Monday’s Musings: Putting An End To The Conflict Of Interest Among Some Sourcing Advisors

Published on March 28, 2011 by R "Ray" Wang

Many Services Firms Seek Unfair Advantages With Market Makers

Service providers continue to battle it out in the über competitive market for large annual multi-million dollar contracts.  Market makers who serve as sourcing advisors, (i.e. management consultants, analysts, or vendor specialists) often influence the outcome of large sourcing contracts and system integration projects.  Consequently, more and more service providers seek to influence sourcing advisors.

Now let’s be honest, influence through consulting engagements around positioning, competitive intelligence, and go-to-market strategy is nothing new.  Most firms make it transparent to the buyer who they work with.  However, in the past few months, we’ve uncovered several new techniques that cross the line on both objectivity and transparency.  These approaches include both formal and informal contractual guarantees across three major areas:

  • Number of blog posts or written research about a vendor. Sourcing advisors commit to writing certain amounts of research in exchange for a contract with the service provider.  In some cases, the research may require editorial approval by the service provider.
  • Number of invitations to bidders conferences. Sourcing advisors commit to inviting the contracted service provider to a short listed group of candidates.  Some contracts even include a tiered scale for greater payouts based on the number of invitations to deals.
  • Kick backs and referral fees for closed business. Sourcing advisors collect a financial reward for recommending a buyer to a service provider.  Fees work similar to referral models with alliance partners.

The Bottom Line:  Ask These Five Questions Before You Engage With Your Sourcing Advisor

To be clear, I’m not saying that all sourcing advisors have such contracts in place.  However, in recent dealings over the past 4 months, we’ve been approached by some service providers and we’ve seen in some cases through our clients that such shenanigans are going on.  To protect yourself from such worst practices, we suggest you ask the following questions:

  1. Have you received funds from any of the service providers you are recommending?
  2. Have those service providers required you to invite them to a certain number of deals?
  3. Are you receiving any kick backs from any referrals?
  4. Do you have a disclosure policy on your blog?
  5. Can you objectively tell us if you have any contractual obligations that create bias in vendor selection with any service providers you are recommending?

If your sourcing advisor answers yes to any of the questions listed above, understand the context of the deal.  For examples, a service provider may invite a sourcing advisor to participate in a webinar or keynote speech to evangelize a concept such as Cloud BPO.  In some cases, a service provider may provide banner ads on a website or blog.  So long it’s transparent, most people would not find an issue with this.

However, if it becomes clear that there are referral deals or bidders conference commitments, you’ll know something is not kosher.  At that point, you may want to expose the practice and also put a kabash on your engagement and relationship with that sourcing advisor.

Your POV.

Does this revelation surprise you?  What have you heard in your dealings with your sourcing advisor?  Want to report a bad experience?  Add your comments to the blog or reach me via email: R (at) ConstellationRG (dot) com or R (at) SoftwareInsider (dot) com.

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Although we work closely with many mega software vendors, we want you to trust us. For the full disclosure policy, stay tuned for the full client list on the Constellation Research website.

Copyright © 2011 R Wang and Insider Associates, LLC All rights reserved.

  • Naomi – wise advice as usual. get it in writing to be safe! Anyone do this successfully yet? – Ray

  • Phil – thanks for adding your thoughts here. It’s key to make sure your advisors are transparent. – ray

  • Doug – Very good points. The issue is that companies who don’t value AR often focus on the wrong short-term metrics. – Ray

  • Clive – it’s impossible but I think hyper transparency is back in vogue. – Ray

  • Isn’t it impossible to stop kickbacks.

    Even McKinsey is somehow implicated in the Galleon Hedge fund trial.

    Hyper-transparency may be the best cop…

  • There has been little separation of church and state in the traditional influence and analyst market.

    Dangerous for Vendors too

    The problem for vendors is that short term “endorsement” often leads to an echo chamber of positioning vs. reality. The most valuable deliverable by advisors is critique: questioning go-to-markets and products.

  • Ray,

    The Outsourcing Center (Everest recently sold this to Alsbridge) engages in paid sponsorship from services vendors to do white papers, blogs, webcasts etc, but that’s pretty obvious when you visit the site.

    Regarding kick-backs etc., I would think this only happens with some of the independent mom/pop shops, or maybe individual rogues within larger advisors. I haven’t seen this at all with any of the established advisors (TPI, Everest etc).


  • Ray, I would add that buyers should get their answers in writing and from a suitably authorized executive so that there can’t be “rogue” worker excuses. And I would ask the same questions, in reverse, of every provider who’s on your short list, however you arrived at it — and, again, in writing. It’s really important that ALL of us are completely up-front about our business models, who pays what for what and why.

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