Exploring Software for Professional Services Organizations

The professional services delivery landscape has shifted dramatically in the last several years, especially during and in the aftermath of the pandemic. While there are many reasons for change, three core trends are driving this transformation:

  • The end-to-end lifecycle velocity has accelerated, as customers expect milestones to be met and deliverables to be achieved much faster.
  • The explosive growth of remote working is compelling professional services organizations to re-invent how they provide services from a distance, yet in a manner that enhances performance, efficiency, cost savings, and customer success.
  • Professional services organizations have an unprecedented amount of raw information at their disposal and must turn this into reliable and actionable business intelligence.

To thrive, grow, and increase their competitive advantages in the new normal, leading professional services organizations are adopting technology-led solutions that establish clarity and avoid confusion – or worse, chaos.

At the top of the list of must-have solutions is professional services automation (PSA) software. We will start this look at what is PSA software with a basic definition.

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Defining Professional Services Automation

PSA is an underlying business process infrastructure that establishes and enables a structured and standardized approach to the professional services delivery lifecycle. This lifecycle includes four core phases:

Phase 1 – development

Collaborating with customers and presenting strategies and proposals to meet their needs and goals.

Phase 2 – planning

Engaging active customers to create a comprehensive plan that covers various aspects such as budget, schedule, communications, risk management, etc.

Phase 3 – delivery

Executing the plan and managing change as required or desired.

Phase 4 – billing

Billing for all professional services rendered.

Because the end-to-end lifecycle starts with development and ends with billing, it is often referred to as the “quote-to-cash” process. We explore this process further in this article, when we take a deeper dive into the benefits of PSA software.

One of the best and simplest answers to the question “what is PSA software?” is provided by Service Performance Insight, a global research, consulting and training organization that helps professional services organizations make quantum improvements in productivity and profit:

“Professional service automation provides organizations with a solution to efficiently plan, sell, execute, and charge for work. Professional service automation gives team members the tools to collaborate and collect knowledge that can be further used to optimize business processes. The net effect of Professional service automation is a more productive and profitable business, as well as improved levels of predictability and client satisfaction.”

What Does PSA Software Do?

Professional services organizations have plenty of choices when it comes to choosing PSA software. Indeed, by 2025, the size of the global PSA software market is expected to reach $16 billion (all figures in USD), which represents a compound annual growth rate (CAGR) of 11.7 percent between 2020-2025.

This surge is driven by the overall expansion of the worldwide professional services sector, which is expected to jump from $5.428 trillion in 2021 to $7.063 trillion in 2025 – which is a CAGR of 7.9 percent.

What is PSA software on a functional level? Different PSA solutions have various functions and features. According to Service Performance Insight, generally, all highly rated and popular enterprise-grade solutions do the following:

  • Capture project revenue and cost data in a central database.
  • Provide a user interface that is consistent across all applications.
  • Co-locate costs and deliverables in the same place, so that productivity can be measured, analyzed, and improved at the territory, account, project and individual resource level.
  • Embed reporting and analytics within the application, alerting decision-makers to issues before they become problems.
  • Enable a more seamless audit trail to better identify success and failure points.
  • Provide enhanced support for global operations with multicurrency, multilingual applications, which conform to local regulations and taxes.
  • Lower administration costs due to fewer manual error-prone spreadsheets and costly data re-entry.
  • Establish one source of the truth, with real-time information visibility that is constantly updated.

Benefits of PSA Software as a PSO

PSA software drives significant operational performance advantages, which yields higher revenue and profit for professional services organizations. In this discussion on what is PSA software, three mission critical benefits stand out: reducing administrative and increasing billable hours, growing revenue, and achieving customer satisfaction.

Reducing administration and increasing billable hours

The most important benefit – and the essential purpose – of PSA software is to drive profitability, which results from reducing administration and increasing billable hours.

To achieve this primary goal, delivery teams must use professional services automation software to capture and report all time and expenses continuously and accurately.

And it is just as important for customers to receive ongoing information/visibility, so they can clearly make the connection between investment (what they are paying) and results (what they are getting).

This requirement is in some ways even more important and frankly, more challenging, especially when engagements involve embedded individuals or teams. These individuals, who can be either employees or contractors, work for the professional services organization.

However, it is more pragmatic, efficient, cost effective, and customer-focused for them to be deployed at a customer’s location (or possibly to shift back and forth).

In this context, the value of exceptional PSA software cannot be underestimated, because it is very easy for embedded individuals/teams to lose track of their time. When this happens, the professional services organization misses out on revenue, which adversely impacts margins and profitability.

Service Performance Insights’ Professional Services Maturity Benchmark report found that 85% of top-performing professional services organizations rely on PSA software, and have realized benefits including:

  • Increased employee billable utilization up to 14%
  • Increased average rate realization by 9%
  • Reduced average business days to source a customer project by 50%
  • Increased the positive impact to earnings before interest, taxes, depreciation, and amortization (EBITDA) up to 24%

Revenue growth

In order to drive revenue growth, it is crucial for professional services organizations to optimize the quote-to-cash process (which was briefly introduced earlier in this article).

Quote-to-cash is a macro process that involves transitioning legitimate sales opportunities into profitable customers. Professional services automation software plays a pivotal role helping leaders analyze engagements and financial results, so they can reduce inefficiencies and implement best practices that increase revenues.

Before moving on, it is valuable to note that while the precise scope and details of the quote-to-cash journey can vary from organization to organization, at a fundamental level it is viewed as a process that encompasses three core objectives:

  • The professional services organization receives full payment for all agreed-upon work.
  • All revenue has been applied and recorded.
  • The end-to-end lifecycle can be reported and analyzed.

Again, it is easy to appreciate how important PSA software is to achieve all these objectives. If there are any gaps or pitfalls along the way, then margins, revenues, and profitability will be impacted – and customers will be frustrated instead of satisfied.

Customer satisfaction

Speaking of customer satisfaction: it is an axiom that all organizations, regardless of their industry, size or sector, strive to make their customers happy. However, achieving customer satisfaction for professional services organizations is often especially challenging. There are a few reasons for this complexity and difficulty:

  • The goal for professional services organizations is to deliver value vs. sell a tangible product and move to subscription packages.
  • Engagements involve multiple cross-functional teams such as sales, finance, and delivery. While each has a distinct role, they must all work cohesively and in alignment. For example, if the sales team makes a promise that the delivery team cannot meet, then it is not a question of if the customer will be unhappy – it is a matter of when.
  • Engagements are typically complex, multi-faceted, and can last for months or years. And as discussed above, some engagements involve embedded teams, which adds to the complexity regarding time and expense billing.
  • Engagements are often mission-critical, and therefore fundamental to a customer’s strategic operation and growth plan.

Robust, highly-rated professional services automation software creates full visibility across the entire end-to-end engagement lifecycle, so that leaders can make smarter and faster decisions – leading to a tighter alignment with customers, and paving the way for customer success.

Read next: Integrating PSA Systems for Your Professional Services Organization

BI Analytics with PSA software provide real-time visibility into the health of the business.
BI Analytics with PSA software provide real-time visibility into the health of the business.

What Is the Difference Between ERP, CRM, and PSA Software?

As we explore what is PSA software, it is helpful to clarify the differences between three related, but distinct solutions in the professional services organization ecosystem: enterprise resource planning (ERP), customer relationship management (CRM), and PSA software.

ERP software

Enterprise resource planning is the basis of ERP software, and we see that G2.com defines ERP solutions as:

“[C]omplete, integrated systems that manage all aspects of a production-based or distribution business, aligning financial management, human resources, supply chain management, and manufacturing or distribution with the core function of accounting.

ERP systems are used to provide transparency into the entire business process by tracking all aspects of production or distribution, financials, and back office.

These expansive systems act as a central hub for end-to-end workflow and data. A variety of departments can view the information recorded by ERP systems to ensure the correct procedures are taking place.”

Integrating an ERP system and professional services automation solution allows them to “talk to each other.” As a result, operations can be automated for billing, budgeting, and shortening days sales outstanding (DSO) – all of which drive time-period insights about the financial health of engagements.

CRM software

Professional services organizations that integrate CRM software and PSA software provide advance visibility to their delivery teams on how resource demand will impact their current committed work. TrustRadius.com defines CRM solutions as:

“[A system that] synchronizes customer communications among business units. Sales, marketing and customer service can all get on the same page. It acts as a system of record for contacts and accounts throughout the customer lifecycle.

With CRM tools companies can track, automate, analyze, and optimize customer interactions. At its core, a CRM is a database of contact information and interaction history for each individual contact.

Multiple departments may be using the CRM within one organization. These include sales, marketing, customer success or service, and potentially other teams too.”

Visibility into quoting and contracting is also pivotal for forecasting financials and managing resources, which is a particularly difficult and costly pain point for many professional services organizations – as we discuss in the next section.

PSA software

We have already defined PSA software as a technology-led solution that enables organizations to efficiently plan, sell, execute, and charge for work. While there are many moving pieces to coordinate, manage, and optimize, one of the most vital – but as noted, also the most challenging – is resource management.

Resource Management

Why is resource management such a major pain point for professional services organizations? Essentially, it is because many organizations use PSA software that does not integrate with ERP and CRM systems – ultimately creating silos. According to research by Forrester:

“The technology industry has underserved professional services firms, leaving them with suboptimal utilization of legacy professional services automation (PSA) tools that are siloed within projects and not compatible with ERP/CRM applications in use.

Lacking the right solutions has led to resource management challenges like getting organizational support (72%), working with fragmented tools (66%), and being unable to turn resource management data into actionable insights (64%).

Only 25% of decision-makers strongly agree their resource management solution meets their organization’s needs, and only 16% strongly agree their organization has the data necessary to make informed staffing decisions.

It’s difficult to prove the value of fragmented tools, making it even more difficult to obtain organizational support.”

It is important to bear in mind that only some professional organizations are struggling with silos. As noted above, organizations that chose PSA software that seamlessly integrates with their ERP and CRM systems are achieving the reliable, real-time intelligence they need to make smarter and faster decisions regarding resource management and other core engagement aspects.

Read next: Finding The Right PSA Tool for Your Business

What Is Expected in a PSA Solution

As noted by Service Performance Insight, PSA software vendors segment their products into application modules that emphasize the management of costs, clients, and resources:

  • Opportunity Management: The management of customer information, sales activities, proposals, and contracts to improve sales effectiveness (some PSA solutions let a CRM tool handle opportunity management, and instead focus on resource demand management and forecasting functions based on the opportunities tracked in the CRM application).
  • Engagement Management: The management and control of the overall set of project deliverables.
  • Resource Management: The management processes associated with resources (people, material, equipment, etc.) that are used during the services delivery lifecycle. This also includes capacity planning and resource scheduling.
  • Project Management: The initiation, planning, execution, close and control of projects.
  • Project Accounting: The tracking of project-related costs to determine budget to actual costs and profitability.
  • Time and Expense Management: The capture and tracking of project-related time and expense information.
  • Invoice Management: The preparation and presentation of invoices based on information captured from the time and expense module or from pre-assigned time or project completion milestones.
  • Practice/Management Reporting: Core reports include project dashboards, resource management and utilization dashboards, capacity planning and forecasting, project profitability.

The Positive Impact of Customer Satisfaction

A Forrester survey of professional services organizations around the world found that the number one benefit of PSA adoption is improved customer satisfaction and advocacy. Both objectives are critical for acquiring new customers, and even more importantly, convincing existing customers to renew engagements – and ideally, serve as advocates and brand ambassadors. As noted by Service Performance Insight:

“Cultivating new and repeat clients is the lifeblood of the service industry. Professional services organizations are in business to provide knowledge, expertise and guidance. Their sales and marketing organizations must define target markets and solutions by understanding key client challenges.

The job of service sales and marketing is to generate awareness and identify and close opportunities. Services are intangible, so service sales and marketing must demonstrate concrete proof of the firm’s knowledge, experience, differentiation, and quality.”

In this sense, as we’ve looked to define, “what is PSA Software?” we can conclude that it involves various technologies, tools, features, and integrations all looking to achieve the same goal: generate loyal customers!

The Bottom Line

Professional services organizations must: consistently protect margins and generate healthy profits; empower and support all delivery team members at every stage of the end-to-end life cycle; and impress and satisfy increasingly demanding customers. The right PSA solution goes a long way to checking all of these boxes and making a transformative difference between struggling and thriving.

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