IT's war

It is no surprise that a large number of IT firms are critical of theon around the corner and some frantic acquisition of technical expertise by the Big Five. Then things will really hot up. Big Five consultancies. For one thing they are big and have been around for a while. We all know that sniping at big companies is not new – ask IBM and Microsoft – and often has its roots in jealousy, but there is something more substantial about having a go at a group of companies for not being technical enough.

An increasing number of IT vendors have opened or acquired consultancy wings and it may be in the interests of these IT companies to destabilise the hold that the Big Five have on the consulting industry.

Many IT firms have been driven towards consultancy services by a need to replace dwindling hardware margins. It is natural for these firms, faced with a new market opportunity but a brick wall of large competitors, to have a go at the traditional competition.

The sad thing for the Big Five is that they may have a point. IT strategy has become a key component of any consultant’s armoury and what with a skills shortage and the increasing complexity of technology, any attempt by the Big Five to dominate IT services would be foolish.

The growth in IT companies setting-up consultancy wings must therefore be of some concern to the them. And it’s not as if it is just small companies trying to fight their way out of a hardware margin hole either. IBM, Unisys, NCR, Siemens, Sun and Computer Associates are just some of the names that have set-up or acquired dedicated consultancy services.

So why the need? Is it that the Big Five are just not competent enough when it comes down to specialist IT solutions?

There are those that doubt whether the Big Five have the depth of technology skills needed to cope with a wide range of IT problems. It has nothing to do with their ability to compete on a business re-engineering level, but the on-going IT skills crisis in the recruitment market has played havoc with most company’s IT staffing levels.

According to Strategic Systems International, “the Big Five management consultancies have a very limited range of IT skills and don’t understand the differences between specialist small to medium manufacturers and global multinationals”.

Neville Merritt, SSI marketing manager and co-author of a white paper entitled The increasing role of management consultants in mid-sized projects, believes that the Big Five are geared more towards implementing SAP and not wholly addressing the wider range of IT issues.

In his paper, Merritt outlines a number of “problem spots” in the consulting industry. He says that most companies are “missing the big picture”.

Companies, he says, can be distracted by the obvious and immediate qualities required of an ERP system and therefore fail to address business implications, such as how productivity can be improved or stock holdings reduced. He also refers to other problems such as “inefficiency in the selection process” and a “failure to measure benefits”.

There are also arguments that the Big Five don’t have the depth of technical expertise because they don’t have to manage and service their customer solutions. Tony Howard, business manager for value added services at Siemens’ IT service division says that that is what differentiates the Big Five from the consultancy divisions of IT firms. “We have to live with our solutions, they don’t,” he says.

The shortages in skills is, of course, an industry-wide problem that affects more than just the big consultancies. IT companies as well as consultants, small and large, often complain about the lack of technically able recruits in the market.

However, the growth in IT consultancy arms is about more than just recruitment.

It’s about filling a gap in the market, that perhaps wasn’t there two years ago, and filling it in a way that the large consultancies were incapable of doing.

The change in the role and importance of IT from being about strategy implementation to becoming a more fundamental business driver has helped transform the market for IT consultancy services. Coupled with increasing competition, significant growth in company IT expenditure and the continuing need for hand holding due to a lack of in-house technological expertise, this change has lead to a breakdown in the advice-only approach to consultancy.

It’s a view supported by Peter Walmsley, senior consultant for The Smith Group. These market changes, he says, have lead to “many different players from very different starting points in the market starting to offer consultancy and related services. Some are viewing this offering as a means to access the front end of IT projects and hence control the larger components of system integration only. Others are positioning themselves in the market as more of a one-stop shop for different parts of the solution to increase both revenue and margin. Yet others are providing ‘best of breed’ technology advice in a very specific area. All of these approaches are quite different to the more generic process approach to IT consultancy provided by the Big Five.”

Walmsley says this has lead to market fragmentation and this can confuse customers. “Many suppliers are selected, not on the basis of competence, but on brand name, track record and personal recommendation,” he adds.

The fragmentation issue is an important one. We have arrived at a situation where small very specialist consultants are competing quite successfully with the Big Five. The usual form in this situation is that fragmentation is followed by a period of consolidation but until then, the small companies have an even chance to grow and become medium-sized companies.

Peter Gibson, director of Peapod Group’s recently launched IT consultancy division says that “the Big Five tend to be conservative and do not offer the range of leading edge services that a small, more specialised consultancy can offer. For example, Peapod has become the UK leader in e-mail security consultancy services”.

Why? “Smaller firms can be much more responsive and flexible than the larger ones,” he says. “Also customers often want to work with consultancies that are close to the manufacturers of the products that they supply.

The larger the consultancy, the more remote they are from the manufacturers.”

It’s a view supported by Walmsley who says that his firm competes regularly with the Big Five for consultancy contracts and often wins.

Others too, including TMS, Alternative Business Solutions and CMG UK, all claim competitive wins against the consultancy giants.

However, it is not all black and white. Kevin Adams, principal consultant at Unisys Global Customer Services says: “You cannot compare what IT organisations offer to that of the Big Five. The latter discover business problems and try to find technology solutions in specific companies. IT organisations create and market productised solutions which can be applied to business problems. The wording is close, but the meanings are distant.

“An IT organisation will always try to provide a lifecycle approach to a solution. The greater the capability for providing the solution completely in house the better. A Big Five firm will be happy with taking the high road of design and project management while subcontracting the majority of the work to IT organisations.

“In the long run I firmly believe that IT organisations will be successful.

As the idea of selective outsourcing becomes more accepted, more companies will be looking to the IT organisations to support their critical environments.

As we are supporting the business critical environments, customers will naturally turn to us to provide the higher margin consulting services to help them move their IT environments forward.”

He has a point and CMG UK director Chris Harrison agrees with him. “IT firms and traditional management consultants approach problems from two different perspectives. Different firms have different focuses due to different product and skill offerings. This makes partnerships all the more important.”

There is no denying that the Big Five are fine when it comes to business re-engineering and defining the business requirements for a line of IT systems that have been around for some time. Naturally, consultants will draw on past experiences. However, emerging technologies are less straightforward and often demand specialised technical knowledge.

Peter Whitfield, head of consultancy at Advanced Business Solutions suggests that “it is often the case that the real extent of the business benefit isn’t well understood and sometimes the technology will have to be adapted to be applied effectively to real business situations. That’s when a real understanding of the technology is important. Consultancies with genuine technical experience have a distinct advantage here.”

So what is the solution? The obvious answer is to work together to fill gaps in technical expertise with other consultancies that have the necessary skills. Partnership is better than doing a botch a job or even losing a contract through an inability to fulfil the demands of the customer.

“The growth in IT companies setting up consultancy divisions will undoubtedly erode some of the business of the Big Five consultants,” says Andy Morss, head of consulting at NCR. “Of course, the Big Five still dominate business in the broad and generic areas, but we’ll start out being niche. We’ve often partnered the Big Five on specific projects where we need complementary skills. There are so many areas of expertise and partnerships are for the good of the whole consulting industry really.”

The bottom line is that IT companies have set up consultancy wings because they can and because they need to. Gaps in technical expertise among the big consultancies and the growth in demand for consultancy services on an increasingly complex IT infrastructure have all fed the situation.

But it won’t end here. Some consultancies have grown on the back of new and emerging technologies but like any bandwagon, the wheels do eventually fall off. So while we currently have fragmentation, expect a period of consolidation around the corner and some frantic acquisition of technical expertise by the Big Five. Then we’ll really see what the IT consultancy wings are made of.

But it won’t end here. Some consultancies have grown on the back of new and emerging technologies but like any bandwagon, the wheels do eventually fall off. So while we currently have fragmentation, expect a period of consolidation around the corner and some frantic acquisition of technical expertise by the Big Five. Then we’ll really see what the IT consultancy wings are made of.