Edwarda, interesting article..
upside.com
Big Five back in consulting game?
May 11, 2000
by Lewis Pinault
The big business in e-business is not platforms, tools or applications, but consulting services.
The largest players in the $100 billion, 20 percent annual growth consulting business are the Big Five companies. The leaders among these accountancy-derived firms -- PricewaterhouseCoopers, KPMG Consulting and Andersen Consulting -- employ nearly 500,000 people and earn more than a third of all information-technology consulting-services revenues.
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The past two years have seen the beginnings of a major shakedown in the consulting industry.
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During the 1980s and 1990s, the need for large businesses to automate their internal operations through enterprise resource planning (ERP) systems with companies such as SAP (SAP), Baan (BAANF), PeopleSoft (PSFT) and Oracle (ORCL) led to extensive rounds of re-engineering work.
This fueled almost all of the consulting industry's major growth, not only for the Big Five, but for companies as diverse as EDS, Cambridge Technology Partners (CATP) and Cap Gemini Sogeti.
In the past two years, the consulting world has been shaken by a series of major shockwaves -- what some would describe as an extinction event.
The first impact seemed remote; in the mid-1990s, the Internet began offering clients a novel website window into their customer base and attracted some advertising interest. A handful of "pure-play" companies saw an opportunity in the vacuum of cyberspace. Complacently making their bread-and-butter with the installation of ERP applications from vendors such as SAP, the Big Five companies were bemused to find consulting startups and challengers such as Sapient (SAPE) and Cambridge Technology Partners offering fixed-priced ERP solutions.
Soon, newcomers such as Scient (SCNT), Viant (VIAN) and Breakaway Solutions (BWAY) began attending to the non-ERP digital needs of midtier customers. These new consultancies helped companies that might have been of Fortune 100 standing but were often comfortably seated among the Global 1000 while adapting to the Internet. Before the Big Five knew what hit them, they were faced with massive defections -- of both customers and employees -- to nimbler, more creative and potentially more lucrative startups and their clients.
Worse, clients began to question the value of the major ERP installations they'd been made to suffer at the hands of the Big Five. By the late 1990s it had become apparent that the Big Five were victims of their installation success: They'd largely saturated the top-tier market for multiyear $30 million to 40 million installations.
Changing times
The past two years have seen the beginnings of a major shakedown in the consulting industry. For most of the Big Five, layoffs and reorganization have become the norm. Companies such as Scient and Sapient have developed an entirely new business model, born of the Internet services designed for pure-play dotcom companies.
This model is fast, responsive, iterative, and highly integrated, suited to the work of small, concentrated teams working in collaborative bursts of intense activity. Its emphasis is end-to-end services and delivery, and its key attractions are speed, custom performance and deep accountability.
None of the Big Five-type consultancies deny the power and necessity of this new model, and each is trying not only to cope with it but also to imitate it, either internally or through spin-off enterprises.
Customers now expect integrated digital solutions from their consultants, small or large. Here, the Big Five may have an important, albeit ironic, advantage: Its intimacy with the client/server and legacy systems it has installed could be critical to the front-end-to-back-end integration that brick-and-mortar clients have begun to demand.
The next six to 24 months should see plenty of action. New alignments are already taking place. KPMG and its core client/investor Cisco Systems (CSCO) created KPMG Consulting earlier this year. Not long after, Ernst & Young sold its consulting arm to European powerhouse Cap Gemini Sogeti. Just eight days later, Gemini announced its own alliance with Cisco in Europe.
KPMG was quick to underscore that it saw no conflict of interest in its newfound sisterhood (through Cisco) with the erstwhile E&Y consultancy. But even before Gemini's Cisco grab, KPMG's original alliance with Cisco Systems had raised more than a few eyebrows.
"It's fashioned as an outside arm, but at some point the SEC undoubtedly takes an interest," warns Morgan Stanley Dean Witter analyst Mark Sherrick. "What percentage of your revenues can you really comfortably take from clients in which you have an equity stake?" he asks.
Despite multibillion market caps, upstarts such as Sapient and Scient, burdened by no such conflict-of-interest concerns, are increasingly cited as acquisition targets in their own right, and may turn out to be the last, best hope for injecting life back into the Big Five.
DOA or back in the game?
"I see the Big Five really getting back into the game, though maybe not all equally well," observes AMR Research VP Bob Parker. "They're still dealing with traditional perceptions in the marketplace, an association with ERP that will take some time to overcome. They need to move more from a project to a pilot mentality, learning to iterate, not vacillate. They're well-positioned to tackle clients' major exposures, online/offline integration, scoring, and fulfillment. They've got the experience vertically, and they're very well-positioned to leverage b-to-b and b-to-c competencies."
For Parker, the incumbents' major challenge is market perception. "For the last two years, the Big Five have been trying to shake the curse of their monolithic perceptions," he says. "They're moving back now to their practice competencies, pooling their operational strengths and expertise."
A key resource for the Big Five, he continues, is the startups themselves. "The teams are learning how to incorporate great creative talent," Parker says. "They recognize that they must know how to sell, develop and deploy complete pilots on an interactive basis and to extend contracts based on a constant re-evaluation of their value." |
