Technology is expensive. Recent estimates put the amount spent on IT in the past 40 years at $10 trillion. Implementing a major, mission-critical IT system can easily cost six figures. But what can be even more expensive is getting it wrong – deploying a system that never brings the return on investment or competitive advantage envisaged, or making a product choice that just doesn’t work for your company or situation.
Given this much risk versus reward, it’s perhaps no surprise that a whole genus of animal has evolved to help your company make the right IT purchase.
These objective expert witnesses, the honest brokers of the tech business, are known as the IT analyst community.
Few major purchasing or outsourcing decisions are made these days by large companies without first calling in the bright boys and girls from companies such as Gartner, IDC, Forrester or Meta. Few technology companies take many steps without validating their ideas with them, either. Unlike their contemporaries – and sometimes rivals – in the management consulting business, these experts don’t help build the actual systems. What they do – with enormous success and influence – is simply think great thoughts and critique the ideas, marketing plans, and forecasts of the technology suppliers.
Yet these holy men aren’t non-profit charities or disinterested academics. They are commercial enterprises. Many are now public companies satisfying shareholders and looking for profit. Some critics argue that analysts are less than wholly trustworthy, and say their support can be bought for the price of becoming their customer.
Finance directors will know better how to treat analyst advice if they can get to the bottom of these accusations – if they know who analysts are; on what basis they make their decisions; what it is that they are really peddling; and whether their advice can be trusted.
In April 2002, market researcher Vanson Bourne carried out a survey commissioned by tech PR agency Roger Staton Associates. It looked at where IT directors get their purchasing information (the respondents were 100 IT directors from UK organisations with £50m-£250m turnover). Over half (56) said they saw industry analyst reports as the most influential source of written information on IT vendors.
The technology press also seems wedded to industry analysts as sources of wisdom. A survey of 55 key business and IT writers by high-tech PR firm Hotwire*, carried out in the summer, found that 64% said they always take steps to identify an analyst who tracks a company or technology they’re writing about before compiling their article. The respondees were asked to identify the analyst houses they held in highest regard: the clear favourite was Gartner, the blue-chip market leader in IT information. Some way behind came IDC, and then Ovum and Forrester.
The role of the IT analyst is varied. Some stick closely to covering the business of technology companies and tracking the markets. Others, especially Gartner, see themselves as thought leaders, and are active in shaping and defining markets and concepts vendors find useful as pegs to hang marketing on. “They can give you flags of convenience – in other words, the newest TLAs (three letter acronyms), which you can then align yourself with and create good market momentum,” says Damian Traynor, who is in charge of global marketing for financial software company Systems Union.
However, Dan Mahoney, senior vice president at Giga Information Group, says few analyst companies, and certainly not his, make their living by “prognostication” but rather by “providing advice corporates can actually use”.
Other business-oriented IT analysts echo this idea. They claim they’re not in the prediction business – rather, they are in the real-world business.
“Reality checking” is the short definition from Gillian Pitt, MD of Meta Group’s UK subsidiary, of what her firm offers. “We will help you examine any potential technology decision in the context of your business,” she says.
Information technology vendors are more grudging. “Someone has to serve (the analysts’) function in terms of feeding out information to the market,” says Lesley Hansen, european marketing director for communications equipment manufacturer Net To Net. “But they’re never answerable for the information or advice they provide. The average technology analyst, if only because they need to cover so many companies, isn’t going to know as much about what a technology can or can’t do as its maker. When they recommend a product, I often wonder if it’s because someone’s done a good sales job on them.”
But analysts feel they do have an advantage over manufacturers. “We don’t take money from industry and we’re not a (consultant) body shop,” says Martin Butler, founder and president of UK analyst group Butler. “So we are more likely to give you an honest appraisal of the likely benefits and costs of your decision.”
So how is an analyst’s offering different from a management consultant’s?
Basically, analysts say they have no axe to grind. “We manage the risk with them, not for them,” says Meta Group vice president Rakesh Kumar.
“We’re not cheerleading for anyone,” adds George Colony, CEO of Forrester Research. We’re Eisenhower’s weathermen – we tell you if you should take the risk of invading today or not.”
But note that all the analyst firms trade on the fact that, in the words of Kumar, “We’ve all got our hands dirty at one stage.” Butler says the average employee in his company has held a reasonably senior responsibility, some have even been IT directors in end-user IT departments, before becoming analysts.
This is an important point. If you trust your IT director or chief information officer, think of the benefits a firm of IT directors would provide. “IT directors have big jobs and a lot to think about. But we are 120 people who spend all our time watching these technologies and tracking information the IT director doesn’t have time for himself,” says Julian Hewett, senior analyst at Ovum.
So, back to our original problem – are analysts to be trusted? Their answer is a unanimous yes – independence is crucial. “There have been any number of times we’ve turned down lucrative business from a client because they wanted to buy our objectivity,” says Kumar. “We’ve had the lawsuits and stood our ground on what we’ve said. We have to keep our neutrality.”
Michael Fleischer, CEO of Gartner, is also forthright. “It’s all about independence and accountability,” he says. “My business model goes away if someone thinks my independence is compromised. If a vendor rings up and says he’s not happy with something we say or one of our conclusions and threatens to cancel his subscription, I’m very happy to take the call and offer to send him back his cheque. Our clients want real-life, useful and hard-hitting advice.”
The vendors, which also subscribe to analyst’s services, such as market reports, don’t exactly disagree with this argument – but they say the practice is different to the theory. “Analysts will write about you if you don’t subscribe,” says Traynor. “But you get greater access to key players if you do subscribe – and you stand more chance of getting in-depth coverage.”
But Traynor isn’t saying analysts can be bought. “I think (subscribing) is only a bad thing if the analyst doesn’t balance it out by talking to real end users. I’d be surprised if they ever did really send back the cheques, but it is true they live or die in the market by their integrity.”
Robin Pilcher, director of European marketing for business continuity firm CN2, argues that analysts sometimes add a little spice and sizzle to their reports to justify the expense. “If companies part with a lot of money for a report on the state of their IT business, analysts are not very likely to come back and say, ‘You’re doing jolly well here, carry on as you are.’ There’s going to be a bit of controversy to justify the fee,” he says.
So what do analyst firms do in these lean times, with no great buying trends, like Y2K or enterprise resource management? The message, from the analysts Financial Director interviewed, is that their end-user clients want to learn how to make do with what they have.
There’s no doubt analysts are, as a rule, some of the smartest and hardest working people in IT. “It’s an enormously stimulating job – like always studying for a PhD but getting paid,” says Kumar. “You’re helping make very big decisions, five-year decisions, multi-million pound decisions. It’s very responsible, and very humbling.”
And the analysts say they are cost effective. “Spend a little money with us, and you may save a lot later on,” as Hewett puts it.
But analysts are only a resource, not a final arbiter. An FD, says Traynor, should be looking on the analyst voice as helping to prove or disprove a business case. That’s the only justification for that #20,000 price tag. “Analysts should not be not seen as a safety net for an IT director’s purchasing wishes,” he says.
This thought is bolstered by Kevin Evans, chief finance officer at web-conferencing company Placeware. “An IT analyst can give you a good idea where a market is headed, but the final evaluation of a specific product has to be done by you,” he says. “Use them to understand a market, but you decide if it’s right for you.”
Butler argues that any FD should be keenly interested in information about the ROI case for a proposed system. But the risk management aspect of analyst advice is even more important. “The actual benefits from ERP, for example, really are quite modest, while the downside potential and exposure can be serious – hundreds of millions of dollars in some cases. So ask for an estimate of risks from your analyst,” he says.
But whatever you decide to think about the analyst voice, you have to accept you won’t ever be able to escape them when it comes to buying technology.
The statistic about the $10 trillion spend on IT that introduced this article? Financial Director got it – guess where – from IDC.
* Analysing the Analysts is available by contacting Frederica Monsone on firstname.lastname@example.org
INTRODUCING THE IT ANALYSTS
Aberdeen Group (US)
History Founded 1888
Web site www.aberdeengroup.com
Specialist areas Market positioning services and research for technology vendors. This includes consulting services and research papers.
Customers SAP, Ariba, Oracle, PeopleSoft, Computer Associates, Compaq.
Staff 43 analysts.
AMR Research (US)
History Incorporated in 1986 and founded by Tony Friscia, who remains as CEO and president today.
Web site www.amrresearch.com
Specialist areas Supply chain, customer management, enterprise management, strategic infrastructure and manufacturing. The company undertakes investment research, quantitative research and analysis, and contract negotiations.
Butler Group (UK)
History Founded by Martin Butler in 1990
Web site www.butlergroup.com
Specialist areas Analysis of enterprise software and associated business issues. The company offers a mixture of technology research and comparison reports, as well as access to analysts for advice.
Customers Abbey National, Marks & Spencer, Safeway, Scottish Power, Cornhill Insurance.
Forrester Research (US)
History Founded 1983. Publicly-listed in 1996. Has gone from 1999 revenues of $87.3m to $159.1m in 2001, with profits rising from $11m to $18.1m.
Web site www.forrester.com
Specialist areas Emphasis on quantitative research and writing.
Objectivity statement Employees may not engage in activities that will compromise or appear to compromise the integrity of research. “Forrester’s research agendas, judgments, and conclusions are solely under our control.” Client companies cannot purchase research coverage or favourable opinions and all employees are barred from “accepting reimbursements from vendors, joining company boards, or endorsing any vendors’ strategy”.
Customers 1,542 clients worldwide.
Staff 135 analysts.
History Founded in 1979. Also owns Dataquest market research brand. Listed since 1993. 2001 revenues were $963m, up 11% from 2000. But it made a loss of $66.2m.
Web site www.gartner.com
Specialist areas Gartner splits its services in four: research, consulting, measurement and its global programme of conferences and symposia. Gartner’s reach is impressive, with over 200 research topics (publications), from CRM to emerging technologies, security and enterprise architecture.
Objectivity statement Gartner analysts can’t hold stock or make any other type of investment in companies they cover. “There is no correlation between research coverage and client status. Gartner clients and non-clients alike are covered according to market performance or technology application.” When you become a client you don’t get any extra influence on content or the amount of it. “We have no interest in seeing one technology solution succeed over another.”
Customers 10,500 clients worldwide.
Staff 650 analysts worldwide.
Giga Information Group (US)
History Founded in 1996 by Gideon Gartner, the man who founded Gartner. 2001 revenues were slightly up from 2000’s $68.7m, with net loss down.
Web site www.gigaweb.com
Specialist areas Enterprise infrastructure, storage, e-business. The company says: “Our research provides clear, practical, action-oriented advice… based on professional experience and industry analysis – not on an academic approach.”
Objectivity statement “We take our professional responsibility to be objective very seriously. Giga will not act as spokesperson for any vendor or vendor’s products or services.”
Customers Household International, GlaxoSmithKline, British Energy, Pharmacia.
Staff 90 analysts worldwide.
IDC (International Data Corporation) (US)
History Founded in 1964. IDC is part of a global technology media and events business called IDG.
Web site www.idc.com
Specialist areas IDC says its services portfolio covers more than 500 technology areas. Products include subscription research and publications, sponsored research, and events and conferences.
Staff 700 analysts, 60% outside North America.
Meta Group (US)
History Meta was set up in 1989 by key figures from Gartner Group. Now the second largest IT research and advisory company in the world. Sales of $118m last year, but first half revenues down 3%.
Web site www.metagroup.com
Specialist areas Meta says it covers all aspects of the IT organisation and is designed to “alert clients to the sometimes subtle and unforeseen opportunities and risks inherent in complex IT business decisions”. Services cover aligning business and IT, strategic sourcing, benchmarking. Emphasis is on hands-on consultancy, not publication.
Customers 3,300 enterprises worldwide including IBM, Oracle, Microsoft, PeopleSoft, GSK, Shell.
History Launched in 1971 as an IT publication. Relaunched as a research firm in 1985 by ex-Logica consultants. Privately-owned.
Web site www.ovum.com
Specialist areas Telecoms, software and IT services. Services are split into advisory (research), analyst advice, specialist (book-sized) reports and consulting activities. Associated company Ovum Holway tracks the UK software and services market.
Customers Alliance & Leicester, Fujitsu.
Staff Ovum has 110 analysts and claims the highest analyst-to-consultant ratio in the business.
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