The professional services industry is evolving, and there'a a significant role that professional services automation (PSA) software can play in that evolution, believes Tod Nielsen, CEO of cloud-based PSA vendor FinancialForce. A big part of that is moving out of the back-office into more of a customer-facing role, he told me in a wide-ranging interview yesterday:
I originally thought that PSA was a nice back-office optimization investment. It helps people figure out what they're doing, how do you get the right resource in the right place and all that stuff.
But PSA that's linked into the customer relationship — such as FinancialForce achieves through its close integration with the underlying Salesforce platform — can plug those back-office operations into what customers need. Nielsen cites research by Jeanne Urich of industry analyst SPI Research, which finds professional services organizations who use the FinancialForce solution can engage more effectively with customers:
It improves their financials as far as they can ensure they have the right people in the right place. The benefit to them is, they're going to get the next call — that they have less days sales outstanding, they have more effective billing and payments.
I never really thought about that technology as a 'revenue generator', but for the services organizations it really is.
A big part of FinancialForce's revenues come from its PSA offering, although as Nielsen told me, its financials offering is also growing fast despite customer inertia. For both products, a big plus is the seamless connection between the back-office functionality of FinancialForce and the front-office capabilities of the Salesforce platform on which it is built.
PSA and the productization of services
Changing trends in the services market are also helping FinancialForce, says Nielsen. The flipside of product companies adding services components discussed in part one of this interview is the productization of services. Whereas the services industry started out drawing up custom statements of work to deliver a specific outcome, more recently using offshore resources to lower the cost, nowadays providers are productizing offerings into fixed-price engagements. Some of the more sophisticated among them are using Salesforce's configure-price-quote (CPQ) functionality to formalize complex packaged offerings, says Nielsen:
We're seeing some of our service customers doing interesting things with us and Salesforce CPQ as an example, where CPQ is really talking about how do you get a packaged product out.
But while the proposition to customers may be changing, the perennial challenge for services companies is to find the right niche at the right time, says Nielsen:
In the services space, I think once you find your niche, you can do some really interesting things ...
The other thing which is interesting is you've got to jump when the actual take-off is going to happen. What I mean by that is, sometimes you can bet on a technology that's ahead of the curve.
Services innovation and the role of AI
He says he's been pleasantly surprised at the continuing vibrancy of regional services providers:
We're seeing a ton of innovation or excitement in the regional services space ... I'm surprised at how many great regional vendors that you're seeing in a whole bunch of different spaces that are seeing great success and moving forward ... It's just the diversity of opportunities that folks have.
But he does caution about some of the hype around AI and analytics as a growth area. He believes AI is not yet ready for the volume business market, where customers are still trying to get a handle on reliable reporting:
I think it's really early days. If you put all your eggs in the AI basket, you'd better have big solid companies that are jumping in fast, because the smaller folks aren't necessarily doing it yet.
I hear frequently, 'Hey, I'd love predictive analytics. That's great. But first I'd just like a report. I'd just like to know what's going on. That other stuff is someday going to be nice, but today just let me know how much I sold!'
In the two years since taking the reins as CEO at FinancialForce, Nielsen believes he's taken the company "from startup stage to putting in the operational systems" for sustainable growth. Although the company was well on the way to $100m when he took over, he found the company "less mature" than he'd expected. The past two years have therefore been about putting in place the right systems, and the management team, to be able to scale the business to new heights:
It's taken longer than I would have thought to get us to this point where I feel really good about the organization and the scale and the processes.
It's refreshing to hear a vendor CEO admit that AI might be important for some customers but that it's way ahead of where most of them are at. Nielsen told me that last calendar year saw him do meetings with a total of 367 separate customers and prospects. That kind of dedication to listening tends to keep your feet on the ground in terms of understanding what customers really need.
The challenge for FinancialForce is to show that it remains in touch with what its customers need to do today, at the same time as being ready for the changes customers will have to negotiate in the coming months and years. The professional services business is going to have to productize its offerings, at the same time as product companies servitize theirs.
FinancialForce finds itself on the cusp of those changes — a niche that could be set to grow exponentially, if the timing is right. Harnessing that opportunity depends on the company holding its nerve and continuing to listen carefully to customers.