Robert Kugel's Analyst Perspectives

Cloud computing has changed the fundamental economics of business software, bringing new capabilities within reach of large numbers of small and midsize companies for the first time. Cloud-based ERP, for example, enables many midsize companies that in the past might have continued to use an entry-level accounting package to have more capable and sophisticated systems. The investment in software and IT capabilities to implement an ERP system on-premises is considerable enough that midsize companies often put up with a less-capable one. As well, midsize companies can now have their own call center operations because cloud-based offerings that support these operations require substantially lower up-front investments and have significantly lower operating costs than their on-premises counterparts. Consequently, a company that once outsourced all of its call center activities now has a greater degree of control of this strategic capability, often at a lower overall cost. The economic aspects of adopting the cloud are compelling, but there are other reasons as well. In some business software categories, even if the company has the IT resources and money to manage it on-premises, it makes better business sense to obtain this capability as a service in the cloud. For example, expense management is not a strategic process, and software users are often operating outside the company firewall. Professional services automation (PSA) is another category in which I expect many companies or divisions of companies to move to the cloud. Most professional services firms have fewer than 50 employees and lack the scale, cash or profit margins to pay for an on-premises system and the IT skills to support it. Professional services divisions that are adjuncts of companies in other lines of business (such as industrial equipment or software itself) are in a similar position because the economics do not justify an in-house investment. Cloud-based software as a service (SaaS) is the best economic and operating model for these groups. Moreover, today’s professional services organizations are likely to be mobile and distributed, which makes the cloud architecture’s Internet access a better fit. While the details differ from one offering to the next, PSA software suites typically support the three sets of capabilities professional services companies need in an integrated package: front office, back office and project management. Front-office processes include contact, opportunity and client management; back office includes invoicing, time and expense reporting, and project accounting, and may incorporate a full accounting suite; project management capabilities include engagement management, scheduling and assignments, work tracking, skills management and project forecasting. In addition, PSA functionality may also include collaboration and knowledge sharing capabilities. PSA software adds value by facilitating record-keeping and billing, improving project planning and management and increasing the effectiveness of a company’s sales and customer service efforts. By integrating the project management with front- and back-office functionality, it’s possible for professional services organizations to plan, staff, execute, bill and (most importantly) collect using a single system. The software must be tailored to the needs of the primary users: the consultants who don’t have time to master complicated software to manage projects and who are apt to neglect their record-keeping duties. Today there are many, often-new cloud-based PSA entrants offering most or all of the functionality needed by services organizations. These include Atlantic Global, Autotask, ConnectWise, FinancialForce, NetSuite OpenAir, PlanMill, ProjectHelp, Projector and Unanet Technologies. More than a decade ago I was writing about the need to automate professional services and provide professionals who work in project-type jobs with better tools to organize and manage their tasks. However, the uptake in this category has been slower than analysts had forecast despite the many sizable potential benefits. To be sure, bits and pieces of this existed then as now. People use their calendars with task lists and reminders, some of which is integrated with their email system. Many use spreadsheets to handle schedules and track costs; some (especially those in IT departments) use formal project management software. In the past, part this might have reflected a reluctance to be an early adopter or to put sensitive information “out there.” However, I suspect that an enduring issue is the need to take time from day-to-day business, learn a new way of doing business and entrust the business to new systems. However, given the potential to stream operations, accelerate cash flow, reduce time spent on administration and improve utilization rates, I expect professional services organizations and consultancies to increasingly adopt PSA software. Best Regards, Robert Kugel - SVP Research

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