The resentment against the Big Five runs deep. Respondents to the Peerstone survey and IT executives interviewed by CIO claim the Big Five send them undertrained, underqualified people, and bill them at high rates. There is high turnover among these junior consultants, causing major disruptions in projects. CIOs also accused consultants of constantly adding in new work, blowing budgets and schedules. IT executives, it appears, are fed up with the way consultants get paid for every hour they put in on the project, regardless of whether the project is on time, on budget, or yields positive results.
With the Enron scandal forcing the Big Five accountancies to spin off their consulting divisions, the very survival of those divisions may be at stake. IBM is broadly diversified, EDS and Accenture are firmly rooted in outsourcing, but the rest of the former Big Five consultancies still rely on big engagements for a living. " There is a wholesale examination going on at these firms of the underlying principles that they operate under," says David Caruso, vice president and research fellow of Boston-based AMR Research. " That's the result of incredible push-back from users."
One thing is clear: the way these projects have gone in the past cannot continue if companies have any hope of getting a return on their vast investments - $US40 million to $US240 million for a typical ERP project in a Fortune 500 company, according to AMR Research. Even the consultancies agree.
" Western companies spent north of $US300 billion on ERP since the mid-90s, and if you put your hand on your heart, you can't say they got that back," says John Parkinson, chief technologist for the Americas for Paris-based Cap Gemini Ernst & Young, the second biggest IT consultancy in the US. " You look at it and say, I'm not sure that was the best thing to do - at least not the way it was done."
A Good Deal, but Not for You
In the early days of consulting, a few experienced consultants would sit down and noodle business strategies for their clients. They would charge high hourly rates and expenses - known as time and materials in the business - but only for a limited period of time. Then big IT came along, bringing enterprise software projects that were huge in scale, fuzzy in scope and seemingly endless. Armies of consultants were unleashed on Fortune 1000 companies to install the systems and redesign work methods.
Such contracts have become the golden apple for consultancies because they mean big deals, and big deals mean many consultants at the customer's site, all usually working on a time-and-materials basis. The archaic time-and-materials billing method does nothing to help control the scope or length of these projects. The consultants get paid for every hour they put in on the project, regardless of whether the project is successful or on time.
The Big Five depend on these enormous open-ended projects to preserve their profit margin, which typically runs anywhere from 20 per cent to 40 per cent or more. " Consulting firms make more money and get better margins by selling big deals," says Christine Ferrussi Ross, an analyst for Forrester Research (US). " The more people you have on one deal the more your cost of sale goes down. You're not out there having to look for another deal."
Consultants are also rewarded for selling follow-on work to customers so that once the company gets its foot in the door, it can stay there as long as possible. KPMG calls this its client-for-life strategy, according to Mark Lee, senior vice president of product solutions for KPMG (US). " Our intention is not to get into the client and stay forever on the project," he says. " It's building a strong relationship where the client looks to us to be a trusted adviser."
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