Consulting services are gaining popularity and importance at all levels of the market. Research shows that the fates of CTOs, CIOs and their variously titled counterparts are intertwined with those of consultants. A study by US-based Forrester Research found, for example, that 62 per cent of 50 companies interviewed used three different consulting outsourcing services to help with Web development efforts.
According to Forrester analyst Christine Spivey Overby, in spite of market corrections that have hammered the stocks of many consulting firms, the trend will only get stronger. "I still don't see the dollar pool for e-commerce and related services shrinking," Overby says. Research group International Data Corp estimates that worldwide expenditures for consulting will grow at almost 16 per cent per year for the next four years.
As consulting services grow, the nature of the industry is changing rapidly. Old distinctions are blurring, new pricing models are the norm, and new kinds of consulting firms are springing up everywhere.
Jose Campos, president of Rapidinnovation, a US-based management consulting firm, thinks many of these changes are for the better, but warns of dangers as well. "The days of black magic are over," Campos says. "Consultants can no longer get away with just writing a white paper for the client and saying OK, now you do what I say'."
The reason, Campos says, is that e-business has created a new playing field on which clients expect a partner relationship with consultants.
Post-ERP blues and dot-com turmoil
Many of the world's largest companies have already spent vast sums on consulting, which is driving change in the industry. The early to mid 90s were the glory days for the Big Five consulting firms (Andersen Consulting, Deloitte & Touche, Pricewater-houseCoopers, KPMG and Ernst & Young), which built lucrative practices around enterprise resource planning (ERP).
"I used to work for Deloitte Consulting and I can tell you some real horror stories," says Rajan Nair, COO of SeraNova, a US-based consulting firm. "The Big Five had their chance with ERP, but they seriously damaged their reputations. Bleeding their clients, long delivery and low ROI have made clients much wiser and more wary today."
Nair says his clients cannot afford to spend so much, nor wait so long for results. "We used to take six to eight months to do ERP implementations," he says. "Now, in that time period, we typically do three to four releases of a Web portal for a client."
SeraNova is one of many new-generation consulting firms; more familiar names include Scient, Viant and Sapient. These firms were highfliers on Wall Street, which generated initial enthusiasm. But they also had long dot-com client lists and have suffered from the financial slump in that sector.
Nevertheless, even conservative Wall Street analysts think this is only a temporary correction in an industry that has good long-term prospects.
"Fundamentally, the [consulting] services industry is a great business to be in," says David Sturtz, an analyst at Credit Suisse First Boston. "Right now these firms, like Scient, are struggling to adapt to a changing environment."
New world, new ways
Instability, as any chemist knows, often acts as a good catalyst for reactions. Two consulting trends noteworthy for their potential to shake things up are experimentation with hybrid models and new pricing schemes.
Until recently, strategy consulting firms and implementation consulting firms occupied different worlds. Strategists rarely got their hands too deep into the technology, whereas the people at companies like Andersen Consulting and KPMG found technology implementation a good business to be in because the messiness of installing and maintaining complex and unruly networked systems is impossible to ignore.
Although strategy consultants are still not ready to become technology implementers, they have been forced to recognise technology as a primary driver of strategy deserving of more attention. This year, for example, Bain launched BainNet, an alliance program that includes technology companies such as i2 Technologies and Oracle. It is a new kind of consulting alliance, whereby Bain acquires inside access to the latest technology from leading vendors who in turn receive strategy consulting help for their best customers. It is not, however, a joint marketing vehicle, nor an opening for Bain to jump into implementation, which company officials maintain they will still leave to others.
"This is a change for us," admits Steve Berez, vice president of e-commerce at Bain. "Business strategies are now driven by technology to an unprecedented degree."
New-breed consulting firms are eager to promote themselves as the ones offering strategy, creative branding and technology consulting all under one roof. Jack Lee, CTO of LeapIt, a US-based e-learning company, doesn't think many companies can pull this off however.
"I have worked with several strategy consultants and IT implementers," Lee says. "I think it is very difficult for a consultant to be a one-stop shop. A true consultant will not have a kit bag of solutions for you."
New kinds of consulting services bring new ways to pay for them. The giant consulting fees that burned so many in the wake of big ERP engagements were almost always billed as time and materials, which by association got a bad rap. Consulting companies are now experimenting with several alternative payment schemes, including fixed price, risk-and-reward sharing and equity payment.
"This diversity of pricing contract models will probably continue," says Stephen Lane, research director of professional services at analyst Aberdeen Group. "Paying with equity instead of cash, however, is not nearly so attractive as it was when stocks were flying high."
Adil Kahn, CEO of Hencie, a US-based consulting firm in Texas, doesn't think much of the fixed price model. "We never adopted [fixed price]," he says. "It is flawed because you end up building the risk directly into the fee structure. You may end up charging more rather than less."
Kahn prefers a shared risk model. "If we finish the job on time, you pay us a certain price," he says. "If we go beyond that, we give you a discount." He says this model is better suited for e-business engagements, where time to market is everything.
Kahn sees the day coming, however, when consultants make their money by becoming partners with the client. In this model, consulting resembles an outsourced service, one that remains an integral part of the business. "The client would then pay either a subscription fee or possibly a fee based on the client's business transactions," he says.
Kahn calls this the third wave in e-consulting, and as radical as it may sound, some of the oldest and biggest names in the business are talking about it.
Getting past the gatekeepers
These waves of change rocking the consulting industry are bringing clients more choices than ever before. Having these choices, however, is only an advantage when the decision is being made by an informed agent.
Shirley Singleton, president and CEO of consulting firm Edgewater says the agents most often exercising this choice are today's CTOs and CIOs. "It is clear that board members are more involved in hiring us than ever before," she says. "And it is typically the CTO or the CIO that we meet first. These people are the gatekeepers to the boardroom."