To date, professional services automation (PSA) has been confined to IT services organisations, management consultants and a small number of early adopters in the legal profession. The vast majority of lawyers, engineers, architects and tax advisors still rely on Microsoft Word, filing cabinets and calculators. But a new breed of PSA vendor is emerging and some established players are rebranding themselves to attack the market for the automation of professional services organisations (PSOs). But is there a cohesive market to attack - and who is best positioned to grab the lion's share?
What is PSA?
A PSO is a catch-all term for any service-based organisation. IT service providers, management consultants, engineers, architects, lawyers, accountants and tax advisors are all examples of PSOs - there is no homogeneous PSO market. Each of the business areas is different. They even use different terminology (a lawyer works on 'cases', an accountant with 'files'). However, a PSO's business typically comprises a large number of deadline, pattern or project-based activities with myriad associated communications, not only internally, but also with sub-contractors and clients.
Traditionally, service organisations have relied on manual approaches and fragmented office applications to manage their business processes. Many still do so today. They fill in timesheets and expense claim forms by hand and use spreadsheets to calculate time and expenses for each project. They send bills out by fax, or even by mail.
"Unfortunately, traditional paper-based processes are costly and time-consuming," comments Henk Nieuwenhuis, director of enterprise service automation at PeopleSoft. "For example, it may take days to collect information from every part of the company to summarise the current status of a project. With increasing competition squeezing service companies' profit margins, there is an urgent need to make savings by automating processes and eliminating paper as much as possible."
PSA applications attempt to deliver business benefits to a PSO by automating the core business processes they perform, including some or all of the following:
* Business development - the activities involved in acquiring business, such as customer information, sales activities, proposals and contracts;
* Resource management - processes associated with staffing planning, allocation and assessment;
* Engagement management - processes associated with client communications and project management;
* Practice management - processes that provide strategic insight on practice operations and planning;
* Practice development - utilising existing work and new innovations to convert project accomplishments into new products;
* Time and expense management - processes to expedite invoicing and billing to the client.
Skills in demand
In addition to some common business processes, PSOs share a common problem. The worldwide skills shortage is having a marked effect in the sectors leading the charge to install PSA systems, with the IT consulting/services sector already experiencing numerous mergers and acquisitions as the skills shortage constricts organic growth. Other market sectors are close behind, with skills shortages becoming a problem for senior management in fields as diverse as architecture, the National Health Service and other governmental sectors.
"The emergence of a global skills shortage means the most valuable employees - those with in-demand skills - are driving the agenda and are increasingly expressing a range of issues by voting with their feet," comments Steven Armstrong, marketing director with PSA vendor Memba. "Issues such as the corporate culture and working environment, increasing resistance to excessive/difficult travel, the desire for a better work/life balance and spiralling salaries are placing increased pressure on margins. Organisations are also finding the cost of higher salaries and other benefits cannot necessarily be passed on to clients. The only answer, albeit a harder proposition than just paying more and charging clients more, is to become more efficient in the service supply chain."
The PSA market potential is $4.8bn (£3.2bn) and is set to grow at an annual rate of 75 per cent over the next four years, according to the latest Aberdeen Group report, though much of that is currently attributable to IT services companies and management consultancies. Such companies are typically highly IT aware in marked contrast to the far more conservative organisations that make up the bulk of PSOs.
The automation of core business processes has a long and chequered past. The last mass migration to an application which automated business processes occurred when large corporates implemented enterprise resource planning (ERP) systems. There were mixed results, with many claiming the systems were overly complex and expensive to deploy and maintain. Companies targeted by ERP vendors were a fairly homogeneous group with similar requirements from their manufacturing and supply chain systems. In marked contrast, PSOs differ widely, as do their views of the benefits of automation.
"There is increasing use of IT systems by professionals such as lawyers, accountants and others," comments Alistair Maughan, a partner with technology lawyers Shaw Pittman. "For example, a number of firms offer a computerised debt collection service, or conveyancing services which are heavily reliant on IT packages and, similarly, standard will-writing packages. Some volume litigation services are also heavily reliant on IT.
Maughan claims IT is "ideal for dealing with the 'drudgery' - filling in forms and so on". He says in many cases it allows work to be done by unqualified staff, thereby increasing turnover and volume. But it will not remove the real value of lawyers, accountants and other professionals, which is in providing 'added value' to clients, he adds.
"Lawyers like to feel they are in the business of 'selling brain-power', thinking laterally around problems and coming up with solutions to client-specific, non-standard problems. That is where the big law firms make most of their money. Standard IT packages may well be a threat to the smaller, high street end of the market, but they will not make a significant impact on the high-value end of the market," says Maughan.
He states that law firms such as Shaw Pittman make significant use of technology and it makes them more efficient. "Examples include voice-recognition technology, document management systems and transaction 'deal rooms', where we can use an extranet to store all the documents on a deal and make them available on a password-protected basis for clients. All these are standard parts of our operation and although not all firms use them, pretty soon most will begin to do so."
Defining the market
The market for PSA systems is a broad one. But according to Jacques-Louis Chereau, CEO at Memba, it can be segmented. Chereau contends there is a fundamental difference between project-based PSOs and what he terms 'case' or 'pattern'-based PSOs. "A project-based business can be addressed using tools such as Microsoft Project combined with billing and time-keeping. The deployment of a major IT system for a client is a good example of a project-based business process," he comments.
"Pattern or case-based processes are typically small and the mechanisms are common knowledge, at least to those experienced in the company. Contract management in a corporate legal department is a good example. The work is high-volume and deadline-based. Here the PSA system takes over to ensure that even new people know how it works. The client can have access to the system and can monitor and track. For example, the PSA system frees up a lawyer from answering follow-up questions, ultimately creating even more billable hours."
The market for PSA products is beginning to expand beyond IT services firms and early adopters into other verticals, making it an increasingly attractive target for companies such as Peoplesoft and Oracle. Many ERP providers are hurrying to put their PSA offerings in place. A number of traditional ERP providers, such as SAP, JD Edwards and Lawson, have seen the need to have PSA software as part of their offering.
Consulting organisations with capabilities in IT consulting and best practice have also seen that PSA vendors are receiving substantial revenue streams from activities and value-added services associated with PSA, including strategic planning, business process re-engineering, change management, systems integration, training and business process outsourcing. Revenue streams generated by these activities are rising in line with the PSA market, in contrast with many other areas of IT spending that remain either flat or in decline.
Will there be a pay day for PSA?
Not everyone is convinced of a rosy future for PSA vendors. "The PSA hype is everywhere. And like customer relationship management (CRM) before it, the term has become almost meaningless," comments Trevor Cole, business development director for Eclipse Computing. "It can cover anything from a simple project management tool right up to a complete services management system. Just as the CRM acronym was picked up by every opportunist supplier trying to sell contact management software, so it is with PSA. Suddenly, every piece of software for time recording and billing or project management is an integrated PSA system," he argues.
"The big boys in the market, which until recently considered themselves ERP vendors, now display the PSA label. Not surprisingly, they are strong when it comes to human resources and project accounting, but their offerings lack the appropriate planning tools that so many customers need," Cole adds.
He contends that the scale of the potential opportunity is measured by Microsoft's entry into the fray. The company has chosen to offer its Project application in partnership with a former time recording and billing software supplier. However, Cole believes the current crop of PSA systems is falling way short of the mark and failing to deliver the functionality and integration that is required to improve business productivity levels within a service-based organisation. "Of course, because there are so many different types of service organisation in the market, it is ludicrous to believe a single product can meet everybody's needs. For example, companies in the property sector will need effective property appraisal systems. In the construction industry, on the other hand, most important are high-level project planning tools which can manage complex, nested projects. The components will be different for every business - something too many of the companies hyping PSA products fail to acknowledge."
There are as many views on the future of PSA as there are wannabe PSA market leaders. To date, no one has been able to successfully segment, target and dominate the market. And yet changes are coming. "Professional services are often criticised for billing out by time and not presenting, sometimes to their own discredit, justification for the 'invisible work' they put in," comments Len Palmer, managing director of SharpOWL. "Relaxation of the rules governing audit in accounting and moves to 'no win, no fee' in the law profession reflect an overall change to present open and visible reporting of work done in the professional service sector as a whole. This can only be by linking together organisations and their clients on the one system.
"After winning business, professional service companies need to start thinking about retaining those customers by working together with them," he continues. "Papers go missing and information is never conveyed to the client, cutting people out of the loop. In addition, traditional invoices and generalised billing categories fail to show what skills, time and expense have gone into a project. PSA software gives a client a single view of all work by providing a comprehensive invoice over the Web. This furthers the relationship by enabling the customer to monitor activity and make comment."
The trick, for the canny vendor, is to create sufficient value and functionality in their PSA application that it can be applied to automating the core business processes of any PSO. The technology must move from being a vertical market offering to a broad horizontal approach. At the same time, it has to be achieved without the application turning into a leviathan ERP-style system.
According to Memba's Chereau, the company's stated aim is to become 'the Sage of PSA'. It won't be an easy journey, especially given that vendors such as Microsoft and Oracle are showing a marked interest in automating professional service provision.