An analysis of the value of analysts

Lisa DiCarlo asks how maximum use can be made of analyst firms

On the website of mega research firm Gartner there's a section titled IT Budget Optimisation, which, among other things, offers for sale 20 research papers on strategies for cutting IT expenses.

The papers cover everything from deferring PC purchases to cheap options for IP videoconferencing. But nowhere is there any advice on how buyers might cut costs on another IT expense: IT research.

There are more than 400 firms selling technology-related research, data and advice, sales of which topped US$3 billion (NZ$3.8 billion) worldwide in 2007, according to The Knowledge Capital Group (KCG), an analyst relations strategy firm.

IT departments across the world spend tens of thousands of dollars every year on IT research sold by Gartner, Forrester Research, IDC, AMR Research, Burton Group and hundreds of other companies, raising the question of how, or whether, IT buyers can cut back or at least optimise their spending on research and advisory services.

There is nothing to suggest — yet — that sales of IT research will be affected by the economic slowdown, says Louise Garnett, an analyst at Outsell, which tracks the research market.

Indeed, both Gartner and Forrester, which are the only publicly traded US IT research firms, forecast double-digit growth for 2008. Both companies announced healthy first-quarter earnings, and neither has changed its earlier estimates for growth in 2008.

At Gartner, research revenue grew 18% in 2007 to US$673 million, and in May the company reported first-quarter research revenue growth of 19%, or US$189.5 million. Forrester recently reported first-quarter research and advisory services growth of 16% to US$55 million.

Just who are the clients behind that type of growth? Most IT research firms cater to two separate groups of clients with two different research business models: technology vendors, who buy "sell side" research to help them position and differentiate their products in the marketplace, and the companies who eventually buy those products, logically known as the "buy side" of the market.

Technology buyers use research firms as an insurance policy against wasting resources. "CIOs use them to validate their direction, approve their choice of vendors and products and in general, rely on them to keep from making mistakes that are costly in terms of time, money and manpower," KCG CEO William Hopkins explains in a report. "They gather, filter and synthesise information based on case histories, and they talk to a lot more people than you could ever talk to yourself."

Although it's relatively rare, IT buyers can also "rent" an analyst for an entire day of strategic advisory services, for between US$15,000 and US$20,000. Services like this are more prevalent on the sell side, observers report, where vendors are more likely to have a consultative relationship with an analyst.

To be sure, some IT departments consider research expendable, especially when cash is tight. "IT research is based around the idea that IT departments are doing something new," says Paul Massie, senior director of IT for a California-based semiconductor company, who dropped his Gartner subscription when his company's sales hit the skids. "But if there is no money in the IT budget to do something new, then you don't need the research."

The research firms, of course, beg to differ. "We would argue that we've done a great deal of work to write research relevant to clients during good times and bad," says Charles Rutstein, chief operating officer at Forrester, who cites the rationale of spending tens of thousands on a research subscription to save potentially hundreds of thousands in IT costs.

Either way, there are strategies that IT buyers can and should use for making better use of their research dollars. "In general, people spend as much or more [on IT research] in a tough economy," says KCG president Steven England. "But you want to make the right decisions."

When working with analysts, IT buyers should follow these guidelines to ensure they're getting the most value for their analyst dollar.

1. Target accurately Organise your technology initiatives and figure out which analysts and research firms cover those areas with the greatest depth. KCG's England recommends that buyers assess an analyst's value based on the quality of his insight. Talk to peers or do a simple web search to look at that analyst's published papers, speeches, moderated panels and quotes in the press. Even non-subscribers can often read short, bylined research abstracts on the firms' sites.

Remember, the top analyst in a given specialty may not work for one of the top firms.

2. Shop around Gartner and Forrester have the brand recognition, but smaller boutique firms also offer solid research and analysis, often for less.

3. Consider research-only deals Outsell's Garnett says that IT buyers get the most value out of contracts that include analyst engagement (see Pick a pundit's brain), but if you really just need the data and don't require a deeper dive with an analyst, you can save thousands by buying research only.

4. Become a case study If you offer to give an analyst case-history evidence of a particular technology deployment within your company, you can usually bank that in goodwill. It helps in building a long-term relationship in which the analyst may offer you a disproportionate amount of his time, or offer to let you call him directly with inquiries rather than go through the firm's inquiry service and wait a week or more for an appointment.

5. Truly engage with your analyst IT research buyers are responsible for understanding the roles and responsibilities of all those involved in the contract. You cannot monopolise an analyst's time, but you have the right to pick his brain, so make the most of your subscription and use all the resources you're paying for. "It's a shared responsibility," says Forrester's Rutstein. "If clients don't engage with us, two things will happen: They won't get a lot of value and they won't renew." Engagement, he says, should include inquiry, events, teleconferences and consulting.

6. Use data wisely Gartner's and Forrester's subscriptions are priced per-seat, which makes sharing information throughout an organisation expensive. Other firms have enterprise-wide contracts where clients are free to distribute research in-house.

In each case, savvy research buyers should have a firm understanding of the roles within their IT organisation to ensure that the right people have access to the right information.

For example, someone tasked with tracking business intelligence won't likely have much use for down-and-dirty data on virtualisation. Similarly, top-level research on broad technological trends should be channelled to executives rather than specialists in the field.

Don't be afraid to cut: Research buyers should take a pragmatic rather than emotional approach to their research spending and their analyst relationships. "Analysts can be very useful and valuable," says Massie, the IT director who dropped his Gartner subscription, "but they're not sacrosanct when it comes to budgeting."

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