The Big Five consulting firms say the IT market has been “deadly flat” this last year and are positioning themselves in e-commerce for the next big boom.
But amidst the massive upheaval, questions are being asked about how fast they can do it, whether they can charge the “new way”, and where the smaller consultancies fit in.
The situation is described by the smaller consultancies as the Big Five having “identity problems” and by the Big Five as their most dramatic change ever. And they say they intend to keep evolving.
“What e-commerce does is it allows the likes of the Big Five to succeed in the strategy space, which was previously the domain of strategy firms like McKinsey and Booz Allen Hamilton,” says PricewaterhouseCoopers consulting partner Kevin McCaffrey.
“The Big Five were seen as slow to change. But we have changed our methods and approach - we call it e-speed.”
For both the Big Five and the smaller consultancies, the shake-up began globally late last year as Y2K fears caused many companies to place a moratorium on new IT work. IT strategy work slowed and enterprise resource planning (ERP), the Big Five’s consulting arms' previous bread and butter, began to die down. Boutique consultancies began nibbling at what ERP work was around and worldwide the Big Five began to lay off staff.
At the same time, the US-based Securities and Exchange Commission threatened to vote on a new rule banning the firms from offering consulting services to their audit clients - saying there was a lack of independence. Late last week the SEC ruled it would not go so far as to force them to spin off their consultancies. It said they could work for their audit clients if they followed stiff new public-disclosure provisions (see www.sec.gov).
But the wheels had already been set in motion, with Ernst & Young selling its consultancy to Cap Gemini, KPMG planning an IPO for the majority of its consulting business, Arthur Andersen ending a 10-year feud by splitting from its consultancy and PricewaterhouseCoopers undertaking to divest its consultancy business.
The underlying idea has been that with the advent of e-commerce an IT consultant’s role has changed. Clients don’t just want advice, they want action and technology implemented: a partner relationship, not a white paper. And they want it faster – in 90 days, not months-long projects like ERP.
In New Zealand, an all-out recruitment drive is in place for e-commerce and customer relationship management (CRM) specialists (see Big Five in hiring frenzy). Most of the Big Five are offering incentives for their staff to recruit people they know and trust. CGEY HR adviser Angela Grigg says as well as finding people who fit the company culture, it is a way of beating the tens of thousands of dollars in recruitment fees.
The Big Five say e-commerce work is building up fast and that local staff are in hot demand around the Asia-Pacific. Most work as one office with Australia.
Deliotte Consulting B2B principal Rod Gallagher, whose staff work on both sides of the Tasman, says there is a recognition some local work - and staff - are more advanced than the US. “I tell people I don’t know what’s in the water here,” he says.
Gallagher says his practice, which is involved in marketplace SupplyNet and My P-card initiatives, has been re-organised into four areas - sellside, or CRM; inside, or ERP; buyside, or exchanges; and outside, or outsourcing. Not-so-busy package and purchasing staff are being cross-trained in new technologies and all staff are involved in four levels of “e” certification, he says.
Deloitte Touche Tohmatsu chief Alasdair MacLeod says DTT works very closely with its consulting arm, and has been building up its electronic security practice. It also works with web developer Hyperactive.
Cap Gemini Ernst & Young, which has signed a deal with Commsoft Group in the UK for its callmaster software, is locally working on a number of electronic marketplaces, says B2B marketplace principal Dave Stewart. One for the Schools Trustee Association is slated to go live with schools this week. CGEY has set up “virtual teams” revolving around 10 dedicated B2B staff, Stewart says. Its critical technologies team is also working on projects offshore.
KPMG Consulting, based in Wellington, is leading the development of forestry marketplace WoodNet and is forming a supplies buying federation with E://volution.
Worldwide, Andersen Consulting - which changes its name to Accenture in January - has indicated a partial public offering and says it may evolve into an investor or spin ventures off. In New Zealand one of its first moves is to set up an arm of US ally Epylon to compete for government procurement, and managing partner Jack Percy says it is focusing on the G2B (government to business) space.
Its former parent, Arthur Andersen, is competing in the B2B space, building a marketplace for Biolab Scientific.
Internationally, PwC has seen its sale to Hewlett-Packard halted and also teamed up with local utility software company Peace Software. Here, it is working with development company Jade, notably on wood marketplace Lignus, and has launched a digital certification team. E-strategy principal Peter Adams says his team is working with large corporates who are looking at joining international marketplace Transora and the Australian marketplace corprocure.
Adams says it is the credibility of the Big Five which company directors have been turning to help make their decisions about e-commerce.
All say many projects are to go live over the next quarter.
“It’s e-business by stealth,” DTT’s MacLeod says.
But some say the hiring frenzy of technical people with business acumen may cause future problems of retention. PwC’s McCaffrey warns some of the Big Five may see the return of “mercenaries” or “hired laptops” like at the height of ERP.
Industry veteran Donald Moore says the Big Five will find themselves in a “Dutch auction” (in which the reserve is lowered until a buyer is found) if they are not careful. Moore, former head of Azimuth, says the smaller consultancies are able to build staff loyalty and offer attractive benefits such as stock options.
Moore says smaller players also felt the sharp decline in traditional IT services at the end of 1999. After its sale to US firm SeraNova in 1998, Azimuth changed from project management to e-business, shedding around a quarter of its staff.
Moore, who was in charge of Asia-Pacific and has since left to work for the Dairy Board, says his organisation had to be able to turn on a dime to keep up with industry changes – and did so months ahead of the Big Five. Much of its development work was done in India to keep costs down.
“They [the Big Five] are in recruitment mode now where as we did it concurrently then,” he says.
Auckland-based RHE & Associates director Mark Hamilton says his firm made a deliberate policy of looking offshore for work when times became tough.
RHE, which is now strong in South East Asia and Australia, encompasses a group of companies including Agenta, which has taken on Meritech (formerly known as Worleys) as a 50% shareholder to build up its consultancy team.
It is the flexibility needed for e-commerce that the Big Five may find difficult, Hamilton says. “The Big Five’s challenge is to have a business model that allows them to do this,” he says. “The challenge about New Zealand is the continuity of work to keep people with specialised skills on hand.”
Intelligroup’s Jim Brodie is confident the market is about to get busy. He says the integrator and consultancy is able to keep staff because there is no history of redundancies, jobs are stable and there is no “corporate culture”.
Brodie, Hamilton and Moore all say there is a trend for new pricing models: traditionally the Big Five had high billing fees which included time, team work and materials, which companies today don’t want and can’t pay. They say the trend is for work to be tied more to the contractors' hours. This, plus the fact smaller consultancies can often do the work faster and with more transparent processes, is attracting companies away from the Big Five, they say.
But e-commerce consulting leaves a gap for pure consulting, even if it is not enough for the Big Five to survive in.
A new consultancy has started in Wellington, pulling together six of Azimuth’s most experienced former consultants. Callidus director John Allen says he questions the extent of e-business ennoblement needed in the country.
“The point is we bring experience and independent advice. People still want that.