How to Use Consulting Advice on Software Selection

Executive Summary

  • Consulting advice on software selection is horrible because of the bias of vendor alignment.
  • Consulting companies are in software selection to maximize billing hours.

Introduction

Consulting companies are major influencers for enterprise software purchasing decisions. Usually, one of the major consulting companies is permanently resident as an enterprise software customer. The best place to start in understanding the advice provided by large consulting companies is to analyze their institutional structure. This tends to apply to small consulting companies as well. Understanding how consulting companies make their money is also critical to understanding how they work. As they say in political thrillers and investigative journalism, “follow the money.” There are several lines of thought regarding predicting behavior. One theory says that the individual can determine behavior of other individuals in an institution. History provides examples of this—that is, individuals who set their own agendas. However, the incentives of the institution are a more reliable guide to behavior. Individuals whose behavior diverges from the incentives of the institution tend to be short- lived in that institution.

Therefore, while consulting companies are made up of a large number of people, their policy can be determined by both observing their incentives and by observing their output. Output is a far more predictive measurement than an institution’s statements about itself because for the most part, an institution’s behavior diverges greatly (and I mean this quite generally) from its statements. For instance, the worst thing that one could do to understand how an oil company works is to go to its website and take the statements it makes there at face value.

The Institutional Structure of Consulting Firms

Consulting companies have the following features, which are important to interpreting their advice on software selection

  1. Consulting companies make their money based upon billing an hourly rate for their employees.
  2. Their employees cannot be capable in all—or even a small percentage—of the software in a category. Because enterprise software is complex, ordinarily a consultant will work in both a single software vendor’s application, as well as specialize in a single module within that brand. For instance, I work in SAP, which is the largest enterprise software vendor. I have worked in different modules, but I tend to get most of my work from a single module.
  3. Therefore, they tend to have a deep specialization in a relatively small number of applications. Unsurprisingly, they tend to specialize in the largest applications. Specializing in a large and popular application allows a consulting company to get the highest percentage of billing hours out of their resources.
  4. The people that make software recommendations to clients are called “partners.” Partners are the senior management of the consulting companies. There are different levels of partners, with the most senior partners driving the policy of the consulting company. In fact, some of the policies (e.g., the policies regarding which major vendors they should focus on in their consulting practices) were decided long ago, and these policies are not decided or re-determined in any way periodically.
  5. The partners at the major consulting companies are very motivated individuals with very high compensation who must meet yearly consulting services sales quotas. In many ways, being a partner is a cushy job and the only people a partner really answers to is other partners. However, their yearly services sales quota hangs over them. In order to meet these sales quotas, they must place their consultants and this means selling or placing the consultants that have experience in the applications from the major software vendors (although consulting companies do occasionally place independent contractors on projects, they prefer not to as their margin on an independent consultant is much less than their margin on a full time employee).
  6. Consulting companies are extremely hierarchical—I would say approaching that of a military organization. The resources below the partner level have no say in how the organization is managed. In fact, they don’t even have a say on the technical recommendations that they make if they happen to contradict with the position that the partner wants to send to the client. If a recommendation is to be provided by a consultant, which may affect sales of consulting services, the recommendation will be run past the partner first. The partner will then tell the consultant what his or her “professional opinion” on the matter will be. It should be relatively clear from the points listed above, but partners must be able to convince their clients to hire their consultants, who are trained in the applications from the major vendors.

Can Such Generalities be Applied to So Many Consulting Companies?

People not familiar with the consulting market may say,

“Wait a second. These consulting companies have many consultants at all different levels. Surely, when individuals work for them, a variety of viewpoints are available to consulting clients.”

Actually no.

This is a common misconception.

The consultants below the partner level have no influence on what recommendations are made. The partner discusses what will be recommended with their consultants before meeting with the client. And this not only applies to full-time employees.

Direct Experiences from Working with Many SAP Consulting Companies

When I have worked for consulting companies as an independent consultant (a so-called subcontractor) I was repeatedly pressured and told what viewpoints I should give the client. The advice I give must fit with the story that the partner wants to tell. However, they want to create the illusion that their opinion is my personal opinion. In fact, even the partners at the level I work with do not set policy. These policies, such as which software to recommend, are set far above the partners that actually work on projects, at the senior partner level.

The Bias of Vendor Association

In order to convince their clients to staff their resources, they must also convince their clients to implement the software of the major vendors, as that is the expertise that their consultants offer. Thus, consulting companies have a conflict of interest when making recommendations regarding software selection.

To prove this, let’s take a hypothetical example.

Let’s imagine a new partner joins IBM or Deloitte or any of the other major consulting companies (it does not matter which because they all operate in a similar fashion). Let’s further imagine that this partner is truly focused on selecting the best software on the market to meet his or her client’s requirements. An objective analysis would find that some of the best software available on the market to meet the client’s needs is not the software for which the partner has trained resources. If the partner were “honest” and put the client’s interests above his own, the partner would admit this fact to the client, increasing the likelihood that the client chooses a software vendor for which the partner has no resources that can be staffed. (At this point one might say that the partner could hire independent contractors to perform consulting, taking a lower margin on them. However, the contract market is well-developed for the major applications only, so for anything but the larger vendors, this is not an option.) As soon as the client chooses software, which the partner cannot staff, the partner loses out on both the services revenue and also their ability to control the implementation.

If the client were to select an application from a smaller vendor, in most cases the consultants will come from that vendor as well. A partner that cannot staff as many resources on projects will eventually fail to meet their quota, and will be asked to leave the consulting company. Therefore, even if a partner wanted to (and having worked with many of them I can say that most of them don’t care either way), they could not provide objective advice to their clients. This is the problem when any entity—not just consulting—receives a benefit if they advise a client to do one thing or another. This conflict of interest is rampant also in the financial industry, where recommendations are often made based upon the result that would maximize fees. Before moving on to the topic of how to interpret a consulting company’s advice, I will finish off with a short story about how the large consulting companies operate. I was at one time a manager at a large consulting company.

Consulting Firm Corruption

During software training, I met a person who was in a management position at a company that was implementing the software I worked with. At the beginning of the training session we went around the room and stated the company for whom we worked. Once this person found out the company I worked for, he approached me and asked if I could pass on information to someone in my company about our support in selecting a consulting company for their implementation. I want to emphasize that this person was very clear that they wanted my company’s help in selecting a consulting company, and not for actually performing the implementation. I passed on this information to the partner to whom I reported. Because this was a fresh opportunity, I was besieged by phone calls from partners from around the country about how to handle the situation. One partner was of the opinion that the appropriate approach was to accept the consulting selection project under the false pretense that we would help them find the best consulting company for their needs, but in actual fact, we would impress them so much with what we had to offer that the client would simply call off the selection process and choose us instead. To carry out this partner’s strategy, we would need to suppress information from the consulting companies that we were evaluating, but adjust the information so that it never seemed complete, and essentially stall the process so that the outcome would work to our advantage. It was not one rogue partner that recommended this approach, they all advised the same thing in one shape or form. The selection phase of a project (be it software selection or implementation partner selection) is much shorter than the implementation stage and uses far fewer resources. Therefore, no consulting company that performs software selection and also has the capability and resources to perform the software implementation for a company will be satisfied with just the software selection work. In fact, a core strategy of every consulting company I have come into contact with is to use initial projects to gain larger projects.

When I worked for KPMG I was told by a partner to snoop around for other work while I was there. Another partner used to repeat the phrase “penetrate and radiate” in meetings with large numbers of people and on conference calls (so it was not even a secret within the firm), so once into a client, you radiate through them by offering them more and more services. There is never even the pretense that services should be sold that the client actually needs—it is literally never even brought up in internal conversations. Consulting companies are generally unconcerned with whether these services are needed or appropriate, because at the end of the day it all comes down to billing hours, and the margin per hour.

Interpreting Information from Consulting Companies

One thing that I hope to establish is that all software selection information (and many other types of information) that comes from consulting companies is suspect. Depending on suspect information from consulting companies is one reason—and I will show many others—why quite often the software implemented by companies is inappropriate for their requirements. The software happened to be what the consultants that worked for the company were trained in and could bill for. Therefore, the software selected met the needs of the consulting company, but not the needs of the company making the actual software selection. The misinformation provided by consulting companies for software selection goes beyond simply prompting their clients to choose software that is not the best for their needs. Consulting companies were instrumental in completely overselling the benefits of every major new software technology, with ERP being an excellent example of this. In the book, The Real Story Behind ERP: Separating Fact from Fiction, I cover the rather surprising result of my research that ERP has failed to live up to not just one, but also nearly all of the promises that were used to sell ERP systems to clients. Consulting companies also misinform clients as to what they can expect in terms of the implementation effort, how well the software will work for them, and therefore their expected return on investment. When advising their clients, they follow a sales approach rather than a scientific approach. At times, the consulting companies I have worked for and worked with, as an independent consultant seem to be nothing more than sales arms for the largest software vendors (major consulting companies tend to have partnerships with only the largest software vendors).

A good example of this was a webinar that I was asked to attend by one of my clients; a consulting company presented the webinar. I had worked with the application that was the topic of the webinar. However, throughout the webinar, this consulting company consistently presented a viewpoint about the application, one that I had never experienced even though I had worked on multiple projects with this software. According to this company, the application was “easy to install,” “planners liked it,” and “it just worked.” Many of the statements they made were directly contradicted by my experience with this software on projects. However, when different companies that were logged into the webinar would ask a question, there was always a fast and easy answer for what could be done to mitigate the concern. The consultants who presented in the webinar were in full sales mode. They appeared to be willing to say anything in order to get the companies participating in the webinar interested in contacting them for consulting work. More detail on this experience is covered in the article, which I wrote on this topic and is available at the link.

Of course new implementations are all positive for consulting companies, as they provide the consulting services—they receive benefits with no risk. However, the implementing company takes a risk on every implementation. Therefore, the consulting company will have a strong tendency to be more Pollyannaish on the potential of the implementation than is warranted based upon experience. As an independent consultant I also interview to work as a consultant on implementation projects. From this experience I can say that there is simply no doubt that potential clients prefer to hear positive stories versus realistic stories regarding experiences with an application. So the consultants and consulting firms that offer the rosiest future scenarios have the highest potential to get the most work. This is of course not an isolated problem for software and consulting. Among lawyers it is well-known that those who paint a pretty picture to potential clients have a higher probability of getting more business.

Finding Entities That Lack Financial Bias

The only consulting companies that can be said to be without a financial conflict of interest are those that only perform the software selection and do not perform the implementation—if (and this is a big if) they are not resellers of the software. The same would be true of an independent consultant, although typically independent consultants are not hired to assist with software selection as this type of work tends to go to the large consulting companies that offer both software selection and implementation. However, while hiring an independent consultant or a consultant that only performs software selections addresses the financial bias, it does not control other types of bias. In my experience I have found many—if not most—of the consultants that work in my field have a strong bias toward the software that they work with. For example, at Brightwork Research & Analysis, I try to describe the reality of working with different software applications, and sometimes this means explaining the frustrating parts or poorly-designed parts of the application. There are several articles on thethis website about one particular application that had quite a few problems. I was actually contacted by a European independent consultant asking me not to do that, as it would decrease the demand for the application and by extension, his services. In other conversations, when I bring up some excellent functionality in a competing application and in my view, clearly superior functionality, the consultant will invariably say:

“Oh, well my application can do that. It may not do it the same way, but it does it.” I have observed that when the functionality is clearly inferior, the person defending the inferior product will use the term “different.”

I know of no other area of analysis where it would be accepted that because two items have something in common that they can be considered equal. For instance, both a bicycle and an airplane will get me from San Francisco to Los Angeles and the end result may be the same, but they are certainly not the same thing and they are not simply “different.” Therefore, if one is very careful, one can find entities in the market that do not have a financial bias. However, removing all bias is exceedingly difficult when contracting for consulting services. If someone who is advising you is to be taken seriously, at the very least they should not have a financial incentive based on your selection of a software application. Just achieving this modest goal would be a great improvement in the advice that you will receive over the current status quo.

Conclusion

Consulting companies are major influencers for enterprise software purchasing decisions. Consulting companies talk up their independence, but there is very little independence in decision-making or thought, particularly when a consulting company reaches any size. The evidence is that all of the major consulting companies make the same software recommendations. They recommend software that is from large vendors that they can staff themselves to bill the maximum number of hours. This fact alone is a major reason why the enterprise software market is not competitive. The IT spend is misallocated in the system, and routed to less competitive offerings, and consulting companies are a major reason for this. Generally consulting companies also reduce the success ratio of enterprise software implementations. This is because so many applications that are selected are not the best fit for the client. In the vast majority of cases the application selected meets the business requirements to a much lower degree than other applications, which could have been purchased. Essentially contracting a large consulting company to provide selection advice is almost guaranteed to result in a bad software selection decision.

Large consulting companies are a bundle of conflicts of interest, and yet strangely, during the software selection process and while the consulting company is providing its “advice,” this topic is not raised. The clients, as well as the consulting companies, all operate under the ludicrous assumption that the consulting company is actually looking after the client’s interests. Large consulting companies want to limit all consultants from the software vendor because of both the desire to bill for the maximum number of consultants, and secondly, because having consultants from other entities on the project reduce their ability to control the account. This means having the project staffed almost exclusively by one’s own consultants who are trained in just the applications from the largest vendors like SAP and Oracle. As soon as a smaller software vendor is selected, it means more non-consulting employees are working with the client. I was once at a consulting meeting with a group of Deloitte managers and one of them was complaining that they could not reach their sales quota because the client had all these consultants working on the project that did not work for Deloitte and therefore they were not benefitting him personally. He had a strategy, which he shared with me, for getting these consultants from other companies off the project and replacing them with Deloitte consultants. One can imagine with these types of motivations continually working in the background how little any software recommendations from a consulting company has to do with what is the best choice for the client. Both institutional analysis as well as my consulting experience support the fact that large consulting companies as well as most of the smaller consulting companies are making selection advice based upon their own revenue goals and that their client’s interests do not factor into the advice they provide. The major consulting companies have hundreds of thousands of consultants working for them.

A large percentage of them work in software implementation, with the more senior members working at least part time in software selection. However, not a single one of them can admit what is entirely obvious, that the software selection recommendations offered by their company has nothing to do with what is right for the client. Any consultant who did admit this either with a client or in any public forum would be quickly reprimanded and would either hurt their career, or they would simply be fired. I have sometimes given advice to smaller software vendors, and on occasion the topic of working with a large consulting company to have their software recommended has come up. I have repeatedly told these software vendors not to waste their time courting large consulting companies. I gave this advice to one software vendor years ago, and they still scheduled a meeting with a partner from Ernst and Young. I attended this meeting. The message delivered from the Ernst and Young partner was that if this small software vendor brought a client to him, he would be willing to staff that project with his consultants. The small software vendor would have to train the Ernst and Young consultants in the application, and then they would bill the client at top dollar for a project Ernst and Young had not originated. That is the type of arrangement that small and even medium sized software vendors can expect from big consulting companies.

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References

Software Selection Book

SELECTION

Enterprise Software Selection: How to Pinpoint the Perfect Software Solution Using Multiple Sources of Information

What the Book Covers

Essential reading for success in your next software selection and implementation.

Software selection is the most important task in a software implementation project, as it is your best (if not only) opportunity to make sure that the right software—the software that matches the business requirements—is being implemented. Choosing the software that is the best fit clears the way for a successful implementation, yet software selection is often fraught with issues and many companies do not end up with the best software for their needs. However, the process can be greatly simplified by addressing the information sources that influence software selection. This book can be used for any enterprise software selection, including ERP software selection.

This book is a how-to guide for improving the software selection process and is formulated around the idea that—much like purchasing decisions for consumer products—the end user and those with the domain expertise must be included. In addition to providing hints for refining the software selection process, this book delves into the often-overlooked topic of how consulting and IT analyst firms influence the purchasing decision, and gives the reader an insider’s understanding of the enterprise software market.

This book is connected to several other SCM Focus Press books including Enterprise Software TCO and The Real Story Behind ERP.

By reading this book you will:

  • Learn how to apply a scientific approach to the software selection process.
  • Interpret vendor-supplied information to your best advantage. This is generally left out of books on software selection. However, consulting companies and IT analysts like Gartner have very specific biases. Gartner is paid directly by software vendors — a fact they make every attempt not to disclose while consulting companies only recommend software for vendors that give them the consulting business. Consulting companies all have an enormous financial bias that prevents them from offering honest advice — and this is part of their business model.
  • Understand what motivates a software vendor.
  • Learn how the institutional structure and biases of consulting firms affect the advice they give you, and understand how to properly interpret information from consulting companies.
  • Make vendor demos work to your benefit.
  • Know the right questions to ask on topics such as integration with existing software, cloud versus on-premise vendors, and client references.
  • Differentiate what is important to know about software for improved “implement-ability” versus what the vendor thinks is important for improved “sell-ability.”
  • Better manage your software selection projects to ensure smoother implementations.

Buy Now

Chapters

  • Chapter 1: Introduction to Software Selection
  • Chapter 2: Understanding the Enterprise Software Market
  • Chapter 3: Software Sell-ability versus Implement-ability
  • Chapter 4: How to Use Consulting Advice on Software Selection
  • Chapter 5: How to Use the Reports of Analyst Firms Like Gartner
  • Chapter 6: How to Use Information Provided by Vendors
  • Chapter 7: How to Manage the Software Selection Process