If you don't like it, wait a minute," say New Englanders about their weather. Over the past two years, as the specialty e-consultancies claimed leadership in the U.S. market, the Big Five integrators have said essentially the same thing: Wait for the first storm clouds. It took longer than a minute, but the old fogies were proven right. In a quasi-recessionary market, most of the arrogant, young Web consultancies are scrambling for air, while the Big Five—Accenture (formerly Andersen Consulting), Cap Gemini Ernst & Young, Deloitte Consulting, KPMG and PricewaterhouseCoopers —are back in the catbird seat.
It's no mystery why the worm has turned so quickly, says Michael Sherrick, who tracks the consulting market for Morgan Stanley. The industry, which is based on short-term projects with low long-term visibility, is inherently sensitive to economic cycles. At best, says Sherrick, concepts like "backlog" and "pipe line" have only vague meaning. A company's—or a market's—fortunes can turn on a dime.
In this case, he adds, the market has lurched back to an emphasis on delivering value that can be measured, working on larger, more complex projects, and ensuring a return on investment. "The Big Five will be more relevant [in this] round of digital initiatives," Sherrick says.
Alden Cushman, VP of research at Kennedy Information Inc., agrees that the renewed emphasis on delivering quantifiable business value will benefit the Big Five, and he, too, eyes a comeback for the major consultancies. But he cautions that the comeback will be anything but stress-free.
"For them, this will be a 'show-me' year," says Cushman. "In 1998 and 1999, their Global 2000 customers were forced to go elsewhere for rapid response to their [Web-based] needs now the Big Five have to go back and reclaim the credibility they've lost. This is no slam dunk."
Other big challenges facing the Big Five as they emerge from their cocoon, says Cushman, include regaining the edge in recruiting ("market forces pulled away many of their best and brightest consultants"); differentiating themselves from one another; and coping with an overall consulting market that is projected by Kennedy Information to grow only 12.8 percent over the next four years. This compares with 20-plus percent growth in the 1990s.
In addition, the consulting game is getting bloodier. Just last week, Pricewaterhouse- Coopers (PWC) was forced to dismiss 400 employees because of the market slowdown.
Moreover, the major consulting organizations in recent months have undercut their fees by up to 40 percent in an effort to drive a final stake through the hearts of the e-consultancies, according to industry observers. If true, this price competition will put a further crimp in the Big Five's earnings.
Mike Gerentine, VP of partner marketing at Vignette Corp., a developer of e-biz applications, points to another challenge confronting the group. The Big Five need to heat up their tepid partnering efforts, he says. Specifically, they should increase their investment in marketing campaigns and joint programs with their software allies.
"I would like to see deeper campaigns and ... demand-generation programs," concludes Gerentine. "We do that with IBM on the software side."
Drilling down deeper, each of the Big Five consultancies must deal with its own set of challenges and issues that can become significant management distractions.
Deloitte Consulting, for example, is positioning itself as the only member of the group with ties to an auditing parent. That strategy—which flies in the face of the majority opinion that a large consultancy needs deep, public pockets—will not be easy to carry out. Moreover, as part of an auditing firm, Deloitte Consulting will continue to face SEC scrutiny over the separation of the consulting and auditing functions. And finally, Deloitte's approach—providing pure consulting services and reaching out to other areas of the company for related skills—brings another set of risks.
But all that aside, Stephen Sprinkle, Deloitte's global director for strategy, innovation and eminence, says the firm is clearly on the right strategic track. He acknowledges that "there's a bit of a cloud" over the issue of auditors' independence but insists the firm's reputation for integrity mitigates those concerns.
More important, Sprinkle argues that Deloitte is very well-positioned against its Big Five competitors, noting that KPMG and PWC both are attached "to audit firms that want to sell them," and that the future sale of those entities could raise doubts among their customers. As for Accenture, Sprinkle sees it evolving into a "merchant consultant" with ownership interests in a variety of businesses. While that may be a profitable strategy, says Sprinkle, it's also bound to limit the growth of Accenture's consulting activities.
Sprinkle says that if Deloitte faces one significant hurdle this year, it's a softening North American market for consulting services, which he expects to grow less than 13 percent.
Meanwhile, Accenture, Cap Gemini E&Y and PWC all are going to market with a suite of professional services under one roof, from strategy consulting, to traditional systems building, to hosting and VC capabilities. But these three powerhouses have pressing concerns of their own.
For instance, E&Y still is sorting through integration issues spawned by last year's merger with Cap Gemini of France, while PWC continues to grapple with the best way to separate from its accounting parent—either a merger or an IPO. (Mid-2000 M&A discussions with Hewlett-Packard went nowhere.) And Accenture has to brand its new name in the marketplace and then decide when—and if—to go public.
Cushman, who expects all but Deloitte to go public, says Wall Street represents a double-edged sword. While it brings access to capital to grow a business, the money can come with unrealistic growth expectations.
Over at Cap Gemini E&Y, Terry Ozan, managing director for North America, expresses no concerns about Wall Street expectations and insists the integration of the two firms is ahead of schedule. Annualized attrition, which was 30-plus percent last March, has settled down to around 20 percent, he says. Worldwide leadership teams and mission-critical systems have been put in place, and the task of meshing U.S. and European cultures is progressing smoothly, Ozan says.
Moreover, given the ability of any established integrator to adjust its variable costs and maintain close client relationships and intellectual capital, Ozan is not troubled by predictions of a slowing market. "Certainly, the frantic pace of the late 1990s, where you had both Y2K and e-commerce driving enormous growth, can't be kept up," he says. "But this next generation of e-business, driven by B2B marketplaces, is a new ball game that falls right into our sweet spot."
Grady Means, the global leader for strategy consulting at PricewaterhouseCoopers, offers a similar prognosis for his firm, pointing to opportunities in helping clients "take advantage of the astounding leverage they'll get from trade exchanges."
The "huge transformation" that is occurring throughout every industry offers PWC the chance to leverage its own in vestments in customer relationship management and enterprise resource planning, as well as its knowledge of supply chains and relatively deep pockets, Means says. Going forward, he adds, these factors will raise the barriers to entry in the consulting market and push serious global contenders toward the waiting arms of Wall Street.
"In the short term, the changes might be confusing," he admits, "but long term, we're more optimistic about our growth than we've ever been."
Don't tell e-business product vendors that the Big Five consulting firms are hopelessly out-of-date.
A number of vendors are increasingly boosting their business with old-line consultancies, which became less than fashionable during the rise of the Web integrators. Vignette Corp., a maker of e-business apps, is among them. "Our strategy moving forward in 2001 is to get laser-focused on the larger, more strategic global systems integrators," says Mike Gerentine,VP of partner marketing at Vignette. Companies with Big Five backgrounds take two of the three slots in Vignette's top partnering tier: Accenture and PricewaterhouseCoopers. The third is an established integration stalwart: IBM Global Services.
The story is much the same at e-commerce platform vendor Art Technology Group. Jeet Singh, CEO of ATG, says he has seen his company's business with traditional integrators soar in recent months. "The Big Five really dominate the amount of revenue we see," says Singh.
In addition to the Big Five, ATG also does business with the likes of Computer Sciences Corp., Electronic Data Systems Corp. and IBM Global Services.
Why are the Big Five suddenly back in vogue? For one, they are entrenched in the Fortune 2000 accounts that product vendors want to reach. Enterprise customers have maintained "long-standing relationships with the Big Five," says Gerentine. He cites the Big Five's vertical market emphasis as another plus and one that dovetails with Vignette's evolving business strategy. As Vignette moves toward a vertical sales model, the company will pursue deeper ties to the Big Five practices in such markets as financial services, high tech, publishing and retail.
Head count is another plus when it comes to doing business with the Big Five. Singh says that since late 1999, when IT resources became especially scarce, customers started handing more work to the better-staffed integrators. Hence, ATG has sold more of its products through traditional integrators. "The sheer amount of bodies translates into the number of projects they can do and the amount of product ATG can sell," Singh says.
Deloitte Consulting, for example, plans to train as many as 300 consultants on ATG's products. Accenture plans to train 500 staffers on its wares, while PricewaterhouseCoopers may train 200 to 300 employees.
Yet vendors have not dismissed Web integrators from the partnering mix. "Our research indicates the majority of firms rely on multiple consultants to drive their e-business development and implementation," says Anne Smith, VP of consulting and systems integrators at IBM. "Smart firms are leveraging the benefits of the big consulting firm's business experience and vertical industry expertise along with the creative agility of 'born on the Net' Web integrators.
Looks like "Big" is beautiful again.
Jerry Rosa and John Moore contributed to this story.