IT Strategy - IT suppliers put pressure on consultants

The IT industry’s approach to consultancy changes with the moon.

At regular intervals, usually in direct inverse relation to the state of the hardware market, the systems and software suppliers decide that their real strength is in offering consultancy to their corporate customers.

Just as regularly, they turn their back on this route – often after some rather embarrassing failures – and decide to “stick to the knitting”.

This year, there are two trends at work, both serving to cut IT vendors’ consultancy partners out of the business equation. One is that some vendors are minimising the consultancy element of their offerings in order to be more price-competitive and to respond to customer complaints that implementation times are too long. The other is a renewed enthusiasm among IT suppliers to set up their own consultancy operations.

Their dilemma is clear. On one hand they are operating in an increasingly cut-throat market, price-wise, and with a customer base that has grown up with instant, disposable PC software and demands fast results. This seems to argue for cutting down on the consultancy involvement in implementations.

But that can lead to hasty implementations that fail to meet their objectives at all – and also, the vendors cannot charge high margin prices for off-the-shelf work. Some, seeing technology prices falling, decide to steer a middle road by offering services at lower prices than Big Six consultancies and taking all the profits for themselves.

In the past, however, this apparently logical move has usually been short-lived and after a year or two the major suppliers have realised that their large customers do require at least some consultancy with their IT projects – though perhaps rather less than they often end up being forced to take – and that IT vendors are actually not very qualified to offer it. Digital Equipment was a classic example of this yo-yo pattern. In 1992, it set up a separate company focused specifically on business and management, rather than technical, consulting and spent a fortune on hiring in personnel from Andersen and the like. A couple of years later it pulled out of this business entirely, and sold some of its company to CSC. But after a period of concentrating on advanced chip technology, Digital is now rumoured to be after a buyer for its systems units and is keen to focus on services again.

The same goes for many of its rivals. ICL recently announced a major European reorganisation, highlighted by the formation of ICL Services.

This brings together the company’s diverse offerings in the areas of consultancy, training and professional services into one group that ICL claims is large enough to compete with the consultancy giants. The only services arm left out of the new structure was the technical maintenance company, indicating that ICL is focusing away from technology – and may even sell this division – in favour of business services such as outsourcing.

The management consultancies may not be too worried by their IT cousins’ renewed enthusiasm for services. With some justification, they could assume the IT vendors will back off their territory soon enough, or at least call in their help. And anyway, with the economy in an expansion phase, there should be plenty of high value business for everybody.

More worrying may be the trend for software houses to reduce the amount of consultancy required to implement their products. SAP, whose vastly complex business suite keeps whole teams of consultants in work at many of the larger firms, is moving increasingly rapidly into offering “ready-to-go” versions of its software in order to compete more effectively with rival suppliers claiming implementation times of days rather than months.

This seems to reverse the whole SAP ethos, which was that companies did not just buy software but best practice and the basis of an entire process re-engineering exercise. This in turn required teams of consultants – and competitors have always been quick to claim that SAP wins a lot of its business through recommendations from consultancies, which know they will garner greater fees from a SAP project than most other software.

So moves such as the recent announcement that companies can now buy SAP’s R/3 software ready installed on a Hewlett-Packard server – as “plug and play” as such a huge piece of software can ever be – may be gloomy news for consultants. It may also be a more long term trend than the hardware makers branching into consultancy. There is a general disillusionment among large corporations with the time and money they spend on implementing IT projects. This was initially sparked off by the recession , but now is driven more by the sheer pace of business change – few companies can afford to spend six months to a year on an IT project.

IT consultancy is hardly likely to disappear, however, but it seems that it will be addressing different needs as we enter the next century. There will be fewer fees to be made out of business systems implementation as technology becomes increasingly “do it yourself” and the IT suppliers take much of the consultancy that is still needed for themselves. But with brand new technologies taking hold – ones that affect the whole way business is done, such as the Internet and mobile computing – most large companies will still feel the need of good advice, and they will insist that this is as independent of the IT suppliers as it can be.

Caroline Gabriel is a group editor in VNU’s IT portfolio.