The financial services industry has reached something of a breaking point with accounting and insider trading scandals. Shortly after major media sources started commenting on the loss of confidence in corporate America, the July 30, 2002 New York Times led with the headline "Merrill Replaced Research Analyst Who Upset Enron." What are we to think when a firm providing objective advice to one set of customers replaces an analyst critical of another customer while the analyst's firm is soliciting lucrative business from the criticized customer? It is hard to imagine this kind of debacle in the IT industry, but we have our own potential for conflicts of interest.
Here are some things you can do to assess the objectivity of the advice you are getting from analysts, consultants and others in the IT industry.
First, determine the customers of the analyst or consultant providing you with recommendations. Obviously, most consultants work for corporate and government clients to assess, recommend, design and implement specific solutions. Some firms, especially those focused more on industry analysis, provide white papers and expert speakers for seminars or other training events while offering research to those vendors' potential customers. The fact that a firm provides services to both vendors and customers of those vendors is not a problem, as long as one sphere of influence does not interfere with the other.
Second, understand how potential conflicts are managed within an organization. First, analysts and consultants may decide to provide services only to vendors or only to IT organizations. In this case, there is no concern about the actions of part of the consulting firm impacting the revenue of another. In the second case, the analyst or consultant primarily provides services to one sector and has only marginal revenue from the other. For companies in this position, the risk of damaging a reputation in the dominant service area is not worth the marginal gains from compromised integrity. Finally, when analysts have strong relationships with vendors and IT customers, the business lines are kept organizationally separate much like we would expect in investment banking firms. When purchasing IT expertise, especially for vendor selection, be sure to understand which model your analyst or consultant uses.
Third, ask the question, especially of consultants, "Who are your partners?" Partnerships between vendors, system integrators, resellers and consultants benefit everyone in the IT acquisition process. Vendors have access to knowledgeable implementers who can help deliver a full solution; system integrators receive leads and the benefits of vendors' marketing resources; and customers can minimize expenses by using regional consultants in addition to the discounts they often receive when buying through the resale channel. The drawback of this model for the customer is that there may be mixed incentives for the consultants when recommending products from a partner and the partner's competition.
To effectively leverage the partner model, IT organizations should understand the appropriate use of partners and vendor-agnostic consultants. Vendor partners are ideal when you have a vendor-specific implementation such as an ERP or document management system. You will want someone who knows the ins and outs of those systems, has encountered implementation issues before and keeps up with the latest releases. Consultants involved in close relationships with vendors do this best. On the other hand, when running a multivendor integration project or selecting systems to address specific business needs, find a consultant who is committed to the business area or technology but does not have prior commitments to any vendors. You are more likely to benefit from a full assessment of competing technologies from them. At the end of the day, you will often find yourself using both types of consultants on a single project to leverage the benefits of each.
Every business has a potential conflict between serving the goals of the business (e.g., maximize profit) and the goals of the customer (e.g., maximize the value of goods and services), and the IT consulting arena is not an exception. So how do we tell when we are getting objective expertise and advice? As the Watergate informant Deep Throat noted: Follow the money. If you understand how your experts are making money, you will have a better understanding of what you are getting.
What do you think? Are potential conflicts of interest a real concern for you? I look forward to your feedback at firstname.lastname@example.org.
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