The dot-com age of the mid-nineties introduced the application hosting model to the business world. Thus, a plethora of companies offering a wide range of software as a service (SaaS) typically offered hosted legacy customer relationship management (CRM) and enterprise resource planning (ERP) systems, allowing many to join the Internet revolution. Unfortunately with the sudden burst of the dot-com bubble in 2001, the application services provider (ASP) business model never really had a chance to prove its worth to the business world. Only in the last couple of years have we seen software giants like Salesforce.com prove that the ASP model can work. Banking on the recent momentum of this model, a number of professional services automation (PSA) solutions have built business models on ASP technology.
For professional services organizations (PSOs) that have limited resources and limited information technology (IT) infrastructures, the ASP model represents an attractive offering. Smaller PSOs may benefit from the quick deployment and affordable initial price point provided by hosted PSA solutions. In addition, increased security measures have ensured the critical protection of sensitive data within these organizations. Consequently, a niche group of PSA vendors have emerged to serve PSOs in the small to medium business (SMB) market.
Niche Vendors Gravitate to ASP
The state of today's PSA vendor market has pushed the majority of smaller vendors to reposition their offerings to deliver affordable solutions that require minimal maintenance. As larger ERP vendors (such as SAP, Oracle, Deltek, and Epicor) expanded their offering by delivering fully integrated PSA solutions, many small best-of-breed PSA vendors have moved to an ASP business model. Formerly, best-of-breed vendors such as Changepoint (now Compuware) and Evolve (now Primavera) dominated the entire PSA market. But the increasing trend of ERP giants capturing the larger PSA deals has forced many of the leading niche PSA players to shift their focus to project portfolio management (PPM) for internal IT, and also forced smaller PSA vendors to develop an ASP model to cater to SMBs (for additional details, refer to Enterprise Resource Planning for Services, and Professional Services Automation: Where Do You Draw the Line?).
For organizations considering a PSA offering based on an ASP business model, the following vendors are worth evaluating:
Unanet's ASP offering targets the government contractor market. In addition to the typical time, expense, resource management, and project management, Unanet also delivers the earned value management and compliance functionality which is critical to government. Typical of other small vendors, it offers the PSA components that bridge project management to the back office to provide integration hooks into common systems, such as SAP, Oracle, and Microsoft Project for project management capabilities.
QuickArrow offers an on-demand ASP model focused primarily on billable services organizations. Its client base consists primarily of professional services and IT organizations. Its PSA components bridge project management and CRM capabilities with the back office. Its focus on IT also provides integrations hook to help desk solutions.
OpenAir offers an ASP solution that is broader in focus for both internal and external clients. In addition to the typical IT and consulting practices to which PSA vendors cater, OpenAir has gained some traction in the legal and advertising and public relations (PR) industries. In terms of modules, it offers above-average demand management and knowledge management capabilities, in conjunction with project management and resource management.
Project Invision provides an on-demand hosted PSA offering that has its roots in PPM. Project Invision offers strong portfolio management and project compliance capabilities. However, as a new arrival in the PSA market, it does not offer expense management, and is weak in providing out-of-the-box hooks to the back office.
Autotask offers an ASP solution specifically focused on the IT services provider market. It provides the necessary functionality to tie all the services delivered by IT organizations, including professional services, customer support, and business development. Autotask's strength lies in its workflow management capabilities and out-of-the-box CRM and help desk modules.
Tenrox provides a best-of-breed web-based solution primarily for PSOs. It delivers above-average functionality in time and billing, and provides complete bidirectional integration with Microsoft Project. In addition, it has developed integration hooks with major accounting and ERP applications. It is important to note that although it has an ASP offering, most of its installs are hosted by its clients internally.
Typical PSA Hosted Architecture
The majority of hosted PSA solutions provide "middle office" capabilities bridging the gap between front-office CRM and project management applications with back-office accounting and ERP systems. A critical factor for these applications is their integration capabilities for linking all these systems together. The level of integration for the various modules will also determine the effectiveness of the solutions offered. PSA solutions offer varying levels of integration, that can range from simple import and export of text files, to seamless bidirectional real-time transfer of data. The following diagram depicts a typical architecture delivered by hosted PSA solutions:
Depending on a vendor's focus, there may be an emphasis on certain modules or an inclusion of additional capabilities in areas such as CRM, project management, and knowledge management, which may be critical to the vertical markets they serve. A good example would be a vendor that primarily markets to IT service providers. Offering comprehensive help desk and CRM capabilities are essential in winning their business.
Although technology is pivotal in maintaining a competitive edge, most SMB PSOs have limited time and resources to dedicate to IT infrastructure. In today's service-centric business world, expectations of rapid and high-quality service from PSOs are the norm. As a result, a number of small service organizations have recently adopted a hosted model to ensure their competitive edge, while reducing their cost in maintaining new software and hardware.
ASPs empower their clients to leverage the Internet to automate and streamline their business processes. Some of the advantages of hosting a PSA solution are enumerated below:
- Hosted solutions can be factored in as an operational expense, as opposed to a large purchase that requires an initial large investment for licensing and professional services.
- Organizations with limited IT staff and infrastructure can easily support the PSA service.
- Financial risks are reduced, since it's based on a pay-as-you-go model that lets you take advantage of the solution before a significant investment is made.
- Where there is an urgency to implement a solution, the hosted option provides access immediately (there is minimal time devoted to implementation).
For smaller PSOs, the total cost of ownership (TCO) of hosted PSA solutions provide them with a competitive edge, with minimal strain on their resources.
There are two critical factors to consider when evaluating a hosted PSA solution. The first is the maturity of an organization's IT infrastructure. If one's organization has the necessary infrastructure and resources to manage all business applications and the supporting hardware and software, the licensing of PSA software tends to provide a higher long-term return on investment (ROI) by internally managing the application at a lower cost, and by providing additional flexibility to customize the solution to meet the organization's specific business requirements. For smaller organizations that are less mature, the hosted PSA option will provide a quick solution to automate business processes without replacing existing systems.
The second critical factor to consider is the industry-specific functionality relevant to an organization's business. When considering a niche PSA vendor, industry experience will play a significant role in the solution's fit to the organization. Industries such as government contracting may demand earned value management capabilities, while software companies may demand help desk integration hooks or functionality as a part of the PSA offering. It is for this very reason that many niche PSA players have built their business model by delivering industry-specific expertise and functionality, while providing an affordable solution through an ASP offering.