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:
- Have you received funds from any of the service providers you are recommending?
- Have those service providers required you to invite them to a certain number of deals?
- Are you receiving any kick backs from any referrals?
- Do you have a disclosure policy on your blog?
- 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.
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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