As consultancies increasingly link up with IT firms, a new model is
emerging. Alliances bring together strategy, technology and HR to form a
flexible resource, offering clients a more rounded solution
The global market for consultancy services has dramatically fallen off this
year, amid upheavals that could transform the face of the whole industry.
In the US, growth in 2001 is down to 3 per cent from an average 20 per cent
annually over the past eight years, according to Consulting Information
Services. That is largely due to the recession in IT, and following the Y2K
scare and the scramble for e-commerce, major technology projects are less of a
priority.
Unable to find room even for graduates they have offered places to, some big
firms have shed jobs and offered sabbaticals to employees.
In the UK, the downturn is less fierce, but still discernible – the
Management Consultancies Association estimates that growth has slowed this year
from 21 per cent to around 10 to 15 per cent.
But beyond the immediate difficulties are wider concerns. One is the
perceived need to separate accounting firms from the consulting services they
so successfully spawned. Accenture, KPMG and Ernst & Young have all split,
and PricewaterhouseCoopers is expected to follow suit. For the moment, Arthur
Andersen and Deloitte Consulting remain connected, though some observers think
that they too may change in future.
The reason is a potential conflict of interest that prompted an
investigation last year by the US Securities and Exchange Commission. A company
that simultaneously provides a client with a £1m audit and a £20m consultancy
project is at least notionally vulnerable to pressure to quietly massage the
figures.
But perhaps the biggest force for change has been the powerful shift towards
technology in clients’ consultancy needs. In order to be equipped for
e-commerce, consultants have had to behave like IT companies, marshalling not
just intellectual skills, but costly hardware and software that in many cases
requires substantial investment.
To satisfy the need for capital, companies such as KPMG and Accenture have
sold shares in an initial public offering. This means partners do not have to
dig into their own pockets for cash, as well as attracting talent with the
promise of share options.
"As technology and strategy continue to converge, you’ll see more
consultancies consider the public markets," predicts Tom Rodenhauser, head
of Consulting Information Services.
But he adds, "Traditional consulting is a cyclical business and that
doesn’t bode well for investment purposes, where predictable or repeatable
revenue is preferred."
Nor is it necessarily ideal for the client organisation. Those that have
chosen not to take this route, notably Deloitte, point out that going public
shifts attention to shareholders, investors and analysts, an equation in which
the customer no longer comes first.
The alternative for consulting firms is to merge with the technology giants
with which they have become so closely involved in recent years. That provides
them with ready access to the funds and skills they need to implement IT
projects, while manufacturers benefit by shifting from the production of
commodities to high-value advisory services.
The "big five" have already developed alliances with major firms.
Accenture has been collaborating with Microsoft, and KPMG with Cisco Systems,
while PricewaterhouseCoopers has linked up with Hewlett-Packard to develop and
sell products to the aviation industry. Last year, Ernst & Young went
further in selling its consultancy arm to Cap Gemini.
More recently, Hewlett-Packard failed in its pitch for
PricewaterhouseCoopers, but both parties are thought likely to continue to seek
a partner, especially since the former’s acquisition of Compaq.
Collaboration of this kind could point the way forward, some observers
think. But here too there are concerns, since ownership by a technology company
casts doubt on the ability of consultants to give impartial advice on IT
systems.
That might seem to give an advantage to the larger number of middle-sized
firms that remain independent. However, in reality these are likely to suffer
as their big rivals, newly beefed up with capital and resources, put the
squeeze on the mid-section of the market.
Rodenhauser argues that many firms will cease to exist. "In a lot of
ways, this is the demise of consulting as we know it," he declares.
So what is likely to emerge in its place? Gilbert Toppin, chief operating
officer in Europe for Deloitte Consulting, sees those companies that have
developed a global reach prospering at the expense of those that still operate
nationally.
He also believes the market will diverge between relatively low cost
technology implementers on the one hand, and on the other those such as
Deloitte and McKinsey that combine an element of IT capability with high-value
strategic advice. "Fee rates have diverged, since technology firms are
based on programmers costing less than highly qualified industry experts with
MBAs," he says.
Toppin argues that companies are returning to a deeper appreciation of
business benefit, after a period when they were forced into costly IT
development by the "Millennium Bug" problem and the need to wire up
for e-commerce. That will mean a bigger market for traditional business
consulting, he predicts.
If companies further down the pecking order are quaking in their boots, that
does not apply to Hewett Associates, currently ranked at number two in the
market for HR consultancy, and number 13 overall.
Like Deloitte, Hewett Associates believes its global presence makes it well
placed to compete with the big players, no matter how well resourced. But in
common with them it has been moving towards a collaborationist model.
Tom Eddington, head of client development group for Europe, notes a
convergence between strategy, technology and people. "It used to be if you
had access to capital you could dominate the market. Now you need access
equally to talent and ideas," he says.
Companies that have historically offered technology consultancy are seeking
alliances or acquisitions with strategy or HR, Eddington continues. Conversely,
HR consultancy organisations such as Hewett are entering into strategic
alliances to provide IT solutions, and, in some cases, host the systems
themselves.
Earlier this year, Hewett teamed up with PeopleSoft, one of the major
providers of HR and payroll technology. Among others, it also has relationships
with Compaq and Dell, and, until it lost its funding, Skillset, a provider of
recruitment solutions.
The effect of such alliances is to extend the consultancy’s capability. When
advising on services such as employee portals, Hewett can help the client purchase
the necessary equipment through its relationship with manufacturers. It can go
further, for instance by providing a flexible benefits scheme that offers tax
advantages to employees buying their own computers.
Partnerships can also be a way to find new markets. When Hewett developed an
HR delivery platform for Royal Bank of Scotland three years ago, client and
consultancy entered into a joint-venture, seeking ways to market it to other
organ- isations. The fact that the bank already used PeopleSoft, an existing
alliance partner of Hewett’s, meant that the two shared a common
infrastructure.
As well as collaboration, Eddington refers to a process of
"co-opetition" with rivals such as Accenture. "They are our auditors,
and we provide HR outsourcing services to them, yet we frequently find
ourselves competing against each other directly," he explains.
Partnership between technology companies and consultants makes sense at a
time when clients are increasingly seeking business benefit from their costly
installations. A driver is the growing recognition that technology works best
in conjunction with an understanding of how organisations work.
For instance Accenture has teamed up with BT offering HR services online (see
personneltoday.com). It also has a year-old joint venture with Microsoft called
Avanade , which draws on expertise from both camps to build business-critical
solutions. Avanade benefits from Accenture’s consulting resources, industry
knowledge and business solutions delivery expertise. Microsoft provides
specific product expertise and access to its intellectual capital.
One telling change over the past few years has been the growing level of
trust in the consultancy market. Research by the Management Consultancies
Association (MCA) reveals a high degree of satisfaction, with 88 clients out of
100 questioned saying they would use the same service again, and 79 expecting
to benefit from the advice they were given within one year. More than half
expected the measurable benefit to be many times cost of investment.
The survey also noted the increasing willingness of companies to get
involved with clients. In a similar survey six years ago, a third of companies
said they preferred to keep the consultant at arm’s length. That has dwindled
to 4 per cent.
"There has been a real change in attitude," comments Sarah Taylor,
deputy director of the MCA. "Clients see consultants much more as partners
now than outsiders and there has been a maturing in the relationship. They are
increasingly sophisticated and know how to evaluate projects, which means that
although they are more demanding, levels of satisfaction are higher."
Taylor agrees that middle-ranking consultancy firms are likely to be
squeezed as consolidation takes place at the top. But she predicts that niche
players offering specialist skills will continue to flourish, often developing
relationships of their own. These could be large or small, but focused on a
single area, such as customer care, supply chains, or integration.
Both trends are illustrated by Ashridge Consulting, a specialist business
consultancy which offers a technology element through its partnership with
Amaze, a provider of knowledge management systems. The relationship grew out of
the recognition from both parties that clients needed something more than an
inert piece of hardware and software.
"There was an understanding that technology cannot provide better
processes within an organisation on its own and that there needs to be cultural
change to bring value," explains senior consultant Bill Critchley.
"Partnership enables us to unlock the power of IT by attending to the
culture of organisation. Otherwise it just sits on the desktop."
Where Ashridge believes it differs from much of its competition is in
favouring a participative approach to the client. Instead of telling the
company what it should do, it prefers to provide ideas and methods to help it
think the problem through for itself.
"There is a sense of frustration in marketplace with conventional
methods," Critchley comments. "Consultants have a tendency to offer
standard solutions that are tailored to fit."
"But these are inflexible, and advisers’ unwillingness to vary them
tends to deny the unique context of a particular organisation. Nor does it
engage its members in the development of solutions. As a result they feel they
are being imposed on and driven by an external methodology."
Not only do clients resent being talked down to, Critchley says, they may
also suspect that in their perpetual search for work consultants are always
looking out for potential new projects within the organisation whether or not
they are really needed.
Another development is the trend for niche firms to form relationships with
each other. For instance Burch Taylor, a firm of organisational psychologists,
provides consultancy to blue-chip clients who know what they want and prefer to
work with teams of specialists rather than go to a single large supplier.
"Some companies have been asking us to collaborate closely with a
hand-picked group of niche providers like ourselves," says partner Jill
Flint Taylor. "It is to everyone’s benefit to do that as an alternative to
bringing in a large consultancy."
For example Burch Taylor works with management development consultants
specialising in executive search. Once likely candidates have been sourced and
interviewed, the next step is to get the psychologists to give their
recommendations.
Taylor thinks that the changes at the top end of the market could mean that the
big consultancies strengthen their specialist expertise. But far from fearing
the competition, she believes that it will draw companies’ attention to the
kind of services the niche consultancies provide. That particularly applies to
business psychology, she says, whose benefits are only now beginning to be
widely understood.
Other specialists are uncertain about what the future holds. For instance
Aveva Consulting advises on IT issues in the engineering process industry, such
as the construction of offshore oil platforms. This has been largely neglected,
and is just the type of niche area that smaller companies have been able to
cultivate undisturbed by the big firms.
"They may possibly decide that they need to start moving into this kind
of specialist activity," says Paul Wheeler, vice president of business
development. "They have a lot of inertia, and there is a lack of expertise
in their organisations, so we haven’t seen any signs of it so far. On the other
hand it doesn’t take long for these guys to realise they might be missing an
opportunity."
Whatever happens to the consultancy providers themselves, clients can be
sure that it is their own needs that are shaping the market. And just as
consultancies themselves are teaming up with each other, it makes sense for
their customers to develop closer ties with their advisors.
"At the end of the day, consultancy provides a flexible resource,"
says the MCA’s Sarah Taylor. "Being able to pick and choose what kind of
skills it brings to the business, and where it gets them from, is a huge
advantage for the client, and it is always better for that to be part of a long
term strategic relationship."
Case study: Ashridge Consulting/Amaze
Alliance offers tailored IT approach
A particular failing of knowledge
management systems is that they are vulnerable to an excessive focus on
technology at the expense of organisational change. Ashridge Consulting has
begun working in partnership with Amaze, a systems supplier, to enable clients
take full account of both.
The consultancy started by setting up a pilot service six
months ago for its own employees, and this is currently in the implementation
stage.
"We try our methodologies before selling them on,"
says Nicolas Worms, senior consultant at Ashridge. "The way we usually
work is innovative and quite intangible, which makes it difficult to explain
unless we have experienced it ourselves."
"Where we add value with Amaze is understanding what it
can do strategically for a given organisation in its current context," he
continues. "The aim is to support knowledge sharing and development, which
has particular relevance within our own organisation."
Because Amaze approaches the concept of knowledge sharing from
an IT perspective it tended to look only for the right kind of interface.
Ashridge builds on that by supplying an understanding of organisational
dynamics. By identifying the social issues in a client company it can determine
what system is needed.
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"Most clients have good IT and strategic people, but they
will often have a rather mechanical approach, whereas we start with an
understanding of the organisation," says Worms.
"Organisations are complex entities, and for the
technology to work it needs to be merged with the social fabric."
