Readers know I have been hounding software vendors on why they are not investing in vertical functionality. After two decades of cloud computing we have very few choices in books of record for industry after industry – utility billing, retail merchandising, insurance claims processing, electronic medical records. I could go on and on.
One industry has, on the other hand, seen lots of investment from literally hundreds of vendors. It is the professional services sector in the form of PSA functionality. I reached out to Dave Hofferberth of Service Performance Insight to get nuggets on why this market has bucked the trend. I call him the “Godfather of PSA” – the image below is from a pioneering white paper he wrote on the market as far back as 1999
Describe the evolution of PSA over the last two decades.
I have seen wave after wave of vendors address this market. In the first wave there were pioneers like Niku, Evolve and Changepoint. Today the names are OpenAir (part of NetSuite), FinancialForce, Kimble and broader vendors like Deltek, Microsoft and Workday, just to name a few.
The vendors 20 years ago had a concept, but not too many buyers. In theory, PSA made sense. In reality, most professional services providers work their employees hard, so concepts like billable utilization were not something a tool needed to track, as they just worked their employees 60 hours each week. However, as organizations expanded and resources became more scarce, PS executives realized they needed a tool to manage the delivery of services so they could track all of the time and costs against tasks, or at least projects to more accurately calculate revenues and margins. PSA has become a necessary solution, just like CRM and financials. Nowadays, organizations in other industries also use PSA to manage the services component of their product-based business. Many of the PSA vendors took a break a little over a decade ago to concentrate on project portfolio management. PPM was to be the next wave, but most of the vendors realized that PSA was where they should be. There are plenty of good PPM vendors, and that market is strong as well, but PSA is a market unto itself, with different needs.
Describe your personal journey and how you came to be so closely aligned with PSA
At Aberdeen Research, I carved out a niche for myself in the PSA market because I was the analyst who brought PSA out to the market, the vendors knew for the market to thrive, it needed a lot of thought leadership, which Aberdeen could provide. Other analyst firms, Gartner, Forrester, Meta, Giga, AMR and others, continued to change the name from PSA to something else. Unfortunately, those analyst firms didn't give the time and effort to the market the way I did. In the end, I just concentrated on PSA, where other analysts might have had many other markets or technologies to work on, with PSA just being one of them. I would love to say how when I joined Oracle, professional services was Oracle’s fourth largest market, but I had nothing to do with it. It's just the company sold a lot to those organizations. Unfortunately, it was not an area they concentrated on, preferring to go head to head with SAP in all of the manufacturing, retail, and financial services markets.
But as you say you have helped hundreds of vendors look at the PSA market. Do vendors not have the competitive intelligence to see this market is somewhat crowded compared to other verticals? Is there safety in numbers?
The world is moving to a services-based economy, and there are so many companies that do not fully utilize business solutions to run professional services. I estimate that less than 15% of PSOs use a PSA solution. Our survey shows something like 60%, however, many organizations surveyed I have worked with over the past 20 years, and are focused on improvement. All of the PSA players I know are growing in excess of 20% annually, so it is obviously a good market for them. That is why the ERP players got in a few years ago. to sell a complete suite of solutions, including PSA, to their installed base and future customers.
Why does the professional services sector get the vertical investment when other much larger industries do not?
I am not sure why other industries don't get the software investment. All I know is that I have tried to demonstrate the financial value of PSA over the past 20 years, and it hasn't been too difficult , as you can imagine increasing billable utilization by 5% annually yields an additional 100 billable hours per consultant. It's pretty easy math. I think for the other markets and submarkets to get funding, they must do similar things to justify the value of their investment. I have long considered moving some of my research into other markets, however, the professional services market keeps me plenty busy.
BTW, I am headed up to Detroit to spend a day with Plex - a vendor which is bucking the trend by continuing to invest in another vertical - the manufacturing one.
