Consultancies face hard times

Consulting powerhouses are shedding staff worldwide as IT budgets are squeezed, though locally they will admit only to a "tough market" and lowering headcount by attrition.

Consulting powerhouses are shedding staff worldwide as IT budgets are squeezed, though locally they will admit only to a “tough market” and lowering headcount by attrition.

Analyst firm Gartner says the slump began eight months ago and is hitting the revenues of the implementation arms of the Big Five and niche consultancies. The outlook remains poor, Gartner says, with consultancies slashing rates by as much as 30%.

Asia-Pacific research manager Michele Caminos says every country is feeling the squeeze and September 11 fuelled the slowdown. Companies are no longer looking to expand, she says, but instead trying to make themselves more efficient.

Projects have shifted from infrastructure building, systems integration and application development to outsourcing, product support and maintenance. “Everybody is going through lay-offs. People are cutting jobs across the board. All industries are being hit at the moment,” she says.

IDC Auckland analyst Mark Cribbens maintains September 11 has had “no immediate impact”, though it may when contracts are renewed. Cribbens says competition in consultancy is increasing as general business consultancy moves into IT consultancy, as are large vendors such as IBM.

Accenture spokesman Stephen Reis says his firm’s consulting operations are little affected in New Zealand as they focus on government projects. “We haven’t really felt the pinch,” he says.

Ernst & Young national director of consulting Michael Murphy says the consulting market has been in steady decline since 1999 as the ERP “wave” is largely over and there are few big organisations left looking to implement it. Many consultancies “ramped up to an artificial bubble”, he says, and are cutting back because they had too many staff.

E&Y in New Zealand has not laid anyone off, he says, but has reduced numbers by 10% to around 40 by “natural attrition”. Murphy says the corporate market is under “severe pressure” with a “large fall off in numbers”. However, because his firm specialises in small and medium-sized enterprises, it has maintained “modest” growth. But he admits it is a “tough” market.

“We have [since September 11] had a reasonable numbers of RFPs; no less than normal,” he says.

Murphy says the biggest impact on the IT consulting market recently was Air New Zealand cutting all projects and finishing “a raft of contracts and consultants”.

“I have been telling my staff we are doing better than the market. The whole consultancy market is unmotivated because results are so poor across the board.”

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