Business of Consulting: IT services

Business of Consulting: IT services

The gulf that once separated management consultancy firms from the IT industry has narrowed considerably in recent

(Published in the Financial Times on November 18, 2005. Read the original here. )

The gulf that once separated the management consultancy firms from the IT industry has narrowed considerably in recent years, with a succession of ambitious moves by IT services companies trying to muscle in on the consultancy business.

The pioneer was EDS, the big US services company, which in 1995 acquired AT Kearney, the venerable 80-year-old Chicago-based consultancy – although the latter is now seeking an amicable divorce from its big Texan partner.

“We realised early on that clients could not get full benefit of our consultancy unless we could also offer an IT wrapping,” says Anne Deering, vice president at AT Kearney.

“It’s still the right answer, but you no longer need to buy consultancy and IT in one place, in fact, its probably not in the client’s interest,” she says to justify the forthcoming separation. AT Kearney now advocates a “smorgasbord” approach, buying consultancy and IT services separately.

AT Kearney appears to be going against the tide, however. In the past five years, the convergence trend has gathered momentum thanks to the forced parting of the waves between the Big Five audit firms and their consultancy arms, which created more opportunities for deals.

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In 2002, Europe’s IT service firm Atos Origin acquired the UK and Netherlands operations of KPMG Consulting. A year later, IBM paid $3.9bn for PricewaterhouseCoopers’ consulting business, PwC Consulting.

Other IT services companies, such as Unisys, have stopped short of acquisitions and instead created or strengthened their own consulting divisions, taking advantage of a ready supply of consultants laid off by the traditional firms after the dotcom collapse.

The IT services companies argue that the convergence trend reflects the reality of today’s business environment in which technology and business strategy are intimately linked.

“Businesses are looking at IT in the round,” says Alwyn Welch, managing director for Unisys. “You cannot put in a new IT system and then separately, put in a change management programme. That approach will fail.”

He argues clients want to deal with firms that are prepared to “put their own skin in the game”. Once the PowerPoint presentation has ended, businesses want a firm that can go on to execute the strategy, install the systems and possibly run them well.

Accenture pioneered this “soup-to-nuts” approach. As Andersen Consulting, it was the first really to exploit the synergies between strategic consulting and technology implementation.

When it severed links with the Arthur Andersen auditing firm and changed its name to Accenture, the transformation was complete.

Today, Accenture has no ties to its troubled former relative and in five years has acquired both
a separate identity and a solid reputation for both strategic consultancy and bread-and-butter IT
work, including outsourcing.

Its consulting services are divided into two groups: Business Consulting, the strategy-oriented arm, and Technology & Systems Integration, which handles the IT dirty work. Insiders say the two groups have different cultures: the strategy consultants work in a “high-performance” environment typical of top-tier consultancies, while the IT consultants concentrate on getting their job done.

The different cultures help explain why Accenture can wear both hats so well and, indeed, it has become the role model for the industry. “All the other guys are chasing the success that Accenture has had,” says Julie Giera, vice-president at Forrester Research, the US-based analysis company.

The big difference with Accenture is that it started as a management consultancy and moved into IT services. “Trying to do it the other way round is much more difficult,” she says.

Nevertheless, that has not stopped many IT companies trying to do just that. The best example is IBM, which prior to buying PwC Consulting already had a successful IT services arm, IBM Global Services.

Taking a leaf out of Accenture’s book, PwC Consulting was on the point of breaking free from its auditor parent and renaming itself “Monday” – a move that attracted much ridicule. IBM pounced instead and to the relief of many PwC consultants it was renamed IBM Business Consulting Services.

The acquisition was designed to strengthen IBM’s offerings in budding fields such as business process outsourcing and allow it to move deeper into strategy consulting. It was also meant to bring some gravitas to IBM’s consultants, who have long suffered from the perception that they exist simply to help sell IBM hardware and software.

With the creation of IBM BCS, IBM’s services division claims it is truly “technology agnostic”. Its consultants not only work on projects that involve technologies from rival vendors but also on engagements with no technology content.

“I am a strategy consultant and I know nothing about hardware and software,” says Peter Korsten, strategy partner at IBM BCS, who came from PwC Consulting. One of his current engagements is to help a company plagued by strikes. “There is no IT element in that,” he says.

Nevertheless, in projects that do involve IT, he admits clients are more sophisticated than they used to be and are wary about awarding the entire project to a single firm. “Using one firm gives better, faster execution but many customers want separate tenders for the business strategy,
IT strategy and implementation,” he says.

Sometimes IBM wins all parts of the project, but at other times it does not. In strategy consulting, for example, many businesses prefer to use one of the top-tier strategy firms, and then use another firm to execute the strategy. Even in these “execution-only” engagements Mr Korsten says management consultants still have an advantage over more narrowly-focused IT companies, which can feel uneasy working with a top strategy house.

“We are in a better position to interpret what someone like McKinsey has said,” he says. “I can sit across the table from the McKinsey guy and we both feel comfortable. What McKinsey does not want to find is a table full of nerds.”

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