Survey reveals growing interest in business solutions
by Jeanne Urich and Dave Hofferberth, SPI Research
Business application adoption by all sizes and types of billable service organizations has steadily gained momentum since professional services (PS) industry-specific business applications came to market over a decade ago. While every billable service organization uses some type of system (albeit manual spreadsheets) to capture costs, bill for time and account for revenue, many do not take advantage of the available business solutions that could help them improve operational performance.
In May 2010, 244 billable professional service organizations (PSOs) representing a variety of PS disciplines and organization sizes responded to SPI Research’s business application survey. Respondents include PS business executives and CEOs of independent firms.
The report provides PS executives and software application providers insight into the level of market adoption, integration and satisfaction with core PS business applications. The report also examines which PS industry sectors and applications are moving to the cloud and how soon.
Market adoption is improving
SPI Research found varied levels of application adoption, with ERP or “Financials” most prevalent, CRM second and remote service delivery third. Reported market adoption of PSA, HCM and BI was lower than anticipated.
Professional service software providers break down their applications into a variety of core product modules that emphasize the management of costs, clients and resources. The three most commonly used applications include:
∆ Financial management (ERP) is the primary application required to accurately collect, bill and report financial transactions. Traditional ERP providers dominate the PS financial application segment. Intuit’s QuickBooks is the overall leading platform, particularly for PSOs with fewer than 100 employees. Microsoft, Sage, Deltek and NetSuite are the primary ERP providers for mid-size organizations, and Oracle and SAP are the dominant ERP suppliers for large organizations.
Although Oracle and SAP supply core financial functionality, their PS clients are increasingly using dedicated cloud-based CRM and PSA applications. These traditional vendors should take note of the erosion of their service industry client base toward easier-to-use, cheaper-to-deploy, PS-specific business applications. As the PS business gains stature and prominence within traditional technology manufacturing companies, PS executives are likely to defect toward more PS-specific, cloud-based applications.
∆ Client relationship management (CRM) supports the management of client relationships and is designed to improve sales and marketing effectiveness. In terms of PS adoption, surprisingly, commercial CRM adoption at 86 percent is rapidly closing in on ERP adoption (94 percent). This surge in service industry CRM adoption underscores the increased emphasis service organizations are placing on service selling and marketing.
Approximately 14 percent of respondents reported the use of “none or homegrown,” and 22 percent use “other” CRM applications, which means 64 percent use a CRM solution from an industry-recognized software provider. Salesforce.com is the most dominant application provider in the study with 34 percent market share. No other vendor in any category comes close to this commanding market share.
∆ Professional service automation (PSA) solutions provide the systems basis for initiation, planning, execution, close and control of projects and resource management. Unexpectedly, 44 percent of respondents reported using “none or homegrown” as their PSA solution; an additional 21 percent reported “other” while only 35 percent use a solution from an industry-recognized software provider. This lack of PSA penetration represents significant market opportunity for both ERP and PSA-specific providers.
NetSuite, having acquired OpenAir and QuickArrow, is the PSA market-share leader with over 16 percent of the market.
Other applications gaining momentum in the PS sector are outlined below. While not as commonly used as the three mentioned previously, more sophisticated PS operations are starting to deploy HCM, BI and remote service delivery tools.
∆ Remote service delivery and collaboration tools allow staff to conduct Web-based meetings and collaborate from anywhere. According to the survey, 81 percent of respondents use remote service delivery and Web-based conferencing solutions, which demonstrates a high rate of user adoption. The survey indicates the use of these tools has rapidly become the “ante to play” for service providers, and the tools will soon be as ubiquitous and necessary as office and email productivity tools. Webex and Citrix are the market-share leaders in remote service delivery and collaboration tools.
∆ Human capital management (HCM) covers payroll, time and labor tracking, tax and benefits. Most ERP applications provide some level of human resource management, but a new breed of human capital management applications is coming to the fore to offer recruiting, skill tracking and training, performance, career and compensation management from recruitment through termination.
Only 30 percent of respondents use dedicated HCM solutions from either their ERP provider or from specialized HCM providers, which signifies extremely low HCM service sector penetration. ADP, a traditional payroll outsourcing firm, garnered top market-share honors in the HCM category. SPI Research predicts HCM adoption will rapidly improve as new cloud-based tools become an essential ingredient for turbo-charging the people-based service business.
∆ Business intelligence (BI) is the integration, management, use, analysis and reporting of business information to improve decision-making. BI service industry penetration has continued to grow and now stands at 43 percent. Primary providers are the market-share leader SAP, having acquired Business Objects, closely followed by IBM, Microsoft, Oracle and Informatica.
PS industry moves to cloud solutions
One of the most interesting trends is the service sector movement toward cloud-based solutions. Both large and small organizations demonstrate a strong preference for software-as-a-service (SaaS) solutions with 46 percent of the organizations expressing a preference for SaaS, as compared to 25 percent that prefer on-premise applications.
For firms planning to move their applications to the cloud, most plan to do so within three years, which means the SaaS sector will continue its double-digit revenue and market-share growth.
The roots of SaaS actually go back to timesharing in the 1980s. When re-envisioned a decade ago as a means of providing “browser-based” or “thin-client” application access, it would have been hard to predict the sweeping changes cloud-based computing would make on both the software industry and application users.
This study shows the service industry overwhelmingly endorses SaaS, and many firms are transitioning to it. Cloud-adoption has been greatest for PSA, closely followed by CRM, HCM and BI. ERP is the only application segment where the majority of organizations have and plan to maintain an on-premise solution.
The promise of SaaS
So what’s behind the service industry stampede to cloud-based applications? Several factors make SaaS a perfect fit for the service industry, but one the most important considerations is that service providers are increasingly operating virtual organizations.
The days of hiring by geography and dispatching hordes of consultants to work for months or years on a client site are gone. Project team size and duration continue to decline, and engagements are becoming smaller and more iterative, making flexible staffing and virtual deployment a necessity.
A growing phenomenon has been less work performed on the client site, not only to minimize travel and facility costs, but also because virtual projects are proving to be more successful and take advantage of the best available resources, regardless of location. Cloud computing is clearly the best solution for virtual organizations and reflects and supports their Internet-intensive work style.
The second important consideration is that most service organizations do not have numerous or, in many cases any, IT staff. This makes the prospect of running a large on-premise data center with a robust IT staff and support for loads of customizations an investment many service executives abhor. In most service executive’s minds, headcount represents revenue, not a cost, so the idea of turning responsibility for application development and maintenance over to a cloud-based vendor makes a lot of sense.
Cloud computing offers the big advantage of requiring limited to no IT staff, and installations typically take weeks instead of the months or years required by on-premise solutions. Cloud computing allows service executives to do what they do best — solve complex business problems for clients, without having to worry about a lot of IT staff.
Another straw tipping the balance toward SaaS is the applications themselves. The leading service industry SaaS providers have done a superb job of focusing on the business processes essential to the service industry. As SaaS applications have matured, the vendors have focused great attention on ease-of-use, powerful business process workflow tools and the ability to easily modify screens, forms and reports to reflect unique business requirements.
All of this adds up to service-specific applications, which reflect and represent best practices. Since services are people-based businesses, service executives are more than willing to change business processes if they see a better way to run the business. Most service-specific cloud solutions offer excellent out-of-the-box support for core business processes like quote-to-cash, prospect-to-project, time and expense capture, and billing and project accounting.
Lastly, beyond all the hype, the economics of SaaS are compelling. SaaS applications outshine on-premise applications in terms of upfront cost, deployment time and total cost of ownership.
Just like outsourcing, the allure of lower cost was the initial reason organizations started to shift to SaaS, but the reason they stay with SaaS is because it gives them greater control over their business with less hassle at a predictable cost. SaaS may not be right for the largest and most complex service organizations, but it is a solution worth considering for the majority of PSOs.
The allure of business solutions
The PS sector has developed quite an appetite for business solutions in the past decade. From the smallest PSOs to the largest, the sector continues to increase its use of information as a competitive, productivity tool to increase performance.
The market is changing, with new solution providers and different deployment options available, making it much easier and more cost-effective to implement business applications.