Kensington Group was one of the first analyst relations consultancies. After an unsuccessful purchase of that firm by Courtney Smith’s MetaSource Group in 2002, Kensington merged into a MetaSource company, KGI Management Consulting, and dissapeared from the analyst relations scene. The firm’s former CEO, Efrem Mallach, is principal at Lighthouse Analyst Relations.
Kensington was a powerful innovator, in a number of ways.
- * Tracking broadly. Analyst influence is concentrated. However this is disputed: some AR professionals think that only three analyst firms have any influence, and think those analyst firms are influential in different market segments (For example, one Texan competitor claims that only three or four analyst firms sell directly to CIOs). Kensington Group’s research proved that analyst influence was more widely distributed than many felt. It estimated that there are approximately 20,000 IT analysts worldwide. In 2003 it tracked 450 firms, more than double the number in 2001.
- * Consolidated buying. Kensington was the first consultancy to point to the huge waste in buying analyst research: something that only the largest vendors had previously identified. Different divisions within the same firm unknowingly bought the same research repeatedly. Some CIOs favored one firm, but did not know that lower-level staff were using five or six other analyst firms. By encouraging firms to established enterprise-wide contracts, companies became able to pool spending, win economies of scale and reduce their spend on core research. This also freed up budget for higher value services. Much of this insight came from Mallach’s experience managing competitive analysis for Honeywell Information Systems in 1979/1980. He analyzed contracts with Dataquest (which was not then part of Gartner). There were multiple independent contracts for exactly the same thing, rather than additional seats on a primary contract. There were also separate contracts for services that could have been obtained less expensively as add-ons to another. Dataquest’s sales reps were not economically motivated to tell clients about this. In some cases they didn’t even know, because the duplication involved international affiliates served by different sales forces. Still, Mallach and his team were able to increase their level of service from analyst firms while saving over a third of the cost by moving to one master contract. Undoubtedly some other large vendors use the same tactics: Kensington generalized it.
- * Demand ethics. When end-user organizations started to consolidate their spending with analysts in 2002 and 2003, Kensington noted the increasing importance of vendors’ spending: some analyst firms felt that they had the choice between ‘playing ball’ with vendors and losing revenue. Kensington’s work with CIOs showed that few understood the effort that technology suppliers expend on influencing analysts. The were the first to identify the potential impact of the ethical issues that now beset the analyst industry.
- * RoI from Analyst Relations. Kensington’s best known white paper, The Influence Imperative in IT and E-business, stressed the strong business returns that could be generated by analyst relations programmes. Kensington pointed out that successful analyst relations programmes have distinctive strategic goals and organizational structures.
- * Corporate alignment. Kensington focused the need for professionals to be “looking at the corporate goals and objectives, and making sure you’re lined up with those goals and objectives, in priority fashion.”
- * Virtual locations. Kensington was also one of first virtual consultancies, which attracted a team of highly qualified consultants by allowing them to choose their own locations. “Virtual teams are good for individuals as well as businesses,” said co-founder Norma LaRosa. “Individuals are able to reclaim control over the quality of their lives, while companies get the talented people they need without having to pay for the overhead expense that comes with it.”
- * Impact of Downturn. Kensington was one of first firms to see how 2001 downturn, both in spending on tech products and on analyst research, increased financial pressure on research firms. Analysts in the largest firms were downsized and sweated. Vendors tactics became more aggressive.
Overestimation of change is the most common error of forecasters, we have discussed before. After Kensington’s unsuccessful merger into KGI Management Consulting, which less to the departure of almost all the Kensington team, the brand was identified with one person: Norma LaRosa. LaRosa was not alone in overestimating the setbacks that the analyst industry faced in 2002.
- 1. Anticipated 60% fall. In 2003, LaRosa speculated that revenue had fallen 60%, from a 2001 peak of $6 billion. In fact, much of the spending that would otherwise be spent on research went into the analyst industry in other ways: in consulting; events; community services and other analyst firms. With hindsight, this development was much like the water cycle. Analysts were simply pressured into moving over to other ways of providing services – either through new firms or new offers.
- 2. Underestimated experience. LaRosa was reported as estimating that the average experience of analysts has shrunk from more than 10 years to about three. This was largely mistaken, but partially reflected something real: experienced analysts that left Gartner, for example, were often replaced with less experienced analysts. Even if these were fully qualified analysts, they took time to build up the expertise of the senior staff they replaced. This sharp contrast temporarily emphasized the difference between the new analysts on that beat and those that had moved on. However, many of the experienced analysts simply moved to other firms, or to other areas in the same firm. In fact, over 88% of analysts responding to Lighthouse’s surveys have more than 3 years experience as an analyst. Most have more than 15 years’ work experience.
Nevertheless, the quality of Kensington’s insights greatly outweighed its weakness in overestimating the impact of the downturn. Indeed, these weaknesses are especially forgivable in the context of Kensington’s simultaneous commercial crisis. Despite being a virtual organization, Kensington’s analyst tracking service and AR benchmarking surveys of analysts had high fixed costs. Many of the troubles that analyst firms faced were not only faced by Kensington itself, but were of even greater intensity inside its smaller organization.
The decline of Kensington Group was accelerated by a factor that also determined the decline of its prime competitor, SageCircle, namely selling their business to venture capitalists who promised to fund software development projects. Like SageCircle, Kensington was not able to overcome the challenges that this posed; Nevertheless its insights are of continuing value.