By Mark Leon
"I saw that we needed to spin off the consulting group," says Fernandez. "We needed to be closer to the technology, and we needed a better way to attract talented people."
Those in command, however, would have none of it. So Fernandez and 40 fellow KPMGers headed for Miami to form AnswerThink Consulting Group Inc.
It was a new kind of consulting firm. Fernandez and company saw the partnership model as a stuffy old-school holdover from the accounting side of KPMG's business, not well suited to the high-octane environment of business-technology consulting.
So they organized answerthink like a Silicon Valley start-up, with all employees getting equity. "This is the right way to get good people," says Fernandez. And, though he is modest about it, he admits to taking some satisfaction in the recent doings of his previous employer; KPMG Consulting, now a spinoff completely separate from the accounting firm, has instituted a stock option program and plans to go public.
These kinds of shakeups at the Big Five show just how much has changed in the consulting industry in a very short time. But, as Fernandez explains, they are part of a bigger process. "We saw this dramatic market change coming in 1997," he says. "This is reflected in both our client portfolio and what we are doing for our clients."
When answerthink was brand new, for example, enterprise resource planning (ERP) was still the driving force behind most consulting engagements. "One of our early clients was General Electric," says Fernandez. "It was an ERP job."
But that quickly changed. Consultants at Big Five firms, seeing the end of an era, were already beginning to talk about "after-market" engagements, a euphemism for smaller scale enhancements to the big ERP systems already in place. Those with a little more vision were starting to talk about something that few took seriously yet: e-business.
"Our first meaningful Web job," Fernandez says, "was with Bell Atlantic. They wanted to integrate the Web with their telephone-based, customer-support system. This was a primarily a cost-savings effort."
He says that 1998 was the year e-commerce really started to kick in. "An early engagement during this period was with Nextel Communications. They wanted to start using the Web to build an architecture for mobile devices and customer support."
These two engagements, while Web-related, serve to illustrate the market shift Fernandez says was taking place. Bell Atlantic's efforts were directed at the bottom line — cutting costs — while those of Nextel were directly tied to the core business, the revenue-driven top line. "It was an evolution," he explains, "from the back office to the front office."
The pace of change continued to accelerate, Fernandez says, as more senior executives began to wake up to the reality of the Internet. "By late 1999, we were working with companies that were considering a wholesale change — a complete redefinition of the business model in an e-context."
This meant that answerthink consultants were suddenly called on to do far more than connect a client's ERP system to a Web front end. "It meant," says Fernandez, "that clients wanted us to create software platforms that can be accessed by all business partners and customers."
This vision of a Web-enabled network that links all suppliers, logistics partners and end customers has fired the imaginations of executives, consultants and investors, which partly explains the high valuations earlier this year of so many less-than-profitable ventures.
Answerthink, however, managed to start making money in the second quarter of 1998, also the firm's first quarter as a public company. "We now have about 1,750 employees," says Fernandez. "1,500 of these are consultants, logging billable hours."
And whom they are billing has changed. "About 15 percent of our clients are true dot-coms," says Fernandez. He applies the dot-com label only to those companies that are building brand new businesses on the Web. "These can be established brick-and-mortar firms, but they must be doing something new, not just putting a Web face on an existing business model."
Of the 15 percent about half are brand new companies. The rest are what he calls "incumbent attackers." "That's the term for an established company that is launching a new initiative on the Web," says Fernandez.
He thinks this mix will remain fairly stable over the next few years. "I expect that the pure dot-com action in our portfolio — and this includes incumbent attackers — won't go much over 20 percent in the near term."
So far answerthink has shied away from major investments in clients. "It is nominal at this point," says Fernandez, "limited to a few incentive-based deals."
This will change, however, when the company launches its venture fund later this year. "We aren't yet ready to disclose the amount," says Fernandez. "We will be investing primarily in dot-com or other brand new initiatives. But of course we will be open to any good opportunity."
The unnamed fund will leave the work of discovering entrepreneurial talent to more experienced hands. "We won't take the lead in these investments," says Fernandez. "We will be following the major VCs when we do decide to take a position."
The place in which the company has taken positions of its own volition are in a string of some 11 acquisitions, beginning in 1997 with Relational Technology Inc. of Atlanta.
Of these, the biggest to date was THINK New Ideas, a New York-based e-marketing firm. THINK New Ideas specialized in market research, creative design, and Web branding.
The stock swap deal, valued at more than $200 million, closed in November. This acquisition was of particular strategic importance since it gave answerthink more credibility on the "front end" of e-commerce.
It also makes Fernandez more confident about his firm's aconsulting company," says Fernandez. "We already had credibility at the back end of systems integration and consulting. THINK New Ideas adds the cool front-end part that we needed to compete against firms like Scient, Viant and Sapient." To better accent the changes underway answerthink recently changed its name by abandoning the words "Consulting Group" and converting to all lowercase letters.
The THINK New Ideas deal was about more than name changes, however, and it today figures into answerthink's growth plans. Susan Goodman, co-founder and executive president, marketing and strategic planning of THINK New Ideas, is now corporate development officer at answerthink. "I am spearheading our global expansion initiative," says Goodman.
She says the nature of e-commerce makes it particularly important that the firm establish a global presence and global strategy. "Before the Internet," says Goodman, "companies could leave global branding issues pretty much in the hands of local talent. But now, customers can get on the Web and see all your global differences. So our clients really do need to have a global presence, and this means they will need people who can integrate systems on a global scale."
The fast pace of change at answerthink hasn't been entirely painless. "Their stock has not performed quite as well as some of the others in this space, primarily for two reasons," says Barry Chubrik, research analyst for Credit Suisse First Boston in New York. "Revenue growth from Q4 1999 to Q1 2000 was 7.4 percent. The street likes to see quarter-to-quarter growth north of 10 percent. Also, primarily because of the THINK New Ideas acquisition their turnover rate last quarter was 32 percent. Investors prefer a turnover under 25 percent."
The company, however, has no plans to slow down. Fernandez says we can expect to see more acquisitions. "We are looking in Europe right now," he says. "We want to find consulting and Web development groups there."
On the always-pressing issue of talent, Fernandez says it is still hard to find people with the right mix of skills. "Our biggest shortage is in getting experienced Web-oriented project leaders who also have solid business skills."
In particular, supply-chain skills are highly valued. "We have a brand new practice called ePlex," says Fernandez. "It is dedicated to collaborative Web-based environments. This is tremendously complex stuff, but it is what our clients are looking for."
He thinks that this kind of work will become a significant majority of the firm's business. "The goal is to build a platform that is for the buying and selling of goods throughout an entire supply chain and also has the same kind of efficiency that we see in stock exchanges. This represents a tremendous opportunity for clients and an equally big challenge for integrators."
Fernandez was right once, and if he is right again, this kind of integrated business-to-business supply chain platform will be the next wave, and those who ride it will be — at least for a time — on top of the consulting world.
Sidebar: What you didn't know about answerthink inc.:
• Founded in 1997 as AnswerThink Consulting Group Inc.
• Answerthink became profitable in Q2 of 1998, when the company also went public.
• Answerthink's consulting organization and support system was built from the ground up around a knowledge management system called MindShare, the brainchild of Allan Frank, co-founder and president.
• Answerthink has about 400 clients. Of these, about 15 percent are dot-coms. Of that fifteen percent, about half are brand new companies, and half are "incumbent attackers" or established brick-and-mortar firms launching new Web enterprises.
Sidebar: Firm Facts
Stock Symbol: NASDAQ: ANSR
Founded: 1997
Headquarters: Miami
Number of Consultants: 1,500
Number of Offices: 15 in U.S.; one in London.
Employees: 1,750
Annual Revenues: $260 million in 1999
Annual Growth Rate: 55 percent (1998 to 1999)
Web site: www.answerthink.com
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