Not much of a headline is it? Yet that would have been the headline had Gartner pulled its consulting operations out of Australia in the 1990's when they first set-up shop in Brisbane and stayed for the best part of a decade.  But the world has changed. Gideon Gartner and Michael Fleischer are gone and Gartner’s new CEO Gene Hall thinks in billions. And he reckons he won’t find them in Australia.

But let's be clear. It is not about the Australian ICT industry. I is not about the consulting. It is about the relationships. The reported concern by Australian CIO's showed Gartner that Australian organizations will comfortably pay USD$300/hr+ for consulting. The crux of the decision to pull out of local consulting is that the vast majority of Australian companies are either gun-shy or incapable of providing Gartner with what they really want; a sustainable stable of $1,000,000 relationships. Furthermore, most IT research (let's not misuse the term trusted advisor here) clients always go into renewal negotiations with an attitude of how much to shave-off the contract price, and not save on the year ahead. Little time and motivation is given to analysing those relationships. They are governed by procurement and not by strategic design.

Considering their influence Gartner’s decision to close down their consulting operations in Australia received very little coverage. And what it did receive mostly focused on pricing. But does anyone really think that pricing was the key driver? For some, USD$300/hr may be quite steep for everyday consulting, but no-one can say that there isn't a market in Australia for an 18-person consulting organisation (the approximate cache let go) capable of charging those fees for high-end consulting into the largest companies in Australia. There are an abundance of companies in Australia including every major law firm and accountancy practice who will continue to charge those rates for their top people – and get it – long after the Gartner consultants have gone home. Apart from the fact that no discussion on price is complete without a countering discussion on value (cause and effect), Gartner's decision to leave Australia was not about price. So, what was it about?

The Australian exodus of Gartner Consulting following the same event in Singapore 9-18 months ago signifies clear milestones of a changing business model that may take a decade to enact.

Since his arrival a few years ago Gene Hall has been talking about the need to drive deeper relationships with solid clients. And he said it again in their 2006 Annual Report. “Gartner consulting delivered revenue by focusing on building deeper relationships with key clients”. Regardless of the fact that it only corresponded to a 1% growth in that business year-on-year, it is a line that you will find repeated in any one of Hall's public statements over the past few years. It is also a mantra to be found in any one of former Harvard Business School Professor David Maister’s 7 or 8 best-sellers on running a professional services firm. It's an even-money bet that Gene has a stack of them on his bedside table. He and other senior Gartner executives will use this message to execute two key drivers over the coming years – let me outline them.

Using Gartner’s annual revenue of $1Billion as the example, the first key driver is the basic premise that states, rather than generate USD$100,000 per client from 10,000 clients, it is far better (profitable, manageable, sustainable etc) to generate $1,000,000 per client from 1,000 clients. To do this you need to undertake a number of committed activities. Firstly, focus your organisational attention on working with clients that you value and that in return value you. Secondly, you need to actively seek work in industries that your company is deeply excited and knowledgeable about. And thirdly, you must be able to address topics or problems to which you can add great expertise; ergo value. All of these activities highlight why price doesn't matter.

The imperative in this first driver that ties these three activities together is that the company who is executing it must be single-mindedly committed to that strategy, and find clients and markets that readily operate within those same principles. The net output of alignment across all these activities culminates in attracting, developing, and growing 100’s of those $1,000,000+ relationships.

That returns us to the crux of the decision to leave Australia. In comparison to other global markets, how many million-dollar Gartner relationships do you think there are in Australia or Singapore? Comparative to the US and Europe, how many is there the potential for? The size of the vast majority of Australia’s ITO’s would struggle to support this model. It is not that the market is not large, it is just dominated by SMEs.

For the second driver we can turn to a quick analysis of Gartner’s 2006 Annual Report. It clearly articulates that Gartner makes its profit from the sale of syndicated research and not from consulting. In 2006:

• 500 experienced consultants produced USD$305 million in consulting sales (but this also included analyst generated revenue from speaking engagements, briefings etc).
• 650 research analysts produced USD$640 million in research sales.
• Research revenue increases outgrew consulting revenue increases by more than 10x.
• Consultant utilization was 64% with annualized average of USD$390,000.
• Each analyst by comparison averages nearly USD$1,000,000.

Clearly Hall thinks Gartner can grow the deeper relationships outlined above through the analyst community who deliver both higher revenue and profit (and by default one could argue customer value) to the company. As Maister points out often, it is a model tirelessly executed by the likes of McKinsey and Booz Allen Hamilton. While both are private companies, we do know that McKinsey holds approximately 700 of the Fortune 1000 as customers. By comparison Gartner holds 400 of the Fortune 500 (more than KPMG globally and only 20 less than PwC) but mainly in the office of the CIO. With the right strategic approach, this points to some major blue-sky growth for the IT research juggernaut. But the others in this league won't just lie down and let them take it.

Gartner’s warehouse of content, people, and corporate DNA is perfect to take them into the stratosphere following the lead of McKinsey, Booz and others. What were necessary to make that happen were changes to the way that DNA was operating. And those changes are what we are beginning to see enacted. While the ultimate test of the strategy may take 10-15 years to eventuate, it will be evident over the next few years in increasing or declining profit as a percentage of revenue. Currently the mark (as at 2006) is approximately USD$58 million profit from $1 Billion in revenue.

It is safe to assume that all shareholders in public companies hope that the CEOs of those companies also think in future growth and billions as does Gartner's Hall, and Booz Allen's Ralph Schrader who doubled their sales from USD$1.8 Billion to USD$3.7 Billion in the 5 years to 2006. For the Australian ICT market it was never about price, and ultimately there will be many more signs of growth and change as the world watches Gartner grow. After all, they are not even 30 years old compared to McKinsey’s almost 80 and Booz Allen's 90.  And as with any great corporate change it is commitment to strategy that stands alone as the differentiator between good and great companies.

Gartner has their eye set on being “Great” and the withdrawal of their consulting arm from Australia is merely evidence of this larger strategy starting to evolve.

As they do continue to grow, tirelessly following the model of more analysts plus less consultants plus deeper relationships equals more revenue and better profit; Australian CIOs should not be concerned. Gartner will continue to be visible in the halls of corporate Australia through their analyst advisory services (consulting by any other name). The major pitfall that they will need to watch is how to beat the first-wives syndrome. That is, how they continue to serve their longest Australian relationships in light of now showing their hand that there are prettier and more desirable partners elsewhere in the world. We all like the personal touch - telesales support or quarterly reviews just won't cut it. The irony is that in the absence of an alternative, the market will accept the remote-support model as evidenced by the success of Corporate Executive Board.

If the first looming pitfall was squarely focused on Gartner's local customers then the second is squarely focused on their global competition. And it is this that will be the most complex management and board concern and therefore major concern for their shareholders. It will play-out in how they may begin to be perceived more aggressively by the much bigger fish in the consulting industry who will see them as less of a $1 billion research company and more as a genuine multi-billion dollar competitive threat. This may begin to directly affect their investment decisions as the big consulting companies attempt to drag them off their core game and value as the elder spokesman of global ICT.