Due Diligence in Choosing Consultants

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Chris Paul has tried just about every possible method for selecting an IT consultancy. For years, Paul used his company’s Big Five consultancy (until it stopped taking his projects because they were supposedly too small). He has pursued hot boutique companies recommended by colleagues (but these up-and-comers were too busy to take him on). He has approached second- and third-tier companies on his own (which resulted in an expensive failed project last year).

“I’ve done everything but call the Joe-bag-a-donuts company from the Yellow Pages,” says Paul, who (no relation to the author) is senior vice president of management information systems at Oakwood Homes Corp., a $1.4 billion maker of manufactured housing units in Greensboro, N.C. So when a former associate called to ask if he would be interested in trying a new online exchange for consulting services called IQ4hire, Paul figured, what could it possibly hurt?

Most CIOs would agree the consultant sourcing process has gotten harder since e-business came roaring onto the scene. No more is the choice of a consultant dictated by your platform, as it was in the late 1980s and 1990s. Around the end of the 1980s, for instance, if you were developing a three-tier client/server architecture, Cambridge Technology Partners or Computer Sciences Corp. or IBM would top your list. Or, a few years later, if you were rolling out five SAP modules, PricewaterhouseCoopers, Andersen Consulting and Ernst & Young were clear options. It was much easier then because there were so few players. You cranked out a 400-page request for proposal, circulated it to the usual suspects and eventually picked one of those safe bets.

Today, the choices are not nearly so obvious. When it comes to e-business, no one has a lock on the market—no handful of elite organizations dominates the landscape as in the heyday of the Big Five (it was Big Six then). With the explosion in boutique consulting companies such as iXL, Proxicom, Razorfish, Sapient Corp., Scient Corp. and Xpedior, the playing field has gotten a lot more colorful—and confusing. And there are more players in all categories, not just e-business. It’s no wonder an IT executive like Paul would turn to an online exchange for help.

But in sourcing consulting projects, as in life, there is no way to shortcut the process of building relationships. IT consultants perform personal services, after all. You probably wouldn’t source a real estate agent, hair stylist or lawyer on an online exchange (although those types of marketplaces certainly exist)—the intimacy of those relationships defies the cold point-and-click world of online marketplaces. The same is true for IT consultants. You might be able to get your short list quicker by using an exchange, but you’ll still have to do the due diligence that goes along with hiring a partner for an important project.

Lord knows it’s tempting to cut corners. Time is so much shorter—few can deal with lengthy RFPs and multiyear projects anymore. “In the old days, you’d hire the Big Five for a two-year project, and out the back end popped results. It’s a much different world today. No matter who you hire, the milestones are more defined and the time frames are shorter,” says Dave Boulanger, enterprise application integration service director for AMR Research, a Boston consultancy.

“The business cycles are so short, the business has moved on before we can even get a project finished,” says Mike Amble, senior vice president of corporate technology for Dallas-based First American Real Estate Solutions and an IQ4hire beta tester. “It is so difficult to find really competent organizations. You hate to try out new people all the time.”

Most CIOs want to choose not a one-off vendor but a partner, someone who can put the pieces together and help shoulder the risk of increasingly complex projects. With so much at stake, it’s hard to know where to start. “CIOs are looking for tools to help them be more effective. They want an assistant CIO,” says Brian Sommer, CEO of IQ4hire, in Chicago. “They want to be able to tell the board why they’re using a particular consultant, and they want that information to come from an independent source.” IQ4hire, which officially launched in July, offers provider references and reviews as well as tools for creating a request for services (RFS). In general, buyers pay a commission of 4 percent of the project cost for agreements consummated as a result of being posted on the exchange. (Sommer says some buyers may pay more or less than that.)

Consultants, meanwhile, want to be short-listed for big IT projects, rather than spend time on prep work that often doesn’t pan out. The online exchanges are a new channel for consultancies to reach clients they would otherwise not be able to access. “The marketplace for consultants is highly fragmented. This is a more effective way for them to sell,” says Sommer. IQ4hire consultancy participants to date include IBM Global Services, Computer Sciences Corp. and Durham, N.C.-based Clarkston-Potomac Group. Consultancies also pay a commission of approximately 4 percent of the project cost for deals done on IQ4hire in addition to an annual subscription fee.

Cheap Insurance

For his trial run on IQ4hire, Oakwood Homes’ Paul chose a relatively sensitive project. He wanted a consultant to help analyze the potential risks and benefits of migrating from the company’s homegrown enterprise resource planning system to a J.D. Edwards manufacturing package. He also wanted the consultant to “sell” the results of the gap analysis to Oakwood’s end users, who remained steadfastly convinced that no packaged application would work for their unique business. IQ4hire advisers sat with Paul in his office for six hours, helping him fill out the online RFS form. (As one of the first beta users, Paul probably received more personal attention than most customers.) He posted the RFS and within 10 days had responses from four providers. Within two weeks, the end user selection committee had picked a winner (which Paul declines to name).

“We were never very good at the formal process of sending out an RFP, evaluating it and that sort of thing. We were not very disciplined. I saw this as a way to shortcut the whole process,” says Paul. “The responses that came back were in a consistent format. It was easy to do an apples-to-apples comparison.” The deal is currently in limbo due to the annual budgeting process. Paul hopes to have a signed contract in place soon. (If the project gets canceled outright, he would potentially owe IQ4hire an “interrupted transaction” fee of at least $10,000 to cover the costs of using their resources. Because he was a charter user, this fee for the first transaction will be waived.)

Though he’s paid nothing so far, Paul is concerned the cost of using the exchange could become painful. But he sees the exchange as a way to ensure that his project won’t fail. “I’m willing to pay an extra 4 percent to ensure I get a good provider. It’s cheap insurance,” he says.

Paul hopes the exchange will become a repository of “war stories” as more and more companies use it. “I’m looking forward to seeing the successes or failures of other buyers of consulting services,” he says. The last part, however, is uncertain. Buyers will no doubt be reluctant to post horror stories under their real names for fear of being sued. And if the feedback is anonymous, one wonders how useful it will really be and what might prevent someone from wrongfully attacking a consultant.

IQ4hire will capture numeric (or points-based) scores as well as textual feedback that will be aggregated from everyone who commented, according to Sommer. IQ4hire screens for a number of inflammatory remarks before posting feedback and allows aggrieved parties to file responses to criticism. For his part, Paul believes the lack of positive comments for a provider will speak just as loudly as specific negative commentary. “If there are five sellers of a particular service and people have very nice things to say about four of them, that tells you something about the fifth,” he says.

Sommer is investigating new evaluation technology to supplement current methods. “We want to make the feedback feature of our site the standard in the industry,” he says.

To call the consulting-exchange landscape an industry is perhaps overstating the case. Guru.com and HelloBrain.com focus on pairing solo consultants with gigs ranging from a hundred dollars to several hundred thousand dollars. Eclaro.com is a sort of electronic IT temp agency, garnering higher rates for IT consultants because the per-hour markup is only 15 percent, as opposed to the usual 40 percent to 50 percent markup. No other site at the moment has as robust resources and participants as IQ4hire, which counts as founders CEO Sommer, a former Anderson Consulting partner, and President Vinnie Mirchandani, a former Gartner Group analyst.

Taking the High Road

Of course, if you’re super-organized, with well-developed processes for sourcing, you won’t need one of these exchanges, anyway. Jon Ricker could write a book on what to do and what not to do when choosing vendors of all types, including IT consultants. As president and CIO of the Limited Technology Services (LTS), which provides IT services to $9.7 billion specialty retailer The Limited, Ricker is a huge user of IT consulting services. LTS worked with 12 different outside companies just on the one-day Victoria’s Secret live webcast from the Cannes Film Festival last May. (Victoria’s Secret is a unit of Intimate Brands, which is 84 percent owned by The Limited). Ricker can’t afford to reinvent the wheel every time he needs project help.

So Ricker created a “preferred provider” listing on an Excel database that contains detailed information about all the contractors LTS uses regularly. The database is far from a static file that no one ever uses. “If we have a good or a bad experience with someone, that information goes in,” says Ricker. “It allows us to shorten the cycle time on a project.” LTS requires its roughly 25 preferred IT consultancies to go through an annual “recertification” process in order to be included on the list for the following year. At all times, consultants know what to expect from working with LTS, and vice versa. Says Ricker, “We enter each engagement with very specific goals and expectations, and our consultants have come to understand that.”

With his clearly defined processes and robust in-house provider database, you’d think Ricker would be the last person to invest in an online consulting exchange. But he is currently building just such a platform with a third party (whom he declined to name). When that exchange comes online this year, he’ll figure out if it makes sense for LTS to source a portion of its contracts online. “We wanted to probe this a little bit. It’s too early to know how the business model will evolve,” he says. In the meantime, Ricker doesn’t see a need to look into IQ4hire or its ilk.

Some Things Never Change

Online exchanges can potentially cut the time it takes to locate good consulting candidates. And they can increase the consistency of consultant responses, reducing evaluation time. But it is very difficult to get a feel for a consultancy’s culture on an exchange. Having a “good cultural fit” with your consultant means you have the same philosophy on whether to take an aggressive stance on the project and you have similar values, such as how to measure success. It also means the players on both sides like and respect each other. Character is notoriously difficult to gauge online.

“Hiring a consultant is a lot like hiring a full-time employee. Personality and work habits are very important. It’s hard to judge that online,” says Bill Wray, CIO at Citizens Financial Group, a bank in Providence, R.I. Wray spends more than $10 million per year on IT consultants, who he finds using methods going to an IT talent search agency such as The Computer Merchant in Norwell, Mass. He also reuses consultants he knows.

“One of the key criteria our clients use in picking us is that they trust us and feel comfortable with us. A lot of it has to do with personality,” says Jamie Lerner, chief technology officer for Xuma, an e-business consultancy in San Francisco. That doesn’t exactly come over the wire.

There’s no way to avoid the validation process. “The same old dating game needs to go on,” says AMR’s Boulanger. In most cases, you’ll still need face time with the prime candidates, and you’ll still have to call several client references—and not just the banner ones, either (see “The Don’ts of Picking a Consultant,” Page 112).

Second-Rate Projects, Second-Rate Firms?

Many consulting companies are betting online exchanges will widen the pool of attractive new clients they can reach in a cost-effective manner. Brian Farrar, chief operating officer at hot e-business consultancy Xpedior, doesn’t need any new clients right at the moment, thank you very much, and he’s not afraid to say so. “There is way more demand for what we do right now than there is available supply. With respect to the e-solutions space, the only companies that would be trolling for business on this exchange would be at the lower end. The best consulting firms won’t need a channel like that,” says Farrar, at Xpedior headquarters in Chicago.

It’s not that Farrar cannot imagine an online exchange could be useful under any circumstances—he thinks they are either a feedback loop (high value) or a catch-22 (no value). “If there are great projects available, the best vendors will come to get them, which will attract more great projects, which will attract more great vendors. It has a blossoming effect,” says Farrar. On the other hand, “it might have only the crappiest projects so only the crappiest vendors will want to use it. The problem is, you never know if you’re in the early stages of a feedback loop or the declining stages of a catch-22.”

Farrar’s definition of a great project is one that involves a “high-end technology problem” at a company that is committed to the Internet—no maintenance tasks, please. “It would be a project that the most intelligent Web consultants in the business would want to work on,” he says. According to Farrar, Xpedior has its pick of choice projects and has no motivation to get involved with IQ4hire. “We’re in a really fortunate position. We have umbrellas to sell when it’s pouring rain,” says Farrar.

But the world can change very quickly, as one Big Five partner can attest. “I would advise [Farrar] to get out and enjoy it, because the rain will stop,” says Stuart Campbell, national partner in charge of the Information Risk Management practice at KPMG International in San Francisco. KPMG is not currently participating in an exchange, but it has not ruled out the possibility. “There will be times when your product is ahead of the market and you’ll need to push a little harder—you need help then. You’ll need other channels to sell your services,” says Campbell.

Chris Paul of Oakwood Homes says he understands he’s an early adopter of an online exchange like IQ4hire. “Right now, this is new. The consultant pool is not as deep as it will be a year from now. But they put four very qualified providers in front of us in a very short time,” he says. It sure beats the Yellow Pages, anyway.