News Analysis

How IT consultancy consolidation can benefit customers

The consolidation of the IT advisory sector has signalled the intent of some of the biggest companies in the sector, but will it benefit customers?

This year has seen Information Services Group (ISG), which already owns sourcing consultant TPI, acquire IT benchmarking specialist Compass. Then KPMG took over sourcing consultant Equaterra.

Lee Ayling, who transferred to KPMG from Equaterra as part of the acquisition, says consolidation "is only in the interest of customers". This, he believes, is "because it gives the scale that smaller specialists need to be able to provide their specialist advice with broader capabilities to solve major problems".

Broad range of skills

Ayling says smaller advisories have the advantage of a deep understanding of certain niches, but they lack breadth. KPMG's acquisition of Equaterra gives the company the scale it needs to deliver specialist services to support its customer base with a broader range of skills.

Equaterra splits its advisory up by industry vertical. This gives it the expertise it needs to service customers requiring support on particular projects.

For example, Equaterra had infrastructure, networking and SAP experts in separate teams. Ayling says this type of in-depth technology knowledge is vital and he does not believe a broad approach works. But the problem for Equaterra was that it only had a few advisors in each of these groups.

"Sometimes we would run out of capacity, so it was difficult to grow," said Ayling.

But now Equaterra, in the form of KPMG sourcing advice, has access to a large skills resource. For example, it now has 50 SAP experts available for projects, rather than the three it had before KPMG acquired it.

The deal also gives Equaterra clients access to skills in areas outside technology that can support outsourcing projects, such as managing the human resource issues related to outsourcing, which are often significant.

When a company outsources work that was once carried out in-house there are inevitable HR issues. This is heightened when jobs are offshored. KPMG gives Equaterra access to 40 experts in "people and change", says Ayling. Equaterra used to use two part-time experts in this field.

A question of independence

Despite the scale and expertise there are concerns over independence. The recent acquisition of IT benchmarking specialist Compass by ISG raised doubts. An IT benchmarking service must provide findings that are unquestionably independent. Customers of benchmarkers must be guaranteed that advice is not influenced by ulterior motives.

One industry source said some FTSE 100 companies have expressed concerns about benchmarkers being swallowed up by groups offering other services.

ISG already boasts sourcing consultancy TPI as one of its companies.

Duncan Aitchinson, head of Europe at TPI, says the details of how TPI and Compass will integrate is still being worked out, but adds that the companies will "go to market around a common suite of services".

He says the companies already work together on some contracts. "There are some very complementary capabilities, and this will enhance the proposition of both businesses."

Almost every outsourcing contract that TPI is involved in has had a benchmarking study completed and customers have been able to compare service provider prices through TPI for years using a service called Mark to Market, he says. This service gives customers a view of the prices for outsourcing services.

Adding services

Warwick Business School associate fellow Ilan Oshri, does not think the recent acquisitions in the sourcing sector pose a threat to the quality and independence of services. "Firstly, recent acquisitions do not change the industry dramatically as the main driver behind these acquisitions is to add line of services and not to take out competition. Secondly, sophisticated users should benefit from a service provider which can offer a wide range of services," he said.

"This is in particular the case for client firms which developed strong sourcing capabilities and have a clear sourcing strategy, so working with a single service provider on multiple services does not put them in a lock-in position. My view that such clients can see themselves benefiting from what we coined 'bundled services', or 'one stop shop'."

Less choice, higher prices

Kit Burden, head of technology sourcing at law firm DLA Piper, agrees that large businesses with sophisticated outsourcing teams will benefit from the consolidation. But he says smaller companies will suffer as a result of less choice and potentially higher prices.

"Large businesses have kept many of their procurement skills in-house and when they use consultants it tends to be for very big projects. But smaller companies will not have internal resources and will have less choice of consultancies," he said.

He says small and mid-sized companies will become more reliant on individual consultants and as a result will be less certain of the level of advice they will get. The sourcing consultancy sector is polarising with massive consultancies increasingly competing with thousands of individuals and very small companies, according to Mark Lewis, head of outsourcing at law firm Berwin Leighton Paisner.

The outsourcing advisory sector has grown into an industry within itself very quickly. It is now consolidating as big businesses scoop up mid-sized suppliers. While this activity is focusing the big suppliers on the large enterprise deals, smaller specialists are coming to market. User businesses must work out what they mean to the big sourcing advice providers and what are the alternatives.


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