aim to penetrate the A/E/C market. At the time, Harper & Shuman was the market leader with its premier product Advantage, which had been introduced in 1997 as one of the first Y2K-compliant products in the market segment. Several years later, Deltek is still selling, maintaining, enhancing, and supporting the Advantage product line, and a similar strategy is envisioned for the Deltek FMS product, whose clients should now have more choices because they can look at other Deltek products, including Vision, which is both technologically advanced (it is Web services-based) and functionally advanced. While FMS concentrates mainly on project accounting and some product management capabilities, Vision adds resource planning, project management, client relationship management, proposal automation, document management, and so on.
However, Deltek also pledges not to force any clients to move in the direction of adopting new products if they are comfortable where they are, and they pledge to grant support for the FMS product. At the same time, the vendor has been adding the FMS features that are currently missing in Vision (such as a strong collections module), and it has already begun to train a subset of the development group acquired with Wind2 on the Vision architecture. Additionally, it has been looking at designing a data conversion utility that will convert FMS data into Vision for those clients who are interested in making that move, given that Deltek FMS is a Microsoft Windows-based product with a client/server architecture, and not Web-based.
It might be useful to clarify the fact that Deltek currently offers a plethora of products, which range from legacy systems to modern applications, from offerings for the lower-end of the market to systems for large enterprises, and from best-of-breed point solutions to more complete product suites. Looking horizontally across the range, its project-focused portfolio of solutions offers a number of modules:
- ERP modules (such as project-based accounting, financials, materials management, human resources [HR], and payroll management), used by 10,000 customers
- customer relationship management (CRM) modules (such as business development tools, sales force automation [SFA], client relationship management, and proposal automation), used by 1,800 customers
- human capital management (HCM) modules (such as time collection and expense management, resource and project planning, employee self-service), used by 1,200 customers
- business performance management (BPM) modules (for example, balanced scorecards, forecasting, and planning tools), used by 1,900 clients
- PPM tools (per the Welcom acquisition)
The BPM and HCM tools have recently received notable enhancements, including pre-packaged performance-based data marts; a new reporting tool for Deltek Costpoint that leverages Cognos ReportNet; and pre-built reports, analytics, and scorecards for project-based businesses on the BPM side. The BPM suite is the further evolution of the former Deltek Enterprise Planner product suite, the result of Deltek's partnership with Adaytum Software (now part of Cognos), which was announced in late 1999.
On the HCM side, functionality has been enhanced to embrace broader employee-facing requirements, such as time entry, expense reporting, employee benefit management, and project management, as well as support for mobile workforces, including the use of personal digital assistants (PDAs), offline clients, and wireless clients. To that end, the Deltek Time Collection, mentioned earlier, is a Web-based employee timekeeping solution for driving labor, payroll, job costing, and billing functions, by project. Featuring Web-based, zero-client technology, it is a time management application aimed at eliminating paper-handling processes and redundant data entry, and has reportedly been used by more than half a million users worldwide. Although sold well as a standalone application in virtually all Deltek industries of focus, the product is part of the Deltek Enterprise application suite, and fully integrates to the major back-office application, Deltek Costpoint. The product provides increased management visibility and control of projects and operations, by tracking daily labor activity and historical data. This gives supervisors, project managers, and executives access to pertinent information in a timely manner, preventing costly project overruns and reducing billing time, in addition to enabling federal contractors to comply with government auditing regulations. Not only does it interface with all Deltek products, but it also interfaces with enterprise applications from SAP, Oracle (including former PeopleSoft and JD Edwards), Automatic Data Processing (ADP), PayAmerica, and Microsoft Dynamics SL (formerly Microsoft Solomon). In fact, recently this standalone product has been one of the best selling products within the Deltek family, and a major contributor to the vendor's growing top line.
In the next note of this series we'll take a closer look at what contributed to the top line in the first place.