IT section: software investment - Scenting success

Consultants that form alliances with just the major software vendors will undoubtedly do well, but is their scope limited? Are they offering the best solution for their customers?

The Big Five management consultants have all formed often lucrative alliances with major vendors such as SAP, Peoplesoft, Microsoft, Oracle and JD Edwards among others. These are the big signings, the big name contenders and perhaps the names that many of their large customers expect to see.

While no one will get fired for recommending the top names in the IT industry, there does appear to be a degree of confusion over what is “best of breed” and whether or not smaller companies come into the equation for the big consultancies.

The bottom line is that best of breed does not mean “large vendor”.

This view is supported by Robert Conway, PricewaterhouseCoopers’ global leader for the financial advisory service and partner in the Technology Industry Group. He is also adamant that contrary to popular belief, the large consultancy firms, and particularly his own, do give small companies a chance to get involved with their various projects.

“We are keen to promote early stage software companies who will be the big companies of tomorrow,” says Conway. “We don’t choose software partners by name and size.” For example, PwC formed an alliance with small e-security specialist Zergo last year, and the company has just been subject to a merger with larger rival Baltimore Technologies.

So on the one hand, large consultancies like PwC are courting the big name, best-of-breed companies to implement the back office ERP solutions while, on the other, looking to promote smaller companies that bridge the technology gaps to developing front office issues such as e-commerce.

Of course it makes sense and it’s a scenario that should be industry-wide. PwC is prepared to put its money where its mouth is.

Later this month (24-25 February), the UK Software Partnering and Investment Forum, sponsored by PwC, will kick off at the Hotel Inter-Continental in London. It’s a showcase of some of the UK’s rising software stars with the sole aim of finding these firms investment and partners to help them grow. The place will no doubt be crawling with venture capitalists in what could turn out to be a bit of a technology meat market but it’s also prime ground for consultancies looking for young and fresh partners.

PwC seems to have recognised this fact, as Conway admits “times are changing and technology is moving rapidly” – implying that the larger firms cannot always be best of breed in all markets. Naturally there is a risk with small and unknown firms, but if they have the technology and the support of a large consultancy, then their future is almost certainly secure.

PwC does this through its Technology Industry Group, which, according to Conway, helps smaller companies from the raising of capital through to either flotation or merger and acquisition. Along the way, PwC gains partners in new and emerging technologies until they too become top 10 software companies.

Systems integrator Axon will be showcasing at the software forum this month. With a #20m turnover it can hardly be put in the “small” category but managing director Mark Hunter is sure that the event could lead to some partnership deals with best-of-breed companies. He has already had experience of teaming up with one small, fast-growing company called CrossWorlds and is looking to the event for more ideas for front office solutions.

“SAP, Peoplesoft and JD Edwards are not really best of breed anymore, they’re just boring back office solutions that are much of a muchness.

The real issues are in the front office and finding best-of-breed companies, regardless of size and influence, that can provide solutions.”

The importance of front office applications is a view shared by most consultancies, but firms the size of Axon can move more quickly when it comes to finding solutions. Hunter describes the big firms as “large and lumbering” and believes that their fascination with a range of ERP vendors is short sighted. “As far as ERP is concerned you might just as well go with one, such as SAP, and mix and match other best-of-breed solutions from a wide range of vendors depending on what the customer requires.”

There is of course no doubting the size and importance of ERP but there are many claims now that, by the end of next year, demand for front office applications such as sales and marketing software will overtake ERP.

This is a claim made by Thomas Siebel, former sidekick of Oracle’s Larry Ellison and founder and CEO of sales and marketing enterprise solutions vendor Siebel Systems.

Siebel, formed in 1993, was one of those starlet companies that managed to get Andersen Consulting involved in the early stages of its development.

It’s now a $350m company and is ranked in the top six of US software vendors. Andersen still has a consultant on the board.

“Siebel is part of the revolution away from the back office and ERP idea of streamlining and reducing costs,” says Phil Robinson, Siebel UK’s director of marketing and alliances for Europe. “We’re like SAP was 10 years ago, except we are concerned with the front office and increasing revenue.”

Siebel is regarded by the consultancies as a best-of-breed solution in sales and marketing front ends for the enterprise. Robinson admits that Andersen’s initial involvement with the company was a risk but now, following phenomenal growth (over 100 percent over last year), it has formed partnerships with other consultancies including Deloitte & Touche, PwC, Ernst & Young and Cap Gemini.

“We’ve got huge value from being supported by Andersen and now the other firms. It gives us a lot of credibility and we probably couldn’t have grown so fast without it,” adds Robinson.

So how is dealing with small unknown companies reconciled with the partnerships with Microsoft, SAP, JD Edwards and so on? Or does it need to be reconciled?

“I do not find this a contradiction as many best-of-breed suppliers are small firms,” comments Steve Weller, industry marketing director for Europe at i2 Technologies. “This is because ERP, Rdbms, Network and OS vendors are never going to be able to provide the total functionality that a company needs to run its business, particularly where there are specific industry requirements. The providers of these “niche” best-of-breed solutions are likely to be smaller, more flexible and responsive companies who are able to provide rich functionality in these areas and provide tailored industry solutions,” he adds.

i2 Technologies provides supply chain planning solutions and is a good example of how a smaller, less well-known technology firm can win business through partnerships with the likes of Andersen Consulting, PwC, KPMG and Ernst & Young. PwC’s Conway suggests that such a scenario does not need to be reconciled with larger vendor relationships. “It’s just about getting the best solution for the clients,” he says.

But is this really providing best-of-breed solutions? It may be offering best-of-breed products but does the customer really benefit in the long term? Mike Evans, managing director at financial software specialist Analyst Financials is sceptical.

“If consultancies are prepared to truly offer best of breed they must adjust their business model. Many best-of-breed companies will already have 95 percent of the administrative work pre-coded so that implementing and maintaining systems comprises only 5 percent of the total solution.

The Big Five make their money from reinventing the wheel every time they go to a customer – more chargeable hours means more revenue. Using some of the best-of-breed, smaller product offerings that automate many stages of implementation may reduce the consulting revenue but the customer would benefit because they would get a solution installed more quickly. We frequently hear about the implementation of ERP systems or the re-engineering process taking three or four years to complete when a tailored solution from smaller companies can be put in place in far less time and much more effectively.”

Mark Wibberley, marketing manager for UK payroll specialist Rebus HR Services agrees. Rebus is a founder member of the Best of Breed Association, which has been set up to try and give smaller best-of-breed companies “a fairer shout in the market,” says Wibberley. “We have a close relationship with Andersen, but none of the others really. We are a #22m company and supply half of the Times Top 100 so if we are overlooked when it comes to implementing payroll solutions, they haven’t done their homework.”

Wibberley also points to the danger of global partnerships, such as the one Andersen struck in December with Peoplesoft. “Peoplesoft doesn’t have a UK payroll solution,” he says, which is why Rebus is involved with Andersen to make up the gap.

So are the big consultancies ignoring small, best-of-breed companies in favour of their larger friends? The consensus is that they are not but where it comes down to a big name versus small name with the same solution, the larger, well-known companies will undoubtedly win. That’s not about best of breed, that’s about branding.

So the whole thing appears to be a horses for courses situation. The large consultancies have made in-roads into some of the world’s largest companies. Naturally, they want to align themselves with the IT industry’s big guns. However, this is not at the expense of smaller companies.

There is a willingness among the large consultancies to get down to the roots of new and emerging technologies to try and find the best of the up and coming bunch. Events such as the Software Partnering and Investment Forum can only help that cause.

Marc Ambasna-Jones is a freelance journalist.