Will Gartner go the way of the dinosaur?- Part I

//Author's Note: (as on 4th February 2017)

I have received calls, comments and personal messages from many following this controversial post. Here are few clarifications based on the comments I received.

a) Am I saying that vendors are paying their way to the Gartner's Magic Quadrant, thereby implying that their detailed, peer-reviewed research process is flawed?

No, I am saying that a business model which receives vendor dollars (but not willing to reveal the names of those vendors for whatever confidential reasons) and buyer dollars for research reports which purportedly evaluate the vendors' position in the market leaves me with a reasonable burden of doubt to question the ethics of their operating model.

b) Am I saying that Gartner's business is all about buying and selling technology and therefore it is highly prone to "pay-to-play" vendor bias?

No, I am saying that an organization 'which bridges the gap (as one of the commenters who wrote to me beautifully summed up) between what technology vendor wants and what technology seller wants' through interactions with both sides of the table wields the maximum influence from IT decision makers.

I am not writing this piece from any sense of moral superiority. I've been fascinated by "Agency Problems" and the ethical challenges it poses in the IT ecosystem. I am writing this post to bring a dialogue on this uncomfortable topic for the benefit of the IT ecosystem. Please see post-script below the article for an analysis of "Agency Problems" in Tech Consulting Industry context.

Probably not. At least in the immediate future.

But heck, it looks like a fascinating problem to solve. A problem worth several million dollars. And more importantly, a problem with the right amount of moral leverage to get me on board.

Here's how I am thinking about the whole thing.

This is going to be a long journey starting from the diagnosis of the problem to the solution I have in mind. So, buckle up with a cup of coffee and get ready.

I am going to start from basics. I apologize in advance if some of these things are going to sound redundant. I promise you. I will set the ground real quick and move on to the site of dramatic conflict where all the action is.

So what does Gartner do?

Here is how they describe themselves.

Gartner is the world's leading information technology research and advisory company. Gartner delivers the technology-related insight necessary for its clients to make the right decisions, every day.

So what exactly is the problem they solve for their clients?

They help organizations make better decisions when it comes to buying software.

How do they do this?

They operate as a trusted intermediary who is deeply knowledgeable about the underlying workings in both sides of the table. The buyer side and the seller side of the software .Here's how I am visualizing it. Humour me please as I let my stunted imagination run amok.

How does Gartner make money? They sell research reports, offer consulting services and run technology events.

Their 2015 Annual Report tells me that out of their revenue of $2.16 Billion USD, Research made $1.583 Bn; Consulting made $328 Mn; Events made $252 Mn. Here is the break-up from their annual report.

As you can see, Gartner Research is their biggest source of revenue. What is the secret sauce which drives the Research segment to generate such a big chunk of revenue?

Before we address this question in depth, let us zoom into the buying side of the table and look at a typical engagement model between a large organization (At least >+1 Bn in revenue] and Gartner. I have given a fairly simplified model for easy understanding.

The crux of the value provided by Gartner comes from the perspectives and prescriptions offered by the group of analysts - IT experts with 20+ years of experience in their respective domains. These experts write valuable research reports [IN PDF FORMAT, mind you] across different software categories and upload them inside Gartner's paywall portals.

The IT hierarchy inside every large organization gets privileged access to these pay-walled portals based on the contract they have signed with the firm.

[Aside:Haven't you wondered how Gartner portal's design and aesthetic sensibilities suit their key target audience - Baby Boomer /Gen X IT leaders who sign these contracts ?]

The Account Manager (or a sales representative, if you will) from Gartner mostly acts as a gatekeeper here in facilitating access to newer reports arriving at a regular cadence and also enabling direct communication between the CIO and the Analysts. These sales reps interact with their clients with one key goal in mind: How do I improve my client's NCV - Net Contract Value?

To give you an example, the CIO of a large organization would typically get access to an all-exclusive Leader board library portal (Refer End Notes below) containing advice for IT leaders. In addition to this, he/she could get onto a direct 1:1 call with the analysts for further discussions/consulting inquiries and also get special invite passes for the technology events conducted by Gartner.

Now, to return to our key question:What explains the big chunk of revenue generated by Gartner's Research division? To understand why research makes a lot of money for Gartner, it is important to understand the medium which shapes the prescriptions and perspectives offered by the analysts. By medium, I don't refer to the channel. I am referring to the framework which organizes and shapes the opinions.

Enter Gartner's Hype Cycle and Magic Quadrant

If you are new to the IT purchasing world, you probably would be hard pressed to imagine how deeply influential these frameworks are in shaping the buying decisions of CIOs across the globe. They are so deeply pervasive that we implicitly assume it to be an empirical fact sui generis. We forget to think that these are not facts based on measured data, but aggregated opinions of analysts. Let me explain.

I am sure the latest 2016 version of the Hype Cycle graph must be familiar with everyone, if not in details, but in form and structure. It has now almost reached a meme-like status in the Infographics Department of the Internet.

Borrowing from Simon Wardley's fantastic analysis of the hype cycle, let me present the key critical points that need to be understood about hype cycles.

• Hype cycle graph is not based upon measurement of some physical property. This is an extremely critical point to be understood. It is nothing but aggregated opinions of analysts whom we believe to have more knowledge about the market than anyone else.
• The graph assumes that how technology matures in a market has linear relationship with time. Need less to say anything more than that. Or wait. Let me just say this without going into too much detail. In reality, it is more complicated than that.

[Aside: Did you know that the axes of the Hype Cycle graph has been changing over time? Here is a neat historical summary of this graph's history, as one of Gartner's Employee had summed up in this blog.

 "From 1995 (when Jackie Fenn first created it) to 2007, we had the Y axis labelled as "Visibility". During work for our book about the Hype Cycle we reconsidered that. Visibility ( in the media etc.) is an indicator of the underlying factor: market belief in future expected value. So we relabeled to "Expectations". The X axis has always been time, but there have been occasions when versions of the chart have been mislabeled. "

-Mark Raskino, Gartner

So, to oversimplify the Hype Cycle story so far, it is a story with all sound and fury about shiny things that are apparently sound and fury, opined by analysts whom we believe to know more about the market than anyone else.

So much about the Hype Cycle. What about Magic Quadrant?

The name, in fact, tells us a lot here. When technology vendors find themselves in that most desired side of the magical quadrant, good things happen to them. Even if the technology buyers have a bad relationship equation with the technology vendors for whatever reasons, their presence inside the right side of the quadrant could do things of influence and fat revenue only a magician could dream of.

No wonder, every vendor residing inside them is happy to flaunt those Magic Quadrant Reports along with their marketing wares. After all, they have purchased those reprint rights for us, the customers, to download for free.

There is an irony waiting to unfold here.

Magic Quadrant, in principle, is meant to help clients cut through the marketing of vendors and get to the real story for a company's offering, which in turn becomes the shiny marketing ware for the vendor who wants to sell his offering.

Doesn't it strike us as something odd?

As I am writing this, my friend who works as a HR Tech Architect shared with me the link of the latest Gartner Report which contains the 2016-18 Strategic Roadmap for HCM Investments.

What interested me the most in the report was the disclaimer I found in the end. I am going to quote a small part of it verbatim here.

"....This publication consists of the opinions of Gartner's research organization and should not be construed as statements of fact. The opinions expressed herein are subject to change without notice. Gartner provides information technology research and advisory services to a wide range of technology consumers, manufacturers and sellers, and may have client relationships with, and derive revenues from, companies discussed herein." [Bold emphasis mine]

In a nutshell, they make no bones of the fact that their research is based on opinion, which could easily be biased by the client relationships they share with the vendors who are being researched and evaluated.

What exactly is happening here?

Remember what we discussed about Gartner as the trusted intermediary deeply knowledgeable in both sides of the table?

It is actually much more than that. The relationship is deeply incestuous to the point of being unethical. Here's how the dissonance between our belief and reality actually looks like.

To be fair to Gartner, they had also written in their disclaimer that "research is produced independently by its research organization without input or influence from these firms, funds or their managers".

I so dearly wish I could live in a simple world where it is possible to believe the personal ethical code of the researchers. Unfortunately, it remains a pipe dream.

By the way, did you notice the thin blue strip in the center of the diagram which went missing from the top to the bottom as the dinosaur grew in shape?

It is the Chinese Wall which ought to exist in an ideal world to prevent conflict of interest. If there is one thing which the 2008 financial crisis taught us, it was the importance of these Chinese Walls to prevent buy-side analysts from talking with the sell-side analysts without a lawyer.

During the Financial crisis of 2008, Jack Grubman breached that Chinese wall and was banned for ethical gross misconduct by US Security and Exchange Commission.

So, we now know the real secret sauce behind Gartner Research segment's stupendous success despite its own admission that it should be construed as an opinion at best.

It has been a fabulous success so far because of its incestuous relationship it holds with both the key stakeholders - software buyer and software seller.

It is a perfect risk-averse arrangement that makes lot of sense in a bureaucratic IT sales process in which everyone pretends to care about each other's well being, except for one guinea pig: the end customer who is actually using the product.

In fact, what made us accommodate this operating model all this while is the very bureaucratic way the IT Sales process works.

Remember that cliched quote which used to go rounds about IBM?

No body ever got fired for recommending IBM or something like that. That tells you how bureaucratic things work and how awfully low the bar is.

This meme goes even further and tells you everything about what really happens in the world of IT Sales.

No wonder, IT implementation largely fails in most of the large organizations. Here is a perfect recipe for disaster.

In one end, you have the perfect bureaucratic IT sales process which is nothing more than a game of Chinese Whispers.

And on the other end, you have an unethical operating model driven by the likes of Gartner which ensures that IT leaders always operate with a skewed view of their ecosystem.

In my own personal experience, I have directly heard from CIOs' that they decided on a particular tool in the market because Gartner told them so. Such choices have mostly turned out to be disastrous choices in their organizations.

When the buy/sell side IT Analyst operating model is deeply inimical to the interests of the end customer, how can we expect its research findings to serve the needs of the customers?

You've heard everything I have to say on this.

Now tell me.

What better moral reason do we need to disrupt Gartner's business?

I have shared my diagnosis of the problem.

Am I missing anything else in the picture?

In my next post, I will explore the positive changes happening in the ecosystem and what digital solution approaches are being attempted from Silicon Valley.

Do share your thoughts. Do you think I have underplayed the vital contribution of Gartner? Or is my criticism justified, given their history of disastrous advice, including the latest Bimodal IT.

I am all ears.

//Author's disclaimer: These are my personal opinions. Strong-opinions-weakly-held kind of thing. It shouldn't be construed as my employer's opinions under any circumstances. Now, come on. You know that. Don't you?

End-Notes:

1) To be more precise, this Leader board is currently available with Forester. But for the sake of our discussion, I have broadly clubbed them under the leading brand in the IT Analyst world: Gartner.

Additional Reading:

Here is Tony Byrne, owner of the strictly buy-side Analyst firm, Real Story Group, offering valuable advice on how to check for signs if you suspect vendors influencing an analyst report.

Post Script-1:

I have analyzed "Agency Problems" from Tech Consulting Industry standpoint here.

Post-Script-2:

I have written follow-up sequel to the post.