Three Reasons Why You Should Never Buy Software from a Consulting Company.
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Three Reasons Why You Should Never Buy Software from a Consulting Company.

Tonight I am sitting in a hotel room at a technology conference. I attend one to  two a month. My goal in attending these conferences is to improve my knowledge of the technology. I need to attend to be current on software trends for clients.

At these conferences when I hear that a consultant company is building software, I throw a red flag. I can barely sit in my seat when a consulting company announces the buying or building of software. In this post I explain why. This post is written for the line-of-business leader buying enterprise-class software.

Let's start with the fundamentals. The business models of software and consulting companies are very different. While technology companies have software consultants, their role is very different than a company that focuses on consulting. Consultants within a technology company are focused on implementing the technology. In this role they seldom assist in change management, redefinition of current and future states, and leadership development. The management consulting role is much broader with more of a focus on building one-off and customized solutions.

Enterprise Software is a long-term relationship involving the release and refinement of code, maintenance and evolution of the software, and continual enhancements. It is not a short-term transaction. The best code development happens when the technology company is able to listen to buyer requirements from the market. When consultants purchase technologies they tend to segment the positioning of the software to their clients which limits the ability of the technology company to evolve against market requirements. In addition, consulting company models are not well-defined for maintenance and evolution.

So, why do I believe that consulting companies should not build software? It is not a question of talent. Both companies have the skill set. Instead, it is a fundamental difference in the business model. Let me explain.

The consulting model focuses on the urgent need for a specific client while product development at a technology or a software company is focused on a long-term definition of market needs with configuration to accommodate individual needs. The consulting model's focus is on the urgent with a blind focus on a singular client while the software company's focus is longer term on the important elements for a product road map to serve the market. When push comes to shove the urgent will always win out over the important. As a result, consulting companies will never be as good at developing software as technology companies. I know of no consulting company that has been successful in selling software. Consider some examples.

1. History tells a different story. Over the last decade IBM purchased many software companies. I watched the acquisitions of Demandtec, Emptoris, ILOG, Logictools, Sterling Software, and Yantra. Five years later, each of these companies is less competitive than their peers. Similarly, Accenture, PWC, and WiPro, along with many boutique software companies, purchased software companies. Each time, after a year, the software companies struggle under consulting management to be competitive.  

2. Cloud-based computing changes the game. The traditional lines between consultants and technologists blur. Many argue that the cloud and open source code should change my logic that consultants should now be able to develop and market software code. "Woah!" I say. "Not so fast." Open source code requires knowledgeable committers and a focus on staying current on open source code. I believe that open source, big data analytics and higher velocities of data define new processes, but that the technology needs to be delivered by companies with product marketing and software development skills sets. There is a big difference between developing one-off solutions and building industry templates.

3. The role of labor. While the consultants talk on and on about data lakes and data scientists (remember the consulting model is to sell highly specialized labor), and standardization on expensive software applications, what I see shaping before us in the future is the autonomous supply chain where processes are machine-to-machine and machines speak to highly-specialized analytics. Companies that sell bodies will not drive this shift. I am convinced that one of the barriers of the supply chain of the future is the need for people to "touch data" and consultants selling body shops.

These are my thoughts on a late night in Nashville. What do you think? Do you know of any examples where the purchase of a software company by a consultant drove competitive advantage? 

About the Author:

Lora Cecere is the Founder of Supply Chain Insights. She is trying to redefine the industry analyst model to make it friendlier and more useful for supply chain leaders. Lora has written the books Supply Chain Metrics That Matter and Bricks Matter, and is currently working on her third book, Leadership Matters. She also actively blogs on her Supply Chain Insights website, at the Supply Chain Shaman blog, and for Forbes. When not writing or running her company, Lora is training for a triathlon, taking classes for her DBA degree in research, knitting and quilting for her new granddaughter, and doing tendu(s) and Dégagé(s) at the ballet barre. Lora thinks that we are never too old to learn or to push for excellence.

Rick Manner

Independent Consultant

8 年

I agree with Simon Rogers and Cliff Lee. KBC has provided a more valuable software product than the competition primarily because of the focus on profit improvement that the consultants bring. The KBC consultants also use the software in a much more demanding way and provide valuable feedback and product testing for the software development team that helps them build a superior product,

Cliff Lee

Senior Process Consultant

8 年

I agree with Simon Roger's comments in the case of dual consulting and software companies in which the consultants are active users of highly technical software such as at KBC. Pure software development must push forward to stay ahead of competition, but the contained technology is greatly enhanced by the aggressive usage by the consultants. The challenge is to have a sufficiently broad management team to balance the software and technology development efforts. It can be extremely powerful and value-added to both sets of software and consulting clients.

Ramachandran C G

Business Process Consultant at Independent Process Consultants Limited

8 年

In my experience , most of the consulting companies come with a bouquet of products that vary in price and features. They strategies their pitch accordingly (on an need basis). This also is driven by the fact that the customers just don't want consulting inputs but also want to see through in reality , that way customers are not left holding the baby at the end of the engagement

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Simon Rogers

Building digital twins to achieve sustainable development

8 年

My experience is a little different. I as a process engineer involved in the development and implementation of software to optimise process plants, a detailed knowledge of the client`s business is required. Careful change management is also required. The distinction between consultant and software implementer in blurred. KBC, primarily a consulting company, have since the early 80s, successfully developed and sold process simulation software. KBC use the software in the consulting practice and the software is better for the rigorous use the consultants make of it. The consultants benefit from software tools which are properly supported products. There are business model challenges but these are outweighed (in this case) by the synergies.

Martijn Lofvers

Founder & Chief Trendwatcher of Supply Chain Media

8 年

Consulting firms have a business strategy of Customer Intimacy, businesd oftware vendors Product Leadership (especially in-dept, best-of-breed solutions) Operational Excellence (especially Cloud solutions)

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