The problem with e-partnerships

by Jeff Moad, PC Week

The logic goes like this: New, information-driven business models require all participants in a supply chain to share information as transparently and quickly as possible. When, for example, a PC manufacturer has moved to an online, build-to-order business model, instant and continuous information about its component suppliers' inventories suddenly becomes critical. A traditional buyer-seller relationship between the PC maker and the component supplier is no longer good enough. They've got to become partners, linking their systems to share information.

Sometimes, though, these e-business-inspired partnerships can muddy the waters and skew previously well-understood business relationships.

Recently, for example, many of the largest, most successful IT consulting and systems integration services providers have begun forging closer partnerships with customer relationship management software vendors by making equity investments in them. Andersen Consulting, PricewaterhouseCoopers, KPMG and Cambridge Technology Partners, among others, have all in the last year or so made pre-IPO equity investments in hot CRM software vendors.

Andersen kicked off the trend with its investment in CRM software leader Siebel Systems. Since then, Andersen has invested in Calico and marketing automation software maker Blue Martini. Both KPMG and Cambridge have invested in E.piphany among others.

You could argue that these investments make a lot of sense. They certainly do from a financial point of view. Riding the B2B boom, software vendors such as Siebel have seen the value of their stock soar. Seibel's had more than doubled since January, no doubt making Andersen's partners happy.

And you could also argue that Andersen's support of an enterprise application product line like Siebel's is critical to its success. As SAP AG proved during the ERP software boom a few years ago, gaining the early and active support of big consultants and systems integrators is critical to a product's success. So, since companies such as Andersen play an important role in the success of products like Siebel's, shouldn't the integration partners share in the rewards?

Putting objectivity at risk

Maybe. The problem is that, by deepening their partnership with application software vendors, the consulting/system integration providers have threatened one of attributes that attracted corporate customers to them in the first place: their objectivity.

Many large enterprises rely on the Andersens and KPMGs of the world not just to help them deploy applications but also to help them evaluate and select the software packages that best fit their business processes and strategies. Without a vested interest in any single software package, the integrator could act as an objective advisor.

Obviously, having equity investment partners with software vendors, the consulting/integration companies will have a hard time claiming they have no vested interests in which products their customers select. I'm sure the service providers will claim otherwise, but it only stands to reason that they'll be inclined to steer customers to products in which they have a financial interest.

This potential conflict would raise a red flag for any customer trying to make a decision about which enterprise software packages to deploy. It presents a particularly sticky situation for enterprises trying to select a CRM product, however.

As a recent report by Judy Andaloro of AMR Research Inc. points out, no product suite -- not even Siebel's -- represents a complete, integrated CRM solution. For most customers, tackling CRM today means an exercise in integrating best-of-breed software products. But, as the AMR report warns, equity investments by consulting companies in CRM ISVs could very easily tempt service providers to present their software partners' suites as complete, one-stop solutions.

At the very least, customers should be wary of such claims, particularly if they're coming from consultants whose new, deeper partnerships with software vendors include equity investments.