Enterprise Resource Planning for Services, and Professional Services Automation: Where Do You Draw the Line?

Introduction

Since the late nineties, it has been evident that the enterprise resource planning (ERP) vendors that originally serviced the needs of manufacturing organizations have slowly extended their functionality to service the needs of non-manufacturing industries also. By the year 2000, when many of the major ERP implementations for the manufacturing industry had tapered off, tier one ERP vendors, such as SAP and Oracle, had refocused efforts to market their integrated solutions in the greener pastures of service-oriented vertical markets, such as the health care sector, the public sector, and service based businesses. Simultaneously, professional services automation (PSA) solutions appeared, and best-of-breed vendors such as Changepoint (today Compuware) and Evolve (now part of Primavera's PSA offering) were developing project- and service-oriented functionality. These PSA solutions were aimed at providing the missing pieces linking back-office solutions (typically provided by ERP or accounting vendors) to project management systems, which remain the heart of most professional services organizations (PSOs).

In today's market, ERP vendors are aggressively focusing their efforts on providing the project-oriented functionality once provided by the original PSA vendors. In addition, unlike best-of breed solutions, they provide a fully integrated back-office system. This raises the following questions: Is the PSA concept outdated? Does ERP for services better reflect the marketplace?

From a vendor's point of view, the answer to those questions depends on which side of the fence you stand. ERP vendors will likely prefer the "ERP for services" moniker, which showcases the broad application of their offering outside PSOs such as governmental and health care organizations. On the other hand, best-of-breed PSA vendors will probably embrace the PSA label, and continue to focus their efforts on their unique understanding of the professionals services market—or, as history has proven, change their focus altogether by adopting a project portfolio management (PPM) approach in order to broaden their potential market.

Defining PSA and ERP for Services

The main difference in functionality between PSA and ERP for services is the back-office component. ERP for services applications provide functionality for both the transactional (or operational) components, and the project-oriented components of service organizations. However, PSA typically refers only to project-oriented functionality, specifically for PSOs. As a result, there are two categories of vendors for service organizations:

1. Best-of-breed PSA vendors: These vendors typically market hosted solutions to smaller organizations. Their main target markets are professional services firms, architects, engineers, high-tech firms, as well as any other type of business which provides billable project-oriented services.
   
   
2. ERP for services: These vendors are typically traditional ERP vendors, and provide a fully integrated solution with integrated back-office functionality. Since they provide their clients with complete operational and transactional functionality, their offering is broader in application. In addition to project-oriented organizations, ERP for services provides fully integrated operational functionality for non-project organizations, as in the health care sector.

ERP for Services and PSA Strategy

When evaluating solutions for service organizations, it's important to identify the particular organization's business strategy. Smaller PSOs tend to prefer best-of-breed PSA solutions that can integrate with their existing IT infrastructure. Typically, smaller service organizations have a financial package from vendors like Microsoft or Sage that serves as their back-office component, and they will purchase a PSA solution which provides capabilities for extensive time management, expense reporting, resource planning, portfolio management, and project management. Although this option ensures a lower total cost of ownership, the level of integration between PSA solutions and financials modules varies depending on the existing applications within an organization. Furthermore, PSA vendors will provide out-of-the-box integration with only some financial systems, customer relationship management (CRM) packages, and project management tools. In addition, the level of integration (including the level of field mapping, real-time processing use, and batch processing use) will vary from application to application. Consequently, identifying the right solution for an organization's particular infrastructure can be challenging.

For organizations seeking an integrated PSA solution, ERP vendors provide the complete back-office functionality critical to running any service organization. Although this ensures a seamless system for service organizations, it must be noted that many vendors likely will not provide the same level of functionality as their best-of-breed competitors. In general, ERP vendors tend to be stronger on the financials and project accounting side, and weaker in providing core portfolio management and resource planning functionality. Aside from Microsoft Dynamics SL (formerly Solomon), most ERP for services vendors typically target the mid-market and the enterprise market.

ERP for Services: Moving beyond PSA

ERP for service organizations can be divided into two categories:

1. Project-oriented organizations
2. Transactional or operational organizations

Project-oriented organizations fall under the PSA umbrella, and demand the typical business components offered by PSA solutions. However, ERP for service organizations also provide functionality for purely operational or transactional purposes. Vertical markets, such as health care, higher education, government, distribution, hospitality and nonprofit, all fall within the ERP for services category by virtue of delivering primarily transactional services. These markets demand standard back-office functionality (such as human resources and financials modules) to interface with their industry-specific needs. Consequently, numerous ERP vendors have developed integrated systems which offer end-to-end solutions to various vertical markets.

One need only refer to the massive government and health care sectors to recognize that PSA is only a fraction of the ERP for services market. In the health care sector, vendors are offering industry-specific functionality in patient management, health care portals, and clinical or medical document management. Vendors such as SAP, Oracle, and Lawson offer solutions specific to health care. For government services, numerous ERP vendors are offering industry-specific functionality in property management, asset management, utility or building management, and citizen relationship management. The government vertical market has attracted major ERP vendors such as SAP and Oracle, as well as smaller vendors like Hansen, Unit 4 Agresso, and Deltek for government contractors.

Is PSA Outdated?

In order to determine if the PSA label is outdated, it is important to define its meaning (see Professional Services Organizations Automate Their Processes, which provides an in-depth analysis of PSA and its definition). The traditional definition of a PSA solution is that it offers a set of tools which automate and track the processes of PSOs. Although this definition sounds generic, it must be noted that PSA solutions are specifically designed for organizations in the professional services marketplace.

Typically, information technology (IT) service organizations and professional services divisions categorize themselves as PSOs. What sets these types of organizations apart from other service organizations? One word: projects. Organizations seeking PSA solutions are project-oriented. Resource management, portfolio management, project billing, and project accounting are some of the core business requirements that PSOs demand. In reality, PSA is a subset of the ERP for services software category. Playing in the PSA space means that you are competing in specific vertical markets. It is for this very reason that in the last couple of years, some early PSA vendors have adopted a horizontal strategy which embraces the project portfolio management (PPM) space, by targeting internal IT departments across all vertical markets. In any event, it is clear that the PSA marketplace still has a place for best-of-breed vendors which target the small to medium-sized business (SMB) market, as well as for the larger ERP vendors which target the medium and enterprise services market. Consequently, although PSA may be outdated as an overarching software category, conceptually it still has a place as a vertical software category (similar to ERP for government and ERP for health care) in the ERP for services marketplace.

Summary

Organizations seeking PSA functionality need to be aware of the shift in the market place. During the last few years, the original PSA marketplace has experienced consolidation. Vendors such as Changepoint and Evolve have shifted their focus away from PSA. Consequently, users are faced either with smaller PSA vendors which have industry-specific expertise, or with larger ERP vendors which provide broad functionality for service organizations. In light of this choice, organizations must first identify their primary PSA functionality need.

Organizations looking to find the missing links between their financial system and their projects should still consider a best-of-breed PSA vendor that has extensive experience in their vertical market. Otherwise, ERP vendors may be more than adequate in providing the PSA functionality required, within a fully integrated system. Furthermore, it is important to note that as ERP vendors continue to gain market share in the PSA market, ERP for services will eventually develop stronger PPM functionality. Eventually, project driven organizations may be looking to ERP vendors for this type of functionality.