Conflicts of Interest at Three Levels
For a consulting firm, independence means avoiding conflicts of interest. This post outlines conflicts of interest at three levels and how technology buyers can spot them.
In this long-running series of posts, I have been reviewing the many lessons learned in my over half-century career in enterprise IT. We left off with my co-founding Strativa®, a management consulting firm, in 2000, and our 2005 acquisition of Computer Economics, an IT research firm.[1]
As noted in that post, independence was fundamental to our vision [1]. This even became part of the Strativa tag line, “Independent advice for business and technology decisions.” Our services should be independent of any motivation other than a desire to serve the client’s best interest. Of course, making money is also important, even necessary. But making money should never be accomplished by compromising on what is right for the client.
In this post, I would like to elaborate further.
What Is Independence?
Independence is a matter of avoiding conflicts of interest. But these are not always easy to recognize, because they exist at different levels. Over nearly four decades as a consultant, I now see conflicts of interest at three levels.
Illegal. These are practices that are forbidden by statute, industry regulations, or contract. Bribery is a flagrant example, but it still takes place in the tech industry. Do a web search so I don’t have to name names. Some types of professional services, such as public accounting and legal services are, by statute, also subject to obligations of fiduciary duty. Breaching these is illegal.
Legal but Unethical. In advising a client buying technology products or services, it might be legal for a consultant to take sales commissions or finders fees from a provider, but it is unethical if not disclosed to the client. (But if disclosed, few clients would accept such an arrangement.) It is also unethical for the consultant to only short list tech providers that agree to subcontract to the consultant for the follow-on implementation work, where the real money is. And yes, I’ve seen this.
Legal and Ethical but an Indirect Conflict. In some cases, the consultant may not directly take commissions or finders fees but still may benefit indirectly from relationships with certain tech providers.
This third category is where the real problem is, because it is difficult for buyers to see the conflict. Here are just two examples:
The consultant may be delivering services to providers. That is a conflict but it is indirect, because those services are not related to any particular deal that the consultant is working for a specific buyer. If the revenue from tech providers is small and occasional, it may not be an issue. But the larger the percentage of revenue that a buyer-side consulting firm receives from tech providers, the greater the temptation to let it influence the consultant’s advice to buyers.
The consultant may have large teams of implementation consultants dedicated to certain tech vendors. Implementation services engagements are much larger than advisory deals, so it is tempting for the consultant to steer deals to those vendors where the consultant has implementation teams. As I noted with my work at the SI Firm, this was a significant factor in why we left and why we established independence as our core value.
There are other examples, but these should be enough to give you an idea.
How to Detect Conflicts of Interest
One best practice for buyers in choosing a consulting firm is to ask, upfront, what percentage of your total firm revenue comes from tech providers vs. tech buyers? You may not get a truthful answer, so ask around. Sometimes, just a look at the consultant’s website can give some clues:
Does the firm offer services to tech providers?
Do they have a partner or alliances page? If so, are tech providers listed?
Does the consultant also offer implementation services for specific vendors?
Are their blog posts and white papers truly thought leadership reports, or are they mostly puff pieces for specific vendors?
On this last point, on the opposite side, criticism of certain vendors is not always a good sign. Sometimes a consultant will be highly critical of providers with whom they do not have a commercial relationship, in hopes they will give them some business in order to “shut them up.” I’ve seen cases where a consultant will criticize a vendor for months or even years and then suddenly stop. This usually has nothing to do with a change on the vendor’s side but rather because the vendor finally gave some business to the consultant. So, both excessive praise and excessive criticism can be warning signs.
Again, there is nothing unethical about a consulting firm selling services to tech providers. The problem arises when the firm receives revenue from both buyers and sellers. It is difficult to maintain integrity in doing so. If enough money is involved, it can be tempting for the consultant to start thinking, “It would be good for us if this vendor could win this deal.”
No One Can Serve Two Masters
Why do consulting firms that serve buyers also want to serve tech providers? Because it is an easier way to make money. There are a few reasons for this:
Providers have budgets. They continually spend money on consulting and market research. In contrast, end-user organizations generally buy advisory services only when they are starting a major technology procurement.
Providers have partner channels and analyst relations teams. They consider consulting firms as having influence and don’t mind throwing a little money in their direction if it helps the provider in some way.
Marketing and selling are easier. For most categories of technology, there are only a handful of large providers, whether ERP, HCM, or CRM vendors, major implementation services firms, or large managed services providers. But there are thousands of potential buyers, only a few of whom are in the market for those products or services at any one time. So, the consultant must find ways to reach them when they are in a buying cycle. It’s not an easy task.
No one can serve two masters. Avoiding conflicts of interest is much easier if the consulting firm can decide which it wants to be. Do you want to serve buyers or sellers? And don’t say both. Pick a side.
Independence Essential to our Value Proposition
Over the years, I found this theme of independence resonated with clients and prospects. In my sales pitch, I used a simple analogy:
“When you are looking for a financial advisor, you want someone that is independent from financial services firms. If your insurance agent offers to be your financial planner at no cost to you (which they often do), you can be sure that your plan will be loaded up with that firm’s insurance and annuity policies. If your stockbroker makes the same offer, your plan will include a lot of stocks and mutual funds, where the broker earns a commission. So, also, if your technology advisor has commercial relationships with tech vendors, they are going to be biased toward those vendors.”
I would also tell prospects, “When we are negotiating with vendors on your behalf, we are not straddling the table. We sit on your side of the table only.” And over the years, I saw more and more buyers making independence a criterion for prospective consultants, insisting that the firm have no vendor partnerships. But as discussed above, conflicts of interest may not be in the form of explicit partnerships. There can be indirect relationships that lead to implicit conflicts of interest.
In our sales pitch, we also emphasized that we even had no bias towards the client proceeding with a procurement. Since we were only selling advisory services, we would make no more money if the client implemented a new system, for example. If the right answer for the client was to stay with or upgrade their current system, we had no financial disincentive in making that recommendation. Tech providers absolutely hate deals that end in “no decision.” But if that’s what’s best for the client, we didn’t care.
Finally, in software selection deals, we would make it clear that we did not offer vendor-specific implementation services. Although we appreciated any opportunity to participate in the implementation, it would only be in project management, business process improvement, independent verification and validation, or change management—not in technical services. We could help manage the technical services providers but we would not deliver those services ourselves or have those providers subcontract to us.
Over the years, we found independence as a powerful value even when the engagement did not involve buying anything. For example, in developing a business strategy or new organizational design, we saw independence from the client’s own organization as a virtue. Internal stakeholders may also have conflicts of interest, where the best way forward for the organization may not be the best for a stakeholder’s narrow self-interest. As a neutral third party, we could bring an objective point of view to the engagement, considering only what is best for the business.
End Notes
[1] I sold both firms in 2020 and retired from employment in 2024.
Image Credit. Nick Youngson, Blue Diamond Gallery, Creative Commons CC BY-SA 3.0,
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