Industry Analyst - Integrity and Transparency Issues

Integrity and Transparency Issues

Analyst objectivity and accuracy is an issue that is frequently debated. Much of the criticism appears to focus on the business relationships between analysts and the technology providers that are the subjects of their research. In short, analyst firms often rely heavily on revenues from the technology providers they cover (e.g., Darwin magazine, March 2001).

This source of revenue is a significant component of the business models of most analyst firms. Individual analysts and teams conduct research on industry segments where a vendor may provide products or services, and that same individual or group may provide research deliverables or advisory services to a vendor serving that segment. The analyst is then expected to provide independent objective advice to buyers of those products and services. This matrix of relationships presents opportunities where conflicts can arise. This is exacerbated by the training many vendor analyst relations professionals receive, where they are advised to focus spending on analysts that have the most ability to influence purchases of goods and services by clients, and to bypass controls analyst firms may have in place to preserve that objectivity by limiting direct access to certain analysts for non-research purposes.

There is also the issue of analyst firms signing boilerplate confidentiality agreements with vendor firms. This occurs when licensing research or performing advisory work, or when conducting detailed briefings in advance of announcements. The language in those agreements often limits the disclosure of certain information that may be disclosed to analysts in the normal course of their research, limiting their ability to fully disclose research findings to buyers of any research deliverable. Some research organizations now refuse to sign confidentiality agreements with vendors or service providers. But there may be a legacy of agreements in place that perpetually limit disclosure for some large vendor clients, so some of the smaller firms have limited work with vendors.

Burton Research, for example, enforces a cap of 20% of revenues to be derived from product vendors or service providers. Burton is now owned by Gartner, and continues to limit its vendor expenditures. Real Story Group is a small boutique firm that performs research on products and publishes evaluations. It works solely for buyers and refuses to accept business from vendors that are subjects of its evaluations. Despite a few exceptions, buy side industry analysts represent a small minority of analyst firms today. Even research firms whose services are tailored specifically to the interests of product and service buyers often derive some proportion of their revenues from vendors and service providers, since that information is important to them as well.

The debate over objectivity and independence has always been an active one, with some firms using independence (in absolute and relative terms) as a source of strategic differentiation. Other factors that affect research integrity include transparency with regard to research methodology and survey sampling, theoretical or shallow vs. in-depth or hands-on expertise of analysts, emphasis on qualitative over quantitative research, and the overall efficacy of a firm's research offerings toward the goal of improving the quality of business and technology decisions.