CM: Can you share with us some of the history behind the decision to have other consultants sell IBM BCS-branded services?
Mitchell: Historically — and when I say "historically," I’m going to go back to 2004 — Business Consulting Services did not have what I would call a strongly defined strategy around teaming with business partners in the small and medium business segment of the market.
So we did a lot of work to try to determine how well we were doing and, frankly, the results were that we felt that we could do better in this segment of the market. And as we entered 2005, we made a decision to put a new strategy into place specifically in the U.S., where we were going to put a dedicated team in this segment of the market doing business consulting.
As a part of that, two key elements arose. One was to build solutions and offerings that were designed specifically for the mid- and smaller-size clients. Secondly, as a part of that strategy, we wanted to find a way to more proactively partner with regional systems integrators and other firms that had a very strong presence in this segment of the market.
CM: We’re led to believe that Business Consulting Services will be a little more sophisticated in terms of the types of services it would offer — in other words, not just IT services.
Mitchell: Absolutely. We have strategy consultants whom we deploy in this segment. We do an awful lot of ERP work in this segment of the market. We do a lot of work in what you would define as supply chain services and a few other smaller offerings that we have. But I would say that most of the work we do is either ERP-related, custom application development–related, or, surprisingly enough, strategy-related. We actually do a good bit of strategy work with smaller clients.
CM: How does your consultant partner fee structure work?
Mitchell: Previously, we offered what we call a lead pass fee, and that fee is 5 percent of the total services engagement. So, as an example, if a partner brought a lead to us for $100,000 and we ended up signing a contract with the client based on that lead, we would pay them $5,000. But, typically, once they brought us the lead, they would kind of step back and let us take ownership from there.
The new structure is something we call a co-selling arrangement. Actually, the formal term for this arrangement is something called a "closed contract fee," so that’s the IBM term that we use. The lead pass is the 5 percent; the closed contract fee is the new structure, and we pay 10 percent for that. In that case, we expect that the partner will stay engaged with us through the closure of the contract — not just hand us a lead and let us run with it, but actually stay engaged until we close the contract. And, in some cases, where they have skills, we will sometimes use their skills on those projects. So it’s more of a longer-term, more of an end-to-end kind of approach, and we’re paying 10 percent. So, in this case, it would be $10,000 on a $100,000 contract.
CM: What’s an example of a BCS offering that your consultant partners can now sell?
Mitchell: One of the new offerings is what we call an IT strategy assessment. And what we’ve done is taken what would be a more traditional, full, labor-based consulting engagement (let me just give you a hypothetical) that might have cost a client $150,000, where we would come in and do a deep dive into their IT infrastructure, how they’re spending their money. We’d look at capital expense versus operating expense. We’d ask them, you know, lots of questions, typically in excess of 600-plus kinds of questions, and then come back with a report, or an assessment of their IT infrastructure.
The new offering would be priced at $65,000, so it’s a little over a third of the traditional price. We use industry benchmarks instead of doing all the deep dives into the various levels of expense that they spend, and we use a data collection accelerator tool, so this is one of those assets I talked to you about that we would make available. We would use this tool to more quickly get these questions answered and, instead of asking 600 questions, we ask 100 questions.
CM: And this is something that your consultant partners can go in and sell?
Mitchell: What we are doing is that we’re making this offering available to our business partners to help us co-sell. So, because it’s packaged in a very well-defined, tangible way, we are comfortable that they can effectively identify a lead and, under the parameters I just described for the pricing, the standard statement of work, etc., they can actually go and effectively sell this for us.
Now, we do have to come in and provide the contracting terms, you know, certainly towards the end of the sell cycle, but we’re effectively saying that we are comfortable in letting our business partners sell this for us. Now, we still do the delivery or take ownership for the delivery. We might use them as a part of the delivery team, but we’re effectively incenting them as a channel to sell these prepackaged offerings for us.
CM: These offerings include intellectual property or assets that were developed by IBM research. Can you tell how BCS has worked with IBM research to identify the types of assets that are well suited for consultant partners to sell?
Mitchell: Yes. We actually have individuals in IBM Research who are measured on our success in bringing to market many of these assets through our consulting organization, through BCS. So, in fact, I’ve got a conversation tomorrow with someone who happens to be a former senior-level BCS consultant and who is now in IBM Research. One of his jobs (in fact, his main job) is to try to figure out which of those assets that have been developed in research are relevant to the consulting marketplace. And that’s how this inventory management solution came to be.
So it’s an ongoing process. IBM Research is a virtual treasure chest of opportunities, and the biggest challenge we have is in zeroing in on which ones are the most relevant. There are just an incredible number of assets and intellectual properties that we want to try to bring to bear in the marketplace in a relevant way.
CM: Knowing what you know now about these partners, both their skill sets and their limitations, is it easier to identify what assets are best suited to be deployed by consulting partners?
Mitchell: I think that we’ve done a good job of identifying the relevant assets, relevant in terms of, you know, client interest and understanding what we can sell in the marketplace. What we probably have to do a better job of is the whole expectation setting in the sell cycle of these solutions and assets. And what I mean by that is that what we’re trying to accomplish here is delivering value in the form of these engagements in a shorter time frame, which translates to a lower cost to the client. So we’re trying to bring to bear more affordable solutions and offerings.
And what we’ve seen, from time to time, is that when we get into the engagement, oftentimes the client will want to take different paths. They’ll want to expand the engagement after it’s really been defined with a certain fence around it. And I think that’s probably the biggest thing we’ve got to continue to focus on, that is, making sure that they understand that for this price, you get A, B, and C. And you’re not going to get D, E, and F unless you want to go to a more traditional kind of consulting engagement. Certainly we can do that, but the cost will change because the scope changes.