Vendor, service provider ties raise issues of objectivity.

Soon after Mike Parks heard that Hewlett-Packard Co. and PricewaterhouseCoopers were talking merger, he found himself with a nagging doubt: What if, wondered the CIO at NorthPoint Communications Group, Price water- houseCoopers, once under HP's wing, found itself unable or unwilling to work closely with such major HP competitors as Sun Microsystems?

"If, for some reason, Sun feels HP is no longer a reliable partner and decides not to use [Pricewaterhouse Coopers], then that would affect my decision," said Parks, who uses Sun servers at NorthPoint and has engaged PricewaterhouseCoopers for a major operations support system project.

Not that Parks is close to looking for a new integration services provider. After all, the merger discussions, announced last month, aren't done yet. And Parks is solidly satisfied with PricewaterhouseCoopers.

Still, experts say, Parks and IT executives like him are wise to start asking tough questions about the increasingly complex web of ties being created among their integration/consulting providers and hardware and software vendors. Once loath to get too close to IT vendors for fear of appearing to compromise their objectivity, large consultants are cosying up to vendors as never before. Increasingly, vendors are investing in integrators, integrators are investing in vendors, and both are entering into ever-tighter partnerships. The service providers say they're doing it for their customers, who, eager to jump-start e-businesses, are demanding new applicationsâ€"everything from e-procurement to e-commerceâ€"fast. By forming alliances with vendors, consultant say, they can get better access to training and technology and, in turn, roll out e-business systems quicker.

The close ties, however, mean that IT managers should think twice before assuming that consultants and systems integrators are always acting as objective advisers when recommending best-of-breed products and technologies, experts say. Increas ingly, IT managers need to understand the ties between vendors and service providers and, ultimately, make sure that they retain control of the important technology decisions.

"None of the big firms can claim complete objectivity," said Tom Rodenhauser, founder and president of Consulting Information Services LLC, in Keene, N.H. "I think [clients] still view consultants as neutral and bringing the best solution, but that's often not the case. They don't view it as a problem until the technology blows up."

The tie-up trend

News that HP and PricewaterhouseCoopers are talking about merging, of course, is only the latest and most dramatic example of the closer links between vendors and IT service providers. The trend, experts say, goes back to the early 1990s when consultants and integrators, anxious to cash in on the booming ERP (enterprise resource planning) market, began entering into close partnerships with vendors such as SAP AG. The partnerships allowed service providers to understand the direction that complex ERP products were taking and to more quickly train the large number of consultants that were needed to support specific ERP suites.

Recently, however, the ties linking vendors and service providers have grown tighter. Consultants and vendors have been investing in one another and launching joint companies. Cisco Systems, for example, invested US$1 billion in KPMG Consulting LLC when it launched in January as a separate company from KPMG LLP. Cisco is also investing with Cap Gemini SA to create a jointly owned services company. Similarly, Microsoft has joined forcesâ€"and capitalâ€"with Andersen Consulting to create a new company focused on Windows 2000 implementations.

Meanwhile, it's becoming common for consulting companies to take equity stakes in emerging vendors as part of their alliances. Andersen Consulting, for example, went as far as to form a unit in December that will invest US$1 billion over five years in new companies. So far, those companies have included e-commerce software company Blue Martini Software, CRM (customer relationship management) software developer Calico Commerce and e-marketplace ChemConnect.

To be sure, these closer ties among consultants and vendors can benefit IT. While the alliances take many forms, they typically involve consultants gaining better access to vendors and developing a deeper knowledge of products. Consultants often use the alliances as a basis for creating integrated software and service offerings targeted at the needs of a specific industry. Cap Gemini Ernst & Young, for example, has used its alliances with Siebel Systems to put together a call center solution called Centric.

The objectivity question

Service providers taking stakes in software vendors, however, inevitably raises the question of their objectivity. Or at least it should, experts say.

"Users increasingly have to step up and take more authority and more management control over these projects," said Peter Burris, an analyst at Meta Group, in Stamford, Conn. "To assume that an integrator's value is entirely predicated on technology agnosticism is to utterly miss what one can get out of an integrator. At the end of the day, you look to integrators to supplement your capabilities."

That's what Parks does when he undertakes a big technology project at NorthPoint. Parks turns to consultancies more for their integration capabilities and the product experts they can bring to a project. But, he said, he doesn't want his service provider setting his strategy or selecting products.

"We don't rely upon integrator recommendations for our production and operational environment," said Parks, in San Francisco. "I'm going to make decisions about where I want to go anyway."

NorthPoint in September 1999 began implementing an operations support system with the help of Pricewater houseCoopers. It combines CRM software from Siebel, of San Mateo, provisioning software from Syndesis Ltd., of Toronto; billing management software from Portal Software, of Cupertino, and integration middleware from Vitria Technology, of Sunnyvale. All the applications were customised to allow NorthPoint to conduct online provisioning and management of its digital subscriber line service. Parks said NorthPoint, not Pricewaterhouse Coopers, made the final call on each of those products.

At the height of the implementation, NorthPoint used about 100 consultants from PricewaterhouseCoopers, but now that number has been cut by two-thirds since the system went live in mid-April. It's now going through refinements, Parks said.

Parks calls the project a success so far, and he's hopeful that PricewaterhouseCoopers' business practicesâ€"particularly its relationship with vendors like Sunâ€"won't change if the HP deal goes through.

"To me, these linkages don't have much impact," Parks said. "As long as they do a good job at what they do well, and we make decisions independently, I don't see a conflict of interest."

Another approach to ensuring that a consultant is giving unbiased advice is to get a second opinion. Gary Sutula, senior vice president and CIO at commercial printer R.R. Donnelley & Sons Co., uses more than one consulting company to assess the technology needs for his largest projects.

"It's a myth to think you can bring in a systems integrator at the beginning and delegate responsibility for architecture to the integrator," Sutula said.

Sutula will also mix and match consultants in a given project. In one recent case, Donnelley used Andersen Consulting to lead its replacement of 8,000 desktops companywide and an upgrade of 5,000 more as part of year 2000 efforts. But Sutula also hired a boutique integrator, Omnikron Systems, of Calabasas, to help in the process. Using more than one systems integrator avoids one consultant having too much control over a project, Sutula said.

Beyond balancing consulting companies, Sutula also does due diligence in figuring out the expertise of specific service providers and of the consultants handling his projects. Just as the companies may be forming alliances with specific vendors, they also have varying levels of experience and skills in different technologies. Most important is having final "résumé control"â€"in other words, being able to handpick the specialists from consultancies and integrators that will work on a proj ect, Sutula said.

"The last thing you want is a consultant to come in and not be familiar with the technology you're implementing and use you as a test," Sutula said.

While savvy IT managers like Sutula and Parks may be taking steps to retain control of technology decisions and keep an eye on service provider/ vendor ties, too often clients either aren't aware of or aren't even much concerned with their consultants' relationships with vendors, Consulting Information Services' Rodenhauser said. When the issue does come up, it's often only after an implementation has failed, he said.

The need for speed

There's a reason for that. IT managers, said Steve Gold, managing director of the supply chain practice at KPMG Consulting, in New York, no longer look to consultants and integrators just for objective, detailed analysis of the best technol ogy products to meet business needs. Now, he said, his clients' first priority is to get a set of preintegrated applications that can deliver business value quickly.

"Our clients are not willing to wait a year or two years to integrate a tool," Gold said. "Those days are over."

So, service providers said they'll continue to align themselves closely with vendors. It's necessary, they said, to tap into the technological resources of vendors and train teams of implementers quickly.

When deciding whether to form an alliance with a vendor, KPMG Consulting follows a set of requirements. KPMG needs to have a track record of interest in the product, with at least three large clients running it and at least 100 consultants trained on it, Gold said. He estimated that KPMG has about 40 alliances with vendors, with the top five, such as with Cisco, generating the bulk of revenues.

"We're stringent in who we want to align with, or otherwise it's just market hype," he said.

At the same time, consultants said they are not about to force a vendor on clients. Many said they specifically strive to have multiple partnerships within product categories. Most, such as Cap Gemini Ernst & Young, will align with all the top technology platform companies.

"Most consultants don't want to get too close to one vendor," Consulting Information Services' Rodenhauser said. "There's this dance that's been going on between consultants and vendors in how closely can they align to the point where the client still views the consultant as objective."

Although Cap Gemini Ernst & Young has at least 300 vendor alliances, not all are created equal. Cap Gemini Ernst & Young classifies alliances into three categories, and at the top are six premier alliances with such large vendors as IBM, Microsoft, Oracle and Sun.

Along with the premier alliances, Cap Gem ini has two other types of alliances: strategic and emerging, said Chell Smith, a senior vice president at Cap Gemini Ernst & Young, in Chicago.

The premier group is the most select and is where Cap Gemini Ernst & Young makes the largest commitment to consultant training in vendor-specific technologies. Strategic alliances tend to be more vertical-industry-oriented, and emerging alliancesâ€" the most numerousâ€"have the least investment.

As much as consultants may stand to benefit financially through alliances, they also have an interest in retaining client trust and appearing vendor-agnostic, experts say. They have been fairly open about their partnerships, often advertising them widely. What usually is left unanswered is what the alliance means, particularly the financial arrangements between parties, Rodenhauser said. That's where IT managers need to ask the tough questions.

"We are upfront to clients about what alliances we have and in what spaces," Smith said. "This is not a hidden agenda by any means."

Ultimately, CIOs and IT managers must stay in command of projects done in collaboration with consultants, experts say. That's the surest way to catchâ€"and avoidâ€"any potential for conflict of interest.

Making yourself aware of the various integrator/ vendor alliances upfront is also the best way to learn where consulting companies have the greatest skill and expertise, said Rod Johnson, an analyst at AMR Research, in Boston.

"If you're looking for unbiased, independent advice, be careful that you do due diligence on what [the consultants] have to gain," Johnson said. "It may have less to do with the investments the companies have made, but the investments they've made in their people."

Consultants, vendors tighten knots

Since the beginning of the year, major consulting organisations and IT vendors have been sharing a lot more than knowledge. They've been sharing cash, jointly investing in new ventures. Here are three examples:

Consulting firm	Vendor	What they did
Andersen	Microsoft	In March, announced $1 billion joint venture to Consulting create Avanade, a company to help customers integrate Windows 2000. Microsoft is contributing $385 million of the $1 billion.
Cap Gemini	Cisco Systems	Announced in March the formation of a Ernst & Young company to provide services to telecom carriers and enterprises. Cap Gemini will own 95.1 percent, while Cisco will own 4.9 percent.
KPMG	Cisco	KPMG in January announced it was using a $1 Consulting billion Cisco investment to spin off its consulting business, leaving Cisco with a 19.9 percent stake.

One integrator balances objectivity

If Hewlett-Packard co. acquires Pricewaterhouse Coopers, it may want to look at one of its rivals for advice on how to integrate an independent consulting business into a product-focused company.

IBM Global Services, the consulting and systems integration division of IBM, has been under scrutiny since its inception in 1991. When Global Services' predecessor, Integrated Systems Solutions, was being formed, IBM still faced the antitrust watch of the federal government and was careful to keep services independent of IBM's hardware and software business. To this day, the consulting group's mission is to be objectiveâ€"not a sales arm for IBM, said Mike Albrecht, global public sector executive at Global Services, in Chicago.

According to analysts, customers and even competing consulting companies, IBM Global Services has largely met its aim of acting independently of IBM's hardware and software divisions. How has it done this? For one thing, the incentive system for consultants is set up so that their bonuses are not based on selling IBM products but on meeting goals specific to the services business, Albrecht said.

"We focus on customers and knew that would come at the expense of IBM hardware and products in some cases," said Albrecht.

IBM Global Services has been successful in creating a perception of impartiality toward its parent's products, said Tom Rodenhauser, founder and president of Consulting Information Services LLC, in Keene, N.H. In recent years, Rodenhauser said he believes Global Services has focused more on IBM products, but, he added, that may simply reflect the breadth of IBM's product line.

"IBM has done a masterful job of doing that, creating the perception of objectivity, when, in fact, it's structured around the notion of an IBM solution," Rodenhauser said.

Gary Sutula has been impressed with Global Services' independence from IBM hardware and software. At times, in fact, the division has seemed too cautious about suggesting IBM products, said Sutula, CIO at commercial printer R.R. Donnelley & Sons Co., in Chicago.

"I've had a lot of experience with IBM Global Services, and there was a lot of concern when IBM started growing its consultancy side of the business that it would be an in-house and captive consultancy," he said. "What I found is that that is not the case. Those consultants have to maintain their objectivity."

Objectivity seems to be paying off for IBM Global Services. The unit's revenue has increased by 27.5 percent over the last two years. It now accounts for 36.7 percent of IBM's revenues.

Besides reassuring IT managers, Global Services' reputation for objectivity helps it do deals with other vendors such as Microsoft Corp. as well as other consulting companies.

Creating a similar atmosphere would be the challenge for a combined HP and PricewaterhouseCoopers, said Chell Smith, a senior vice president at Cap Gemini Ernst & Young, in Chicago.

"IBM has done a really good job of maintaining that wall," Smith said.

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