Are vendors and advisors getting too cosy?

We completed our survey looking at the world of third-party sourcing advisors this week, with the high-level results being discussed by my friend Ed Nair, over at Global Services Media

One of the key takeways, which I wanted to share with you, is the importance of the sourcing advisor / vendor relationship.  Of the 114 advisors who completed their section of the study, almost half of them revealed they frequently get business through their relationships with vendors.  We always knew that vendors refer advisors in certain client instances, but not to this extent:


 

Sourcing Advisor Study

Normally, you would only expect a vendor to refer a third-party advisor to their client, if there was limited opportunity of a sole-source deal, and it needed an advisor to accelerate the process, with the hope their existing relationship would eventually win them the business.  There is nothing sinister in that.

Naturally, a vendor prefers to refer an advisor with whom it prefers working, where it understands its downselection and sourcing methodology.  However, the overwhelming extent to which this is happening gives me some pause for thought.  Vendors have been referring their preferred consultants and analysts to their clients for years.  Consultants can provide education and unbiased advice (which we discussed here), whether it's about outsourcing, software selection, governance, risk management, and so on.  However, when you hear about some of the cosy industry relationships where one vendor is always referring the same advisor, you have to pause for breath and think "is this crossing the line between educating a client and overly-influencing a client?". 

So… while the smart vendors and advisors are investing in their mutual relationships – which is critical in this industry (there would be no outsourcing industry without the investment of vendors in their global delivery infrastructures), buyers need to be aware of these dynamics and ensure they have other validation points to underpin their decisions.  The need for independent forums, research and informal peer networking has never been as great as it is today.

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17 Comments

  1. Posted September 6, 2008 at 7:03 pm | Permalink

    It is like any other business referrals – when you are absolutely sure that the sourcing advisor will provide unbiased advice to its clientele and when you had gained confidence in the services offered by the sourcing advisor. If you look at it from a different perspective – the client is asking for help and the vendor, having his reputation and future business with this client at stake, always refer to the best people from his/her network.

    For me it is win-win situation for both the client and vendors and if you stretch that a little further, you can include the sourcing advisor.

  2. Posted September 6, 2008 at 7:05 pm | Permalink

    Phil,

    No doubt vendors are paying more attention to sourcing advisors. The question is: are all sourcing advisors doing this to the same extent or are there a few who clearly mark the boundaries between vendors and clients. Also, is there a clear bias in vendor recommendations (or are they just saying “these are the 2 – 3 best sourcing advisors”)?

    The answers to these will help decide whether vendors and sourcing advisors are getting too cosy.

  3. Naomi Bloom
    Posted September 7, 2008 at 8:16 am | Permalink

    Once upon a time, in the world of enterprise software selection and in-house implementation, the relationships between specific systems integrators, who also offered consulting services on IT strategy and software selection (and even provided services to the software vendors on new product design and development), and the vendors that they always seemed to recommend (and this was in the days before the short list of software vendors had become shorter than short) was well understood to be extremely tight. In fact, one of today’s largest enterprise software vendors, which had chosen initially to do most of its own applications implementation work, found it VERY difficult to sell its applications because none of the SIs had much implementation work to gain when this vendor was selected. Once the vendor in question changed their implementation model to more of a partner ecosystem model, their applications sold surprisingly more widely.

    It would be interesting to know exactly which ITO and BPO providers recommend exactly which sourcing advisors and then to see which of the resulting advised deals went to exactly which ITO and BPO providers as a starting point for seeing just what these referral webs look like. Is it really just the fact that major outsourcing providers routinely point their prospects to the same well-qualified list of advisors? Are any of those advisors also doing billable work for (or providing joint marketing opportunities for) those providers? Perhaps there is a propensity among certain types of clients (by size, geography, focus of outsourcing interest, current enterprise software relationships?)to favor certain types of outsourcing advisors?

    Inquiring minds always want to know more.

  4. Posted September 7, 2008 at 9:14 am | Permalink

    Naomi, you raise some excellent points.

    What was clear from the data in the study, was the fact that those advisors with deep vendor knowledge, good vendor relationships and a proven methodology fared better in the eyes of customers both in terms of performance and value-for-money. Clearly, healthy relationships between vendors and advisors are a strong plus. And you can’t fault the vendor for recommending their preferred advisors, provided there is no bias involved. I believe the best method to get the information in which you are interested, is to ask the vendors discreetly why they recommend certain advisors – i.e. do they feel beholden to an advisor in particular way, or do they genuinely feel that an advisor will perform a great job in evaluating their client’s sourcing options, and are – quite simply – easy to work with. I didn’t cover this specific dynamic in this study (we kept it at a more general level), but would be an interesting area to explore in a future study…curious and curiouser

    PF.

  5. Posted September 8, 2008 at 11:15 am | Permalink

    I have always been uncomfortable with advisor/vendor relationships that are too close. One of my partners and I have an ongoing debate about whether we should actively pursue vendor relationships. She is in favor, I am not.

    When a vendor has approached me with a referral, I have always had the answer “thank you for thinking of us–you do understand that there will be no favorable treatment as a result, right?”

    More often than not, I don’t get that referral. So I suspect there is definitely a possibility that, as the post’s tile suggests, the relationship between certain pairs might be a little too tight.

    Naomi’s point should not be missed. Buyers should ask their advisor if they have ever taken money from the vendor. Ideally, the answer will always be no, but if it is, then a lot more questions need to be asked before determining whether there truly is a lack of bias.

  6. David
    Posted September 9, 2008 at 8:10 am | Permalink

    Phil,

    I think most of us reading this excellent post know we need to read “between the lines” a little :)

    This data reveals that there is clearly too much quid-pro-quo activity in the industry right now between some particular vendors and advisors (I emphasize the word “some” here). Clients have to be more vigilant to understand what is going on – these types of business relationships are becoming more common in today’s corporate climate, and senior executives acquiring these tyes of consulting services need to be smart enough know the game. I believe many already are,

    David

  7. Brian Tumpowsky
    Posted September 9, 2008 at 1:55 pm | Permalink

    Any business relationship becomes ‘too cozy’ if decisions are made without the integrity, sound judgment, and fact-based analysis that is necessary. As a sourcing advisor, I have a vendor network of relationships that allows me to keep abreast of what’s going on at different service vendor firms and in the market, gives me a good starting place for developing a vendor list based on the client’s needs, and allows me to compare and contrast what different vendors are doing. What I do with that information and those relationships is a different story. If I don’t act on behalf of my client and cater to what they really need, then I’m not doing my job.

    It has always been a hit on the big, global vendors (e.g. IBM, Accenture, etc.) that it’s tough for them to be objective when they could be consulting the client on the overall sourcing initiative — PWC, let’s say in the IBM case — and then recommending the use of their own services. Now that’s really cozy!

  8. Dr Vikram Venkateswaran
    Posted September 10, 2008 at 6:12 am | Permalink

    The problem we have faced off late in certain application outsourcing engagements is the presence of consultants who act as gate keepers. Well I am not sure whether these consultants were ‘cosing’ up to some of the other vendors, but they did give us a tough time on a lot of issues. Take the solution specifications for example.
    Till we get to know what exactly the limiting factors for the solutions. It would be difficult for us to craft a solution for the same. Now it hardly a surprise when some of the other vendors had the exact solution.

    Now there are a lot of issues with the multi vendor environment, and it would be difficult for the consultant not to ‘lean’ towards one vendor but the consultant acting as a gatekeeper is a real difficult scenario. We have now stopped bidding for projects which involve the particular consultant till the results suggest otherwise.

  9. Paul Paulose
    Posted September 10, 2008 at 9:06 am | Permalink

    The advisors should give an unbiased advise to their clients. The client should not approach the vendor to refer an advisor.

    I have been advising Fortune 500 companies on global sourcing. Always i will protect the interest of the client and educate client and vendors on the current sourcing environment. In many situations, vendors are not aware of client’s expectations and client may not have clear sourcing strategy.

    Companies sourcing do not sufficiently invest in internal preparation and organizational change management activities. So they will rely on vendors to provide advise.

    Paul Paulose

  10. Posted September 10, 2008 at 9:07 am | Permalink

    Hi Phil
    Its an interesting point you have made. In my opinion this is fine as long as the advisor clearly distinguishes his personal opinion to facts. Like say in a product selection, if an advisor is able to put across objective facts for the different choices and put his personal opinion seperately. Shows that the onus is also on the clients to do their due diligence across multiple sources.

    Srinivasan K Govindarajan

  11. Stephen
    Posted September 10, 2008 at 9:31 am | Permalink

    Wow – this blows me away, Phil. Buyers need to know what they are getting into when they get advisor referrals – seems to be far too much collusion going on in the industry these days.

  12. Amit Mittal
    Posted September 10, 2008 at 11:01 am | Permalink

    I would think there is a fine line one has to observe as a consultant in any field. A advisory can only work with accepted / proven models to retain his professionalism ( talking only of the outsourcing models he uses to support ‘advises’)

    I would however, point out at the start itself, that I find the work of most sourcing advisories to be below standard and ill-informed in the very least. You would seem to gravitate to a sourcing advisory when you are out of information in the public domain and given that the BPO industry is all of 8 years old in the offshore model, it happens once too often.

    The good counter to the ‘taints’ with the advisories would be good informed research from established proffessionals and research firms like AMR.

    However, once someone signs a sourcing advisory he also does not blindly accept any / all analysis and recommendations from the advisory and that is the key irrespective of whether the venodor sponsors the advisory or otherwise.

    Also, there is a unique advantage in this model of the prospect/client actually getting to know the vendor in question more deeply and accurately because of the advisory’s relationship. As long as facts are requested in support of all of the advisory’s assertions, this should be a fair game.

  13. Michael
    Posted September 10, 2008 at 11:41 am | Permalink

    We are all in business and it is the nature of the beast to look after those that look after you.
    We operate and live in a remarkably small world and it should be no surprise to run into the ususal suspects during an outsourcing exercise.
    There may well be a propensity to recommend those you know if they have previously done a good job or even had a prior business relationship.
    Is this wrong or just human nature?

  14. Posted September 10, 2008 at 6:45 pm | Permalink

    A recommendation is always fair game, and appreciated by anyone–provider, buyer, or advisor–who receives it.

    But in this business reciprocating with preferential treatment is just not acceptable and will ultimately damage the reputation of all involved.

    Personally, I dont think the line is fuzzy at all.

  15. Posted September 10, 2008 at 7:27 pm | Permalink

    Esteban -

    I think you’ve summed up this issue perfectly. Close vendor/advisor relationships are vital, and the study shows that those advisors with solid vendor relationships also perform better with the buyers.

    However, there is a line that should not be crossed, and that line is pretty clear…

    PF

  16. Rajesh Ranjan
    Posted September 17, 2008 at 1:39 pm | Permalink

    Hi Phil,

    Pretty interesting results.

    Just wondering how the result would like if advisors identify frequency of different sources relative to each other than individually (as the case here) on the lead generation. The reason I am asking this because clearly, quite a few advisors have chosen more than one source as the ‘frequently’ used. So, to me the relative order of frequency of these sources is not coming out very clearly. Possibly that was not the intent of this survey anyways, but if you have captured this information, it would be great if you could share it.

  17. Posted September 17, 2008 at 10:52 pm | Permalink

    Hello Rajesh – nice to hear from you. And thanks for a typical analyst’s response ;)

    This is not a scientific study – it’s very simple: how do adivsors get business? Answer: half of them frequently through vendor relationships – and also through word-of-mouth and direct selling. The crux of the issue is that vendors like referring their preferred advisors – be it Equaterra, TPI, Everest or Bob’s Boutique. Buyers need to ask questions in these scenarios and also conduct their own due diligence on where to get balanced advice.

    PF

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