Following the overexaggerated hype of the Y2K issue, IT professional services organizations (PSOs) have seen their market valuations drop significantly. In addition, several of the dot-com PSOs have disappeared altogether. And with the move toward integrated e-business solutions and all the related technology, process and personnel issues that must be considered, small wonder many IT-related services organizations are in the process of reinventing themselves.
Service-based organizations are in need of an enterprise solution that integrates all of the various tools, processes and finances to efficiently deploy its core resource,human capital. Enter Professional Services Automation (PSA) solutions, a relatively new breed of enterprise solution that has been built on the success of workforce management and the Internet to provide all types of service organizations benefits that positively affect their bottom lines.
PSA can be defined as a suite of integrated applications designed for service-based organizations that enable personnel across the services supply chain to become more productive and profitable. Those goals are attained by increasing efficiency through improved planning, increased collaboration and personnel utilization, and integrated knowledge management. The simple explanation is that PSA is an integrated suite of software solutions that focuses on making service-based organizations more efficient and profitable.
What Are the Benefits of PSA?
Despite the short history of PSA, users have given these solutions a thumbs-up. Although the reasons for deploying PSA vary,in terms of the requisite need for increased employee utilization, better financial management, globally dispensed knowledge and increased customer satisfaction and retention,PSA has given service organizations more than they bargained for in terms of better understanding their businesses.
This high-powered microscope into PSO operations can sometimes prove to be a double-edged sword. Some organizations that have used PSA to solve their most glaring problems discover they have uncovered other areas where issues exist. For these PSOs to truly reap the benefits of PSA, they must first align their business processes, begin to create best practices and prepare the workforce for the implementation of PSA. And these initiatives must start at the top. Research has shown time and again that PSA will deliver many benefits when implemented, but in order for the organization to really excel, it must first be prepared for PSA's adoption. The bottom line for executives is that PSA pays for itself quickly (usually within a year). The downside is that it creates work for individuals who thought their operations were running fine all along.
There are approximately 30 independent software vendors (ISVs) in the PSA marketplace. While their numbers could continue to rise this year, there inevitably will be a shakeout in the next few years. Based on the breadth and depth of their solutions, their vision for moving forward in the marketplace, the number of installations of their products and the industry and geographical focus, there are several companies that are well-positioned for the future. Some of these ISVs include Business Engine, Changepoint, Evolve, Niku, Novient and PeopleSoft.
In tracking this market over the past two-and-a-half years, we've seen it grow from some $300 million in 2000, to a projected size of more than $677 million by the end of this year. With annual growth rates expected to exceed 75 percent during the next four years, Aberdeen projects the market size to be approximately $3 billion by the end of 2004 (this projection is somewhat conservative compared with others that track this market). And PSA solutions are being sold in a variety of markets, not just IT-related service organizations.
PSA's Impact On VARs
PSA has opened up a strategically important and potentially lucrative market for those service organizations that want to create more intimate partnerships with their clients. Implementing PSA solutions for partners not only increases their own productivity and profitability, but their partners' as well. Through bundling a variety of services around PSA, including business-process reengineering, change management, solutions deployment and even business-process outsourcing, those organizations can add on services equivalent to three to 10 times the original software license price.
And PSA is not limited to U.S.-based PSOs. PSA solutions are being sold and implemented globally, and the trend for more non-U.S. sales will continue well into the future. The net affect for software, hardware and service solution providers alike is that PSA is an up-and-coming enterprise application that will drive increasing sales for all.
The PSA market is still in its infancy. Within the next several years, these solutions will expand in both breadth and depth to meet the diverse needs of the service organizations using them. With the economy moving from one that is manufacturing-based to one that is service-oriented, PSA will have an even greater impact on the economy. We believe the snowball is just beginning to roll down the hill and that PSA has a bright future in the delivery of professional services.
R. David Hofferberth is an analyst with Aberdeen Group who specializes in tracking the PSA market. He is currently researching how PSOs are utilizing PSA solutions to better manage the people, processes and technologies of their organizations. You can contact him at firstname.lastname@example.org.