September Service Performance Insight Winter Hazel Drive 25 Boroughwood Place. Telephone: Telephone:

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1 A Service Performance Insight White Paper Service Compass: Charting the Course to Professional Service Excellence How choosing the right path for automation can improve profitability, utilization and the strength of your services business September 2010 Service Performance Insight 6260 Winter Hazel Drive 25 Boroughwood Place Liberty Township, OH USA Hillsborough, CA USA Telephone: Telephone:

2 TABLE OF CONTENTS Executive Overview... 1 What is Service Automation (SA)?... 1 Why SA?... 3 The Benefits of SA... 3 Streamlined Opportunity Management... 3 Increased Project and Personnel Productivity... 4 Business Process Management (BPM)... 4 Enhanced Collaboration... 5 Improved Financial Management, Governance and Compliance... 5 Reduced IT Costs... 6 Integration Enhances SA s Benefits... 6 NetSuite OpenAir the SA Market Leader... 7 SA Market Adoption... 9 Conclusions... 9 About Service Performance Insight FIGURES Figure 1: SA Integration Points... 7 Figure 2: The OpenAir Dashboard... 8 Figure 3: OpenAir is the Market Leader in SA... 9 TABLES Table 1: Organizational Benefits of Service Automation... 7 Table 2: Performance Improvements Realized with NetSuite OpenAir... 8 i

3 EXECUTIVE OVERVIEW Service Performance Insight recently completed the 2010 Professional Services Business Application Market Adoption report based on responses from 244 service organizations. The purpose of the study was to provide PS executives and software application providers insight into the level of market adoption, integration and satisfaction with core Professional Service business applications. This whitepaper provides excerpts from the PS Market Adoption study and focuses on the benefits of Service Automation. In this white paper Service Performance Insight will define Service Automation solutions and highlight their benefits for project and servicedriven organizations. SPI Research will also show how the market has evolved over the past decade with a focus on the market leader in SA solutions, NetSuite OpenAir. In good times or bad, project and service-driven organizations are in business to solve complex problems for their clients. Whether they are engineers, accountants or IT service providers, they do this through a combination of applying expert, highly skilled resources with unique methodologies and tools. The resulting work product is a successful technology installation, engineering design or accounting audit. Increasingly they are paid upon completion of phases, milestones or deliverables or achieving specific client objectives. The key to profitability in services is accurate estimating, control and management of resources and project costs and accurate and timely billing. As the global economy has shifted from products to become servicedriven, almost all companies are grappling with the increased complexity of selling, delivering and getting paid for services. Service-specific software applications have become a key enabler for organizations going through the transformation of becoming service and solution providers. WHAT IS SERVICE AUTOMATION (SA)? Service Performance Insight uses the term SA due to the increasing number of terms and acronyms used to define this market. Terms include: Professional Service Automation (PSA), Services Resource Planning (SRP), Enterprise Project Management (EPM), Project Portfolio Management (PPM), Enterprise Service Automation (ESA), and others. SPI Research defines Service Automation (SA) as: An integrated suite of applications used to increase operational visibility and improve process efficiency and control in project and service-driven organizations Service Automation provides organizations with a foundation to efficiently plan, sell, execute and charge for work by providing the systems basis for initiation, planning, execution, close and control of projects and services. SA helps manage service delivery forecasting, resource management, project management, and collaboration combined with accurate time and expense capture. Service Performance Insight Page 1

4 SA has become increasingly popular as the need to improve the management and control of service execution has become more important, and the applications have matured to become easy to implement and use. Creating and maintaining a complex set of spreadsheets is no longer a viable alternative for even the smallest PSOs, as spreadsheets do not provide the necessary visibility into planned and current work, and they do not automatically adjust to altering conditions as projects change. SPI Research believes that Professional Service Organizations (PSOs) with over ten employees should consider using SA. Without SA, poorly managed project and resource changes can result in significantly lower utilization, revenue, profitability and client satisfaction. SA helps improve both service execution and project control through the integration of people, processes and costs. Service Automation solutions differ in the extent to which they manage the services business, but all have core functionality to manage resources (people, equipment, material, etc.) and projects, as well as the associated costs. SA is not merely a few integrated applications it has an underlying business process infrastructure that provides a structured and standardized approach to the service delivery lifecycle. The core modules within SA help automate the service delivery lifecycle (SDL) which include managing opportunities and then staffing, project management, and collaboration coupled with accurate time & expense capture. Leading SA providers have many, if not all, of the following modules: Project Management: The initiation, planning, execution, close and control of projects and project status. Project Accounting: The tracking of project-related costs to determine both planned to actual costs and project profitability. Resource Management: The management processes associated with resources (people, skill sets, material, equipment, etc.) used during the service delivery lifecycle. Time & Expense Management: The capture and tracking of project-related time and expense information. Invoice and Billing Management: The preparation and presentation of invoices based on information captured from the Time & Expense management module or from pre-assigned time or project-completion milestones. Revenue Management: Based on billing rules and revenue recognition policies, provides revenue forecasting and reporting. Reporting and Dashboards: Reports, dashboards and powerful business analysis tools to provide real-time visibility and control. Opportunity Management: The management of client information, sales activities, proposals, and contracts to improve sales effectiveness. Service Performance Insight Page 2

5 Engagement Management: The management and control of overall project activity with an account. Collaboration Management: The management of information used to create effective communication and on-going knowledge capture and sharing during the service delivery lifecycle. WHY SA? From the outset, SA enabled PSOs to automate core project delivery processes with visibility into the resources and costs necessary to run the business. SA s core focus has always been on resource management and the delivery of services. However, SA has recently broadened its spectrum to capture knowledge and disseminate information in the form of sophisticated reporting and business intelligence solutions. SA also enables organizations to collaborate across the service supply chain. Many SA vendors offer the capability for partners, clients and consultants to access project information that provides visibility and upto-date status information, to assure the work is done on time and costs are kept to a minimum. Whereas five years ago this capability was a selling feature for the PSA vendors, today it is pretty much mandatory as clients demand increased visibility to the work. THE BENEFITS OF SA Organizations that implement Service Automation solutions improve operational efficiency, employee productivity and management visibility. Core modules provide project management, project accounting, resource management, time and expense tracking and revenue management and forecasting. Every organization that selects an SA solution does it for somewhat different reasons. But, when all is said and done, SA is undertaken to increase operational visibility, improve resource and project management and enhance financial performance. The following sections provide a description of five of the most common benefits of SA. As Service Automation solutions have matured they have become easier to use and implement. Today they provide enhanced workflow and business process automation; easier integration to core financial and productivity applications; and more intuitive and graphical reporting and analysis tools. All of these advances mean today s SA solutions deliver rapid ROI without high on-going operating costs. Streamlined Opportunity Management While the initial thrust of the SA market centered squarely on service execution, it became apparent that the information within the solution could also support winning business. The data collected gives executives a better understanding of the types of services sold, and which had the greatest impact on their bottom line. SA gives them the information necessary to understand who their most profitable clients and what their most profitable project types are, what services are most popular, and at what price points they can win business. Service Performance Insight Page 3

6 SA gives executives the ability to forecast and track opportunities. Visibility into the resources required to complete the work increases billable utilization along the way. Executives can also reuse sales proposals, presentations and project plans for similar services each time improving upon prior efforts to increase sales and estimating effectiveness going forward. Increased Project and Personnel Productivity Service Automation solutions increase productivity in a number of ways. To begin, these solutions enable project and resource managers to select the most qualified personnel based on their capabilities as well as their cost. SA supports resource scheduling in a way that optimizes utilization and productivity. As projects are staffed and work begins, SA helps control the scope of work throughout the services delivery lifecycle. An added benefit of project visibility is that risks can be identified and mitigated. A key ingredient in improving productivity is the ability to capture, track and analyze every hour subcontractors and employees work. Time and expense capture is the core mechanism for client billing and workforce productivity. SA provides natural and easy-to-use time and expense capture which prompts consultants to enter time, associate time with specific projects and allows resource managers to see what types of resources and skills are most in demand to plan future resource needs. The primary SA objective is to maximize billable utilization and minimize non-productive and administrative time. Although few organizations allow their staff to bid on projects, this capability is becoming more important in terms of keeping employees and subcontractors informed and motivated based on visibility to upcoming exciting new projects. Business Process Management (BPM) The concept of business process management in PSOs has become a hot topic over the past five years. Organizations have begun to streamline processes eliminating waste while increasing visibility into the work and the people who do it. As a result, organizations that are heavily dependent on their workforce have moved to solutions that increase automation, visibility, and financial accountability. BPM offers the ability for organizations to continuously improve and to take advantage of industry best practices, which in turn drives up quality and profits. SA has always had a BPM component. PSOs have used these solutions to standardize business processes and improve financial performance. While not used as a comprehensive business-process reengineering (BPR) tool, SA has been a significant driver to help PSOs understand best practices and begin BPR initiatives; SPI Research expects this trend to continue as BPM gains in popularity. Specific business processes supported by SA solutions include: Quote to Cash - Sales and project tracking Service Performance Insight Page 4

7 Prospect to Project - Project initiation, execution and status Estimating and planned versus actual time and cost Resource scheduling, tracking and reporting Time and expense capture, processing and reporting Periodic invoicing Enhanced Collaboration Although the SA market is best known for optimizing services execution, one of the areas that have executive attention is the ability of service automation to help employees collaborate more effectively. SA provides the foundation and infrastructure for teams to work on projects as a virtual team. Each team member has access to a structured work environment with all of the relevant documents, spreadsheets, presentations and other notes to keep them informed and current with project activities. They also have the ability to communicate in real-time within the workspace, giving each team member the ability to contribute and succeed as part of a team rather than working in isolation. SPI Research predicts that this capability will be important to market growth in the future. Improved Financial Management, Governance and Compliance It is hardly a revolutionary idea that keeping thorough and precise financial records is an important part of running a successful business. However, in these times of economic uncertainty corporations are under increased financial scrutiny and are expected to provide a higher degree of oversight and compliance than ever before. Enterprise operations are now under the regulatory microscope. Whereas comprehensive financial record keeping has been traditionally thought of as a backoffice business process, it has now become a necessity for all PSO employees. Potential clients and investors are increasingly concerned with business ethics. An organization s success is dependent on the ability to understand and comply with complex government regulations and revenue recognition rules. Most SA applications conform to current government regulations and provide required financial transparency and visibility. In PSOs SA has the added benefit of shortening the invoice collection cycle. Billing errors are reduced because accurate information captured by the solution is used to bill, thereby eliminating manual processes required to transfer time and expense information to invoices. SA also provides drill down capabilities so clients can further analyze details of the invoice to gain a better understanding of charge origination. The net result for PSOs is that SA can help reduce Days Sales Outstanding (DSO), free up cash, and improve client relations, something that Service Performance Insight considers to be a key selling feature of SA. Service Performance Insight Page 5

8 Reduced IT Costs Based on the prevalence and power of SaaS-based SA solutions, IT implementation and on-going operating costs have been slashed. Most SaaS-based solutions can be implemented in weeks, not months or years. Standard integration is provided to commonly used financial and CRM applications. And since the vendor is responsible for all upgrades and enhancements, support for complex, custom programming is no longer required. Today s SaaS-based SA applications provide powerful workflow modeling, graphical user interfaces and support for a widearray of insightful reports and dashboards. All of this adds up to PS organization ability to rapidly implement SaaS-based SA solutions using operations personnel rather than dedicated IT personnel. This new model also means on-going operating costs are contained and predictable. INTEGRATION ENHANCES SA S BENEFITS In the past (and unfortunately still today) many organizations relied on manual or internally-developed information systems. Many of these systems, such as stand-alone time and expense capture, project management and resource management, provide departmental managers with the information they need to do their job, but would benefit the entire organization if the information was integrated with the core financial solution, so executives could track work and revenue in realtime, and make decisions that improve efficiency and profitability. SPI Research has seen service organizations move toward greater integration of applications, such as CRM, financials, Human Capital Management (HCM) and Business Intelligence (BI) with SA. Informed decision-making increasingly depends on an integrated information infrastructure. Integration improves visibility into core PS assets the people, processes and costs required to complete work. Project accounting is the foundation for PS profitability. Increased application integration reduces the need for organizations to support a wide variety of disparate extensions, customizations and integrations. If on-going integration support costs can be held to a minimum, the IT staff then has the time and resources necessary to incorporate additional application capabilities such as business process support and training, or more reporting and analysis to improve visibility. And of course with less customization and integration, maintenance and support, organizations need less headcount to run and maintain the application. The net effect is a reduction in IT cost. Service Performance Insight s research reveals quantifiable proof of the value of integrated applications. Organizations that invest in SA and integrate it with the core financial solution significantly outperform organizations that implement SA with no integration (Table 1). Service Performance Insight Page 6

9 Table 1: Organizational Benefits of Service Automation Key Performance Indicator No SA Nonintegrated SA Integrated SA Utilization 73.7% 76.0% 81.0% Project Gross Margin 33.4% 37.7% 35.2% EBITDA 19.5% 23.4% 29.2% Source: Service Performance Insight, September 2010 This table shows the importance of SA by itself. PSOs improve overall productivity in terms of utilization, which then drives increases in bottom-line profitability. However, integration between SA and the core financial solution extends these benefits much further. Ideally SA solutions take advantage of pre-built integration modules with leading business solutions, Service Resource Planning suites (like NetSuite SRP) are integrated out-of-the-box with the core financial solution, and therefore do not require on-going integration expense. The benefits gained with integrated SA are significant. This integration provides greater information visibility to other departments, which helps them more effectively plan and execute. Figure 1 highlights some of the points of information sharing across various business applications. For instance, information shared between SA and CRM help sales to more accurately and confidently create proposals, which meet financial and timing targets, given SA s ability to provide detailed project cost and schedule information. Figure 1: SA Integration Points Hours & expenses to invoice Project cost & profit Project costs fed into pricing Initiation & completion dates Current projects w/client Profitability by client, project, region, consultant, etc. Skills required for work Schedule conflicts Employee cost Vacation/training schedules Source: Service Performance Insight, September 2010 NETSUITE OPENAIR THE SA MARKET LEADER NetSuite has been on a tear lately. Over the past two years the growing SaaS solution provider has focused significant time and effort on Service Performance Insight Page 7

10 becoming the market leader in integrated business solutions for the services sector. Without a strong PSA solution this would not have been possible. To meet the company s goals it acquired both OpenAir and QuickArrow, two of the leading providers of PSA solutions. According to SPI Research s Market Adoption report, NetSuite OpenAir garnered top honors in market-share (16.7%), which is four-times its nearest competitor combined with good user satisfaction with an average user satisfaction score of 3.88 out of 5. The reported level of integration between NetSuite OpenAir and core financial applications was 42.5%. The average size of organization using NetSuite OpenAir was 187 employees. NetSuite OpenAir is a cloud-based SA solution that automates the core business processes of project and service-driven organizations. As seen in Table 2, NetSuite OpenAir significantly increases performance for the organizations that use it. These improvements result in greater productivity and profitability, as highlighted in the table. Table 2: Performance Improvements Realized with NetSuite OpenAir KPI OpenAir No SA Improvement Number of firms surveyed NA Billable percentage of employees 74.0% 67.3% 10.0% Revenue per billable employee (1,000) $220K $174K 26.4% Revenue in Backlog 47.7% 37.0% 28.9% Project Margin 34.6% 28.4% 21.8% Earnings before Income Taxes, Depreciation and Amortization (EBITDA) 22.3% 19.5% 14.4% Source: Service Performance Insight, September 2010 OpenAir s easy-to-use graphical user interface and robust reporting capabilities help PSOs better evaluate performance in real-time, which shows up in improved bottom-line performance (Figure 2). Figure 2: The OpenAir Dashboard Source: Service Performance Insight, September 2010 Service Performance Insight Page 8

11 SA Market Adoption From Service Performance Insight s recent research, Figure 3 shows that OpenAir (with the acquisition of QuickArrow), is the market leader with over 16% of the market. Surprisingly, 30% of the organizations surveyed do not use a SA Solution; 19% report using other which implies spreadsheets and smaller vendors; and 14% use a homegrown solution. This means the major SA providers account for only 35% of the market. Early SA adopters have realized significant benefits in terms of increased utilization, project margins and profits. The foresight of these early adopters has paved the way for the next wave of users to take advantage of more robust products and more financially stable solution providers. Figure 3: OpenAir is the Market Leader in SA Changepoint Tenrox All Others Homegrown NetSuite OpenAir Other None 0% 5% 10% 15% 20% 25% 30% Percentage of Observations CONCLUSIONS Source: Service Performance Insight, September 2010 Service Automation solutions provide the systems basis for initiation, planning, execution, close and control of projects and services. SA helps manage service delivery forecasting, staffing, project management, and collaboration, combined with accurate and timely time and expense capture. It has become increasingly popular as the need to improve the management and control of service delivery has become more important, and the applications have matured to become easy to use and implement. Now almost all PSOs with over ten employees consider using SA. Market adoption, although surprisingly low with 30% of PS organizations not using a solution at all and an additional 34% reporting using other or homegrown is increasing as more project and servicedriven organizations see the productivity and financial benefits of deploying SA. Organizations that have integrated SA with their core financial solution have seen even greater benefits. Service Performance Insight Page 9

12 OpenAir s SA solution is the industry leader with almost 20% of the market. But the market is still wide open with more and more PS executives are planning to move from manual or spreadsheet-based systems to a commercial SA solution. An increased demand for control of projects and resources combined with the complexities of accurate time and expense capture and billing dictate an increasing number of service and project-driven organizations will make the move to SA. As the market leader, NetSuite OpenAir is well-positioned to take advantage of significant market growth. Service Performance Insight Page 10

13 About Service Performance Insight Jeanne Urich, Service Performance Insight Managing Director, provides strategic consulting, research and operational advice to improve and transform service and project-oriented organizations. She is a thought leader and recognized expert in Professional Services. She is the co-author of the ground breaking Professional Service Maturity Model benchmark used by over 2,500 project-oriented organizations to diagnose and improve their performance. She is a featured speaker and author for major software solution providers and industry associations. She has a BA in Math and Computer Science (Magna Cum Laude and Phi Beta Kappa) from Vanderbilt University and completed Executive Management programs in Marketing and Finance at Stanford and Brown University. Contact Jeanne at jeanne.urich@spiresearch.com Phone: (650) Dave Hofferberth, Service Performance Insight Managing Director, has over 25 years experience in information technology (IT) serving as an industry analyst, product director and consultant. Hofferberth s research is focused on the services economy, and in particular, on white-collar productivity issues and the technologies that help people perform at their highest capacity. Hofferberth s background is extensive in services performance beginning in the early 1980 s, where he conducted studies on white-collar productivity in the banking, technology, energy and construction sectors. Hofferberth earned an MBA from Duke University and a BS in Industrial Engineering from the University of Tennessee. He is also a licensed Professional Engineer (PE). He serves on the advisory board of righterp, and UK-based research organization. Contact Dave at david.hofferberth@spiresearch.com Phone: (513) Service Performance Insight (SPI Research) is a globally-focused research and consulting firm specializing in the services sector. The firm closely follows professional services organizations (PSOs) both Embedded and Consultants/Systems Integrators and the independent software vendors (ISVs) that develop business solutions to make people more productive and profitable. SPI Research pays particular attention to the integration of the three key assets of a PSO: its people, (business) processes and capital, and how technology can help optimize their use. SPI Research has developed the definitive business model that shows how PSOs can improve organizational performance by improving five core aspects of their business. They include: 1) Vision, Strategy and Culture; 2) Finance and Operations; 3) Human Capital Alignment; 4) Service Execution; and 5) Client Relationships. Visit for more information on Service Performance Insight Service Performance Insight Page 11