Consulting budgets squeezed during economic downturn

Consulting budgets squeezed during economic downturn

Scaled-back IT plans in response to a slowing economy have led some firms to slash their IT consulting budgets in an effort to rein in spending.

The trend has taken its toll on consulting and systems integration firm Computer Sciences Corp (CSC), which last week warned that fourth-quarter profits would fall to 35 US cents to 37 cents per share on a diluted basis, well below the 92 cents per share that analysts predicted. The profit warning cited a decline in demand in both the US and Europe.

"Everywhere I look, companies are being told to 'get rid of contracts with consultants' to save money," said Dave Pensak, principal consultant in advanced computing technology at chemical company Du Pont.

CSC said it plans to eliminate as many as 900 jobs due to the earnings shortfall. Xpedior, an e-business consulting firm, also announced last week that a decline in revenue has prompted it to lay off 300 employees, or 42 per cent its workforce.

In a survey of 20 European and 50 US CIOs released two weeks ago by New York-based investment banking firm Merrill Lynch, nearly half of the respondents said they will spend less on this year's IT budgets than they did last year. They also said the economic slowdown has forced their firms to prioritise or even delay projects. Forty per cent said they would reduce the number of consultants they use.

"We normally maintain relationships with a number of consultants, but for the first half of this year, we're aiming to reduce these relationships because of the change in the market environment," said Steve Norwitz, a spokesman for asset management firm T. Rowe Price Associates.

Norwitz added that the consulting pullback is "being played out across the financial services industry".

Last year, "everyone was trying to increase their revenues through consulting and Web transformation [projects]," said Joshua Randall, an analyst at Kennedy Information Research Group. Today, "more clients are trying to control costs . . . One way they can do that is by cutting back on professional services spending," he said.

Other companies are turning to offshore outsourcing. The Prudential Insurance Company of America, for instance, expects to save $20 million or more per year by replacing some US consultants with IT workers in a facility it opened last year in Ireland.

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