Since the early 90's website developers and digital business builder pure
plays have rapidly grown to take a large piece of the evolving e-business
service provider space. Realizing they were losing not only market share,
but also skilled expertise vital to their future, the legacy consulting
houses and systems integrators have announced measures to counter the
rising stars of the new industry. This can - and is beginning to - significantly
change the landscape of service providers in the digital business service
provider space. Luckily for the smaller players, there's still a lot of
room in the market to grow, and some time.
In a recent market survey conducted by TEC, almost every company stated
its major concern was talent - and not just any talent. This is talent
directed at the new and converging technologies brought about by the Internet
revolution. Talent - or its lack - has a lot of implications.
new companies with a more entrepreneurial flare have emerged to meet new
service requirements in the unfolding e-business marketplace, talent has
moved to these companies. Many have created new entrepreneurial cultures
that more traditional consulting organizations are being forced to match.
Further, the marketplace has been looking for the entrepreneurial spirit,
as well as flexible environments to develop e-business applications.
legacy consulting houses (which means the pre-Internet for this article)
consist mainly of two kinds. The first is the likes of Deloitte, Andersen,
KPMG, PWC, McKinsey, and Ernst & Young (discussed in Part 1 of this note),
and the second system integrators and IT outsourcers like EDS (with their
management consulting arm A.T. Kearney), CSC, Cap Gemini, and even smaller
players like Lante and Osprey.
large companies, focused on their legacy businesses, have largely been
cautious in their approach to the Internet as a market. Most have not
reacted until the past year when it became clear to them that the Internet
was not a flash in the pan. In one year, since that realization, these
legacy giants have taken a number of actions that have reshaped their
companies and begun a more entrepreneurial stance. The impact of these
changes is likely to be considerable for the middle and higher end, and
give stiffer competition to the pure plays that have had their way for
the past few years.
Recasting, Re-Branding, Re-Molding
The first indication that the e-business market was to be taken seriously
came with the appearance of the dot-coms, along with small sexy service
provider boutique players expanding their capabilities from being just
Since the mid 1990's many a talented individual has migrated from the
comfort of the larger consulting companies to take their chances in smaller
pastures. Part of their reason was to get away from being small cogs in
mighty machines whose character and discipline limited the creative side
of their talents so necessary for the new web environment. Other reasons
have been career moves and of course, the lure of major money from the
ultimate prize of overnight fortune making by acquisition or IPO. On this
basis they were (and are) willing to tough out startup troubles to make
a business work. For the big consulting firms, losing talented personnel
is certainly a serious concern, particularly when ex-colleagues became
Employee turnover in the big consulting firms, strangely enough, is not
exceptional for the industry. Traditional and the larger pure play service
providers have about the same turnover rates ranging from the mid-teens
to 20%, comparable to many IT shops. USWeb (now marchFirst following its
merger with Whittman-Hart) reported a 28% turnover, with the highest component
coming from its strategic personnel. Smaller companies with more share
options to go around generally see a lower turnover. However, where before
it impacted the technologists (programmers and systems engineering personnel)
it is now impacting the more senior level management strategists and industry
experts. There is anecdotal evidence at least that the drift is occurring
significantly from the consulting houses to the pure plays.
an obvious burgeoning and rapidly growing web-based marketplace - which
should also not detract from another reality, the shift away from traditional
IT outsourcing and consulting requirements - the market shift demanded
a business response. By 1998, the market change was very evident; however
the large consulting houses did not react partly because Y2K was heavy
on their agendas, and the skill set for the web was a very different proposition
initially to the skill set for Y2K fixes. As Y2K requirements have passed
(two milestones in fact were passed allowing easing of Y2K in recent months
- January 1, 2000 and February 29, 2000), and Y2K watches have ticked
away without much incident, a number of items have come to the fore.
To give credit where credit is due, the traditional consulting houses
all have been looking beyond Y2K for the past few years. Many had cranked
up their personnel to meet the Y2K demand, and now needed reason to keep
these people busy. After all, they represented a significant investment.
However, retraining takes time, and not everyone is retrainable. On the
other hand, their traditional skills still have merit in the whiz-bang
of the Internet: legacy systems integration is turning out to still be
a much-needed art.
around early to mid-1999, plans were infolded to deal with the next wave
of development, this being the web, for many of the consulting houses.
Up till then the pure plays had a market that they could exploit, growing
their businesses from website building, experimenting with the likes of
MCI WorldCom and service provider PROXICOM to create online shopping malls
(a much heralded claim and also commercial failure in 1994), trade marts
and auction sites. As the web-based business market exploded, the consulting
houses were caught with one foot off the ground. However, it was not so
much the competition of the pure plays, but more the market opportunity
and the need to leverage and keep talent.
In less than twelve months initiatives have been launched to take the
large consultants from the dregs of 1970's / 80's style programming for
Y2K to the 21st century.
Part 1 dealt with the large consulting houses who had arisen from the
days of accounting firms and business consulting. In this part we examine
the more pragmatic consulting houses whose practice is more directed at
building business infrastructures than businesses - that is the systems
consultants rather than the business consultants. Though as explained
in Part 1, this distinction is today becoming less clear.
- Computer Science Corporation
- Created e-business services out of its existing skill base
- Developed Leading Edge Forum which is a think-tank directed at the
digital age and provides insight into how CSC sees the digital future
- Catalyst 4DSM in the early 1990's while working with the National
Security Agency (NSA). Catalyst 4DSM is a methodology of moving from
a plan to a solution which reduces costs, and/or increases revenue and/or
advances time to market. CSC touts this methodology as being flexible,
short-term, and collaborative with the client
- Created partnerships such as Ariba, BroadVision, Oracle, and Siebel
(a standard set in this day and age)
- Provides end-to-end solutions (EES) for creating and maintaining
digital businesses effectively as extensions to its prior operations
- CSC is a founder of Ontology.Org, an independent industry and research
forum focused on the application of standards in Internet commerce to
support large electronic trading groups.
CSC has effectively taken its internal resources and, like Deloitte but
less so, reconfigured them into providing digital business building services.
However, the methodology is more directed at formal development processes
according to some users with whom TEC has discussed CSC. This means CSC
is not often flexible and the Catalyst 4DSM methodology may not completely
meet the digital business of today which must deal with value to shareholders
and rapid expansion in a dynamic and changing environment.
is following traditional paths in terms of trying to formulate industry
standards. In this direction they are right - industry indeed needs standards.
- Electronic Data Systems
- EDS went through a complete re-organization late last year to center
around digital business development, creating e.Solutions as the leading
- E.Solutions is an integrated suite of digital business services drawing
on the traditional expertise of EDS and reorganized around the new label
- The solutions offered by EDS are packaged systems which allows EDS
to deliver solutions rapidly
- EDS has restructured itself into specific industry groups so that
it can leverage development in one vertical application for others in
the same industry
- EDS has created the concept of the 'SuperPortal' and created myportal.com
which is a B2B2C value chain proposition
- EDS has let go the more traditional technologies through layoffs
and the restructuring plan
- Established ASP and hosting services via its service arm EDSInternet
- For government, EDS has developed a range of solutions on the Internet
- In its first quarter (January to March, 2000), EDS claims to have
signed up 308 digital business projects, half of which are dot-coms.
- EDS also provides management consulting services through its subsidiary
A. T. Kearney which is the world's second largest management consultancy.
reorganized - and impressively rapidly - once the Y2K threat appeared
to be beaten. For full practical service EDS offers a comprehensive suite,
however it has retained its traditional service elements and methods.
It remains to be seen if e.Solutions delivers over the long term in the
creative arena, or is more directed at the less creative environments
such as government and the backend B2B's. For users seeking the pragmatic
and not the creative, EDS offers a viable solution.
- E-Business Initiative: an automated and free online service that
connects the user to IBM's knowledge system, and provides and "instant
answer' to the user. It also connects you directly into IBM's sales
network and chat rooms. Generally, this is used for selling Big Blue's
software and hardware offerings in the low to mid-market segments
- A higher focus on CIO driven solutions rather than board level strategic
issues differentiates IBM from the pact. IBM is the CIO's pragmatist
in this sense.
- Creation of IBM National Testing Center, Gaithersburg, Maryland for
proactive site testing in terms of scalability, human factors engineering,
reliability, tuning, etc. Several regional centers have also been created
to provide service. The main focus is of course mostly IBM technologies
and platforms such as IBM Enterprise Storage Server, AS/400, RS/6000,
OS/390 enterprise servers and SP/2 systems, but also includes Windows
NT, multivendor UNIX, as well as EMC, STK, Sun, Dell, Compaq storage
- There are currently sixteen regional centers offering IBM prototype
test services in the North America, Europe, South America, and Australia,
linked through an international network to the National Testing Center.
IBM is intent on growing and adding more regional centers, such as in
Germany and other parts of Europe.
- IBM has established Application Management Services for ERP - essentially
a dedicated service for operating ERP services on behalf of clients.
- Change management consulting directed at the technology and technological
processes a CIO may have to consider - and how to approach them - as
a result of a business direction change. Though this may not tie in
directly to e-business, corporate changes in their business models do
require a realignment of technologies and projects to create the new
capabilities the business model needs (this is what TEC's Continual
Business Alignment program is all about).
- Grown its IT outsource capabilities with a view that many functions
will be outsourced from the perspective of an ASP (Application Service
Provider) model. IBM probably correctly recognizes that skill set diversification
and rapid change needed to maintain websites - particularly internationally
- will make it difficult for in-house MIS departments to maintain an
adequate level of expertise. This will be particularly true of the small
to mid-size companies (under the Fortune 500) who cannot afford to compete
in the marketplace for the talent.
- Packaged training programs aimed at all market levels (including
SMBs) for CIO's and their equivalents at the small business end
- Strategic change management courses at IBM's Advanced Business Institute
are now geared to incorporating e-business for executive and senior
- In January, IBM under its IBM Global Financing flag bolstered its
partnering program of Help Net Generation Companies to the tune of $500M.
In this scheme, IBM partners with selected VC firms to provide the technology
infrastructure. One might note that IBM Global Financing has some $40
billion in annual financing originations. In the U.S., IBM Credit Corporation
services IBM Global Financing customers.
- IBM has a number of programs in place for incubating start-ups including
up to $1M in interest free equipment and services loans, free of payment
for periods of up to 6 months.
- IBM has announced a low-lease equipment schedule for its business
partners. Service providers who are IBM partners should be able to pass
these savings on to their clients. There are three sets of IBM partners
that benefit from this offer: members of IBM's BP-Systems Integrator,
IBM's Web Integrator Partner Initiative, and IBM's Solution Specialty
For the behemoth that it is, IBM offers services of almost any kind under
the sun. However, its history as and association with its products is
of course strong. IBM personnel know IBM products. Having said that there
is a flipside. The services component of IBM tends to regard itself as
Although the major companies illustrated here have different offerings,
all provide in their own way the complete suite of services for the industry
segment(s) and client base they serve. The dot-com market has attracted
a great deal of attention among these large consulting companies, but
only a few really have taken the trouble to establish accelerator programs,
or specifically targeted them for the start-up.
IBM and EDS lead among the cluster of Type 2 consulting houses. However,
each of these companies offer different kinds of solutions and may or
may not be prepared to do the 'funky' deals that, for example, Deloitte
claims it is willing to do. The other organizations are focused away from
the mid-market and aiming for the high-end markets, generally leveraging
existing contacts in traditional industries. IBM, of course, is aiming
at everything, though their major income is from the high-end.
For users of large organizations the choice of vendor remains on who you
trust to do your business and for what, as well as dependent on the industry
you are in.
These large players offer several advantages that the user should consider.
These components include:
- Global Presence and continued enhancement of global/local capabilities
- Diverse service offerings
- Large expertise base
- Large labor pool
- Generally, high quality work
- Potential financing assistance programs
- Business Partnering Network(s)
On a general note, however, these companies tend to be looking for larger
players, and small projects are unlikely to draw the level of expertise
you may want. Companies used to dealing in $10M-$15M deals as a starting
point obviously may not have the same interest in the lower market.
many of these companies may provide the expertise to review your project,
but the team that will actually do the work may not be the same experienced
team who laid the groundwork for the engagement. The user should ensure
the people who prepare for the engagement are those who will actually
perform the work, and insist on at least one person of several years of
experience is on the team. Further, despite all the changes at the surface
level of these organizations, the user should understand that policies
may 'turn on the dime', but people and skill sets do not. This may be
balanced against the capability of the consulting organization to draw
on its knowledge base - often through an internal knowledge and resource-finding
large labor pool can be good and can be bad. From the good perspective,
the consultant can bring in the right people when they are needed; the
bad side is how many and at what quality and price. Padding of labor,
personnel rotation, and padding days spent are not unknown practices to
ensure engagement profitability for the vendor.
time and materials (T&M) is the most common, with these large organizations
it can be expensive. The advantages of T&M is that it provides a flexibility
in the case of sizable changes in the development specifications. Its
downside is that costs and business goals have to be tightly controlled,
and the user needs to have a good capability of managing the relationship
with the vendor.
price/fixed term is not always practiced by these companies: Deloitte
and Andersen may have some flexibility in this sense. One should check
as well if your service provider may belong to special partner programs
- particularly with IBM - that could reduce equipment and software license
costs. For IBM, check out: ">http://www-1.ibm.com/financing/webprod.nsf/ID/4ce04b
ASP - Application Service Provider
CIO - Chief Information Officer
- Digital Business Service Provider
- company with an Internet based business, and generally the name reflects
its web URL.
- Initial Public Offering
SI - Systems Integrator
-Time and Materials