An historical perspective
Technology companies have offered consultancy services to their clients since the 1950's and 1960's when they developed skills and capabilities to implement the technology, the hardware and software they sold to clients. Understandably, the theory was that if they provided advice on the processes and procedures to implement and operate the technology, the clients would maximise the values derived from the hardware and software and they could generate additional revenues over and above the sale of the products.
As the capabilities of technology have expanded the opportunities to employ technology within enterprises, so the opportunities for technology-related consultancy services have increased exponentially. On the one hand they enable their clients to run their technology operations productively and obtain maximum benefit, at a financial level, through appropriate financing schemes or at an operating level through efficient and productive processes. More recently, over the past 10/15 years, the major advances in consultancy penetration have arisen from "unburdening their clients from running their own technology operations" through outsourcing them to the technology provider.
The Accountancy Profession has been the major competitor to the technology companies in provision of technology related consultancy services. There are several reasons for this:
- Many of the earlier sales of technology involved automation of accounting and financial reporting functions.
- In order not to expose themselves to anti-competition actions, the major technology companies were slow to enter the consulting services business. It was pointed out in an article in the Financial Times recently as a result of the settlement of an action in the mid 1950's in the USA, IBM agreed with the US Federal Authorities in the USA not to offer computer consulting advice.
- It was originally perceived that the Accounting Profession, whose core service to corporations was an independent audit, would offer more independent, altruistic, consulting advice than the technology companies, whose core business was the sale and maintenance of hardware and software products.
Of course, this is not to ignore the success in provision of technology consulting services by the independent management consultancy organisations, who, while lacking the pedigree of or relationship to a major accountancy firm, have traded on their apparent total independence of thought and action.
How does the IT industry benefit?
- There have always been specialist non-IT related services within the consultancy divisions of the major accounting organisations. The major growth in their revenues was in IT related business projects across all commercial and public sectors. This should give a substantial growth both to revenues and profit margins for the major technology companies at a time when their traditional revenues are under threat and the margins on pure product sales very slim.
- The consultancy arms of the accounting firms tend to have a naturally higher level relationship with the client organisation, probably because the relationship originates with the Finance Director. Rightly or wrongly that function has greater authority and influence at board level within an organisation than the IT Director or the Chief Information Officer. There are considerable opportunities for technology companies to broaden the relationship with their major clients.
- The IT industry is seeking to augment the services it can provide. Hardware and software prices and their attendant margins continue to decline. Value added services continue to be in demand. Successful innovation of technology applications, accompanied by good commercial packaging and marketing can command a premium. The different distribution and network access of the management consultancy arms of the accountancy profession should expand the revenue capabilities.
What are the inherent risks for technology companies in extending their consultancy enterprises?
- The statistics concerning the 'success' of IT projects across all enterprises is abundant. Renewed focus matters such as fast ROI seek to address this. Until the IT Industry as a whole can demonstrably play its part in delivering projects on time and within budget, further expansion of its consultancy services will have to focus on improving the financial and productivity element of their services.
- The consultancy services divisions of major technology companies do sell and maintain the hardware and software, manufactured/distributed through their competitor organisations, especially where they gain large long term outsourcing services contracts. This demonstration of independence of selection of hardware and software needs to continue to be visible and, more importantly, publicised.
- The IT industry is already subject to a number of competition/anti-trust enquiries. The competition authorities are relentlessly psychopathic in their pursuit of any seeming anti-competitive practices. The industry must scrupulously avoid any inferences of anti-competitive practices. To achieve this their pricing must demonstrate non-element of "cross-subsidy" of the price of hardware or software components of any mixed services sale.
- Cross-subsidy may or may not be an anti-competitive practice depending on the nature of customer relationships, contract and specific transaction. However, cross-subsidy obscures price transparency. There are, quite understandably, even stronger commercially competitive pressures to 'give away' the hardware and software, when it is preceded by or accompanied by lucrative consultancy revenues. Internal regulation and strong ethical oversight accompanied by industry codes of ethics would address some of the apprehensions of cross-subsidy.
- Informal industry and interest groups exist within the IT industry. They are product interest or sector focussed. The management consultancy industry does have a professional body, a code of ethics and a qualification process. Corporate governance enshrined in specific codes of ethics and self-regulation should be developed within the IT Industry for its consulting businesses to avoid criticism, which the consultancy arms of the large accountancy practices have experienced. Technology Companies must understand and demonstrate how they would manage these risks; a critical step for public and commercial organisations.
There is a strong perception that the expansion of consultancy work has created a dependency culture on external consultants within enterprises. The views and recommendations of the external consultants carry more weight than the views of employees. Consultants are frequently used to 'facilitate', a euphemism to cover the plethora of functions: giving advice; to command and control; and organisation of implementation. Such dependencies in operation of IT present specific risks, notably in outsourcing arrangements. IT consultancy should desist from creation of a dependency culture.
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