Yesterday, BearingPoint filed for Chapter 11 bankruptcy protection. Some might feel it's too bad that it wasn't Chapter 7. In fact, everyone I've met who has worked in the organization (partners, consultants and administrators included) has never had anything overly positive to say about them. Much of the Arthur Andersen procurement/supply chain team went to BearingPoint a bunch of years back when their old firm broke up (the other part of that group went to Ariba) and has since left the firm (including my wife at the time, who was none too fond of the culture at BearingPoint). Besides discontented consultants and partners who left in droves, what led BearingPoint past the brink? Reuters notes that "accounting problems and a U.S. Securities and Exchange Commission probe" and a "heavy debt exacerbated by an acquisition spree between 1999 and 2002" were part of the central challenge. This resulted in "existing and new clients" shying away "from doing business with the company as concern about its ability to pay its debt obligations mounted".
I believe that the BearingPoint story proves a valuable point -- no pun intended -- for companies evaluating hidden risk factors within their services spend categories. After all, none of us can afford the time and effort when a key services provider, a true services partner to our business, becomes insolvent and can't restructure. But perhaps even more insidious are the softer impacts of a services firm headed down the insolvency path, even one that takes it only into Chapter 11 -- services levels (and overall project quality) decline, customer administration and management changes (as partners depart) and companies open themselves up to the potential risk of having contractors or consultants onsite (or handling confidential information offsite) that could very well work its way into the wrong hands should they leave the firm (trust me, this does happen, despite what some may claim. Job turnover is job turnover).
For these reasons and many more, companies should devote the same effort to monitoring, managing and mitigating the supply risk that service providers present in a down market as they do with the rest of their supply chain. Should you suspect that a services provider is having difficulties that impact your contract, confront them head on and don’t hesitate to switch providers as early in the process as necessary. Even though we’d all like to think the BearingPoint bankruptcy will be an isolated event, I strongly suspect there are additional larger firm bankruptcy filings still to come -- across the staffing, consulting, outsourcing, marketing and legal areas (accounting and audit firms, in contrast, are still in high demand). Given this, what should companies do to protect themselves from services supply risk? I'll offer three very basic pieces of advice that are by no means all encompassing.
First, put in place a systematic approach to monitor all service providers, examining both supplier performance and financial factors to gain an early warning into potential issues. Ideally, use technology to fully automate this process. Second, I'd suggest using a services spend management toolset to manage the lifecycle of agreements to not only be sure that the fee for specific, discrete agreements or statements of work is appropriate, but to also smoothly transition the requirements and agreements over to a new provider should that become necessary. And third, get to know your account manager or account partner outside the office. They are likely to be candid about what's really going on because they're interested in preserving the relationship outside of the brand they're currently working under. Because we all know that it's the relationships that matter most in the services business, a collection of industries where you're paying for human capital rather than widgets.