by Stephanie Overby

IT Outsourcing Consultants: Same Great Advice, New Low Price

Feb 25, 2010

The consulting talent that once billed $300 an hour while working for outsourcing and advisory firms have struck out on their own. Now their sourcing expertise is available to IT departments at as much as half the cost of the big firms.

The economic downturn has taken its toll on the IT services industry, and consequently, on the consultancies that swelled to support corporate outsourcing efforts in better days. Over the last two years, everyone—from the IT outsourcing arms of the biggest general business advisories (the KPMGs and Accentures, for instance) to the consulting divisions of IT service providers (the IBMs and HPs) to the leading outsourcing-specific consultancies (the TPIs and Alsbridges)—has been hit with layoffs, consolidation and upheaval.

But what’s been difficult for the consulting industry and the community of IT outsourcing experts it employed may have an upside for IT organizations in need of external expertise. Some of the talent that once logged $300 an hour for the likes of IBM, TPI or EquaTerra have set up shop for themselves, and—minus the overhead of their big bosses—are available at as much as half the cost.

Mark Ruckman is one example. He spent more than 12 years at IBM Global Services in a variety of roles from outsourcing delivery to sales. His tenure at Big Blue was followed by a stint at outsourcing consultancy Alsbridge, where he led clients through RFPs, vendor selection and contract negotiation. Today he provides the same service for his clients as a solo consultant—for about 30 percent less.

After leaving Alsbridge last February, Ruckman says, he had little choice but to go independent. The once-booming business of high-priced outsourcing hand-holding had gone bust.

[ Related: Becoming an IT Consultant: Do’s, Don’ts and Disasters to Avoid ]

Michael Engel, who was laid off from Deloitte last spring with a “large contingent” of sourcing consultants, echoes Ruckman: “I suspect in most cases becoming an independent advisor was more of a necessity than a strategy.”

Engel went on to form Sylvan VI consultancy with five fellow Deloitte refugees.

The need for these consultants to strike out on their own is serendipitous for that segment of clientele looking for lower cost, targeted outsourcing advice. “The major consulting firms were laying off or not hiring,” Ruckman says. “But working with my network I discovered companies still required consulting support, but they didn’t have budgets for large consulting teams.”

The Outsourcing Soloist’s Selling Points

Independents and smaller firms are cheaper for a number of reasons. They don’t have as much overhead. They often work virtually, instead of travelling on the client’s dime. And they only have so many hours for which they can charge.

“When someone at a big firm is put on a deal, they are expected to charge 40 to 50 hours per week—every week—for a long period of time. They internally allocate people by the month,” says Adam Strichman, who worked for IBM Global Services and Meta Group before selling his six-person benchmarking firm Nautilus Advisors to Alsbridge and going solo in 2008. “The ‘butts-in-seats’ model is not what I do. My hours are often 20 to 40 percent less than big firms’.”

Combined with his lower rates, Strichman can do a job at up to half the total cost of a larger firm, he says.

Price may be the biggest selling point for the independent outsourcing consultant and boutique advisory firm, but it’s not the only one. While mature outsourcing consultancies and business advisories hew closely to their own established practices, “our size allows us the flexibility to blend our processes with a client’s process,” Ruckman explains.

What’s more, flexibility can sometimes translate into increased speed. “I feel like we are moving at warp speed being able to adjust our business model to the market business requirements,” says Craig Tobin, managing director of Lone Tree, Colo.-based Eventus Sourcing Group, which he formed last February after a corporate sourcing career at GE and taking an exit package from Accenture.

Working with an independent outsourcing advisor or small consultancy also may foster more trust with clients. “What you see is what you get,” says Susan Tan, IT services and sourcing research director for Gartner. She’s alluding to the “bait-and-switch” tactics that big firms sometimes employ, when they” trot out their best consultants during the early days, only to replace them with less experienced staff over time.

Phil Fersht, who recently launched Horses for Sources Research, an independent consulting firm, after leading AMR Research’s outsourcing practice and working briefly for offshore outsourcer Cognizant, concurs: “Clients genuinely get what they pay for—no junior ‘number crunchers’ here.”

Outsourcing’s David v. Goliath

Of course, going with the big guys has its benefits. “From a client perspective, the biggest difference is that most independents don’t have a bench,” explains Ruckman. “If a client wanted to kick off a large project in two weeks, I would have to ask for three or four [weeks] to build a team.”

Thus, the upstarts must partner to scale, and that can only get them so far.

Moreover, they don’t have the name recognition of the big firms. “Nobody ever got fired for buying IBM. That philosophy holds true [in sourcing consulting], with a small modification,” says Strichman. “Clients think, ‘If one of the big consultancies screws up, they will be in trouble. But if you screw up, I will be in trouble.”

While independent consultants and small firms get most of their new business from their existing networks, hiring them can require a bigger leap of faith. It’s easier to sell a CEO on an outsourcing plan if it has an Accenture or TPI seal of approval. Even with the 40-plus experienced consultants he works with (as independent contractors, not full-time employees), Tobin of Eventus Sourcing Group says there’s a misperception that he can’t offer customers “board-safe” decisions or that his company doesn’t have the financial resources or company experiences that come with working with billion dollar organizations. In fact, Eventus today serves several Fortune 100 companies including American Express and GE, he says. The deals just start smaller at the beginning.

Another challenge associated with the soloists: While these outsourcing consultants can bring with them double-digit years of experience, they’ have to leave behind many proprietary methodologies, frameworks and other intellectual property they used when they worked for the big firms.

The market’s need for the larger, general IT or pure-play outsourcing consultancy isn’t likely to go away anytime soon. “Solo consultants and the small consultancies they set up certainly have a place in the client portfolio of work. They are clearly most suited to work that requires experts as well as situations when clients need consultants as coaches, rather than as arms and legs,” says Gartner’s Tan. “But large scale applications work is still best done by big firms who have the scale, methodology and sources of cheap labor from offshore delivery centers.”

The Future of Outsourcing Consultants

Going independent isn’t easy for a seasoned outsourcing professional. “Establishing a pipeline and managing the slow periods have been the biggest challenges,” says Ruckman.

Solo outsourcing consultants say the need to fly under the radar for the first year in order to stay out of trouble on the non-compete front further complicates their efforts to build a project pipeline. And even in the leanest early days, newly independent consultants can’t take every job that comes their way if they want to be successful. “We don’t have the scalability, and we have to be selective in the clients and projects we take on as we continue to build the organization,” says Tobin.

Then there are the tax and incorporation headaches.

Despite those challenges, Fersht, for one, is upbeat. “Clients prefer to work with boutiques these days,” he says, noting that he knows of about twenty small consultancies that have sprung up in the last year or so. “They’re more flexible and have higher quality staff,” he notes.

In the end, the increase in independent outsourcing consultants is less a major market shift than a sign of the times. “I’m aware of a handful of sourcing professionals who set up their own shop,” Ruckman says. “As companies look for alternatives to execute deals with limited budgets, this trend could grow. I wonder if the economy will force more companies to look at the ROI of a deal and include consulting cost in the ROI. If the answer is yes, this will be great for independents.”

For his part, Ruckman keeps communication lines open with his contacts at the larger consultancies and could see himself suiting back up for them if his pipeline runs dry or they make him an offer he can’t refuse.

Strichman, who still occasionally hears grumbling from former employers concerned he’s stealing their business, insists there’s plenty of room in the pond for advisors of all sizes.

“We serve a different client and a different space. Somebody with a large outsourcing initiative needs the scale of a large firm. I fill the void for smaller jobs: an addendum here, a renegotiation of a single tower there,” says Strichman, noting that his biggest growth area is insourcing advice these days, a niche unmet by larger firms. “Independence lends itself to smaller jobs, so I don’t swim upstream.”