By Russ Banham
When IBM Global Services cast its net to augment its e-strategy consulting capability in April, the Somers, NY–based company reeled in Mainspring for $83 million in cash. The acquisition was deemed a good catch, given the boutique consultant's intellectual capital, business savvy, and strong balance sheet. But did IBM really reel in Mainspring or was Mainspring, like so many other e-consultancies, about to float belly-up anyway?
Mainspring, based in Cambridge, MA, says that it was healthy enough to withstand the downturn in the consulting market — with or without the acquisition. The company had cash in the bank ($55 million after first quarter 2000) and more than 60 clients in the Global 2000 that continually fed it more business (95% of revenues derived from existing customers). It also had developed a reputation as a nimble and inexpensive e-business strategy and technical architecture consultant. "We were in no way on thin ice," says John M. Connolly, Mainspring chairman, president, and CEO.
But, with the market for consulting services eroding, larger competitors slashing fees to, in some cases, literally nothing, and an inexorable evolution toward a "total solution provider" consulting model, Mainspring — named after the mainspring in a watch — was running out of time. "This was one of 30 companies in this space that I've been praying every night would be acquired," says David Sturtz, a research analyst at Credit Suisse First Boston in San Francisco.
IBM answered the analyst's prayers on April 19, paying $4 per share in cash for all outstanding Mainspring common shares. The boutique becomes part of the Business Innovation Services unit of IBM Global Services, a newly organized portfolio of consulting services that IBM claims now garners more than $10 billion in billings annually. "IBM gets a grip on one of the very few pure-play strategy firms out there, while Mainspring's consultants get to keep their jobs," says Sturtz.
"It's a good strategic fit — conceptually," he adds. "While IBM has an excellent reputation in application development and technology implementation, it needed to bulk up its strategy offering. Now the challenge is to get two very different kinds of organizations — Mainspring's strategists and IBM's technologists — to work together."
Maintenance and Repair
Mainspring was founded in 1996 as a publisher of technical content relating to the then-nascent Internet. Founder Connolly's background was in publishing, making him somewhat distinct among the ranks of other boutique consulting heads.
Connolly quickly realized that content provision alone had its market limitations, and he gradually evolved Mainspring into an advisory capacity. Roughly two years ago, the firm started building a bona fide consulting team, cherrypicking from larger, more established consulting firms like Bain, BCG, and the Big Five, and teaming these consulting professionals with traditional technologists and MBA businesspeople. Mainspring's initial foray into consulting, marketed as Accelerated Business Sessions, was "for clients with lots of questions and no answers," says Joseph Gagnon, Mainspring senior vice president and co-leader of the consulting practice.
Early clients were primarily Old Economy financial services companies in and around Hartford, CT, and New York City, many worried about the threat of e-commerce start-ups. "They weren't sure what to do or where to place their bets," says Gagnon. "They wanted someone with insight and a point of view to make the decisions for them."
Over time, the firm expanded its advice beyond strategy into technical architecture consulting and project management services after the initial strategy engagement. "Companies were having a hard time conceptualizing the business models we were describing, like a major insurance carrier conceptualizing an insurance claims exchange," Gagnon explains. "So we started building visual prototypes, describing in detail how the technology would work operationally."
Mainspring opted not to do the actual technology implementation, leaving that to vendors such as Big Five consulting outfits and e-consultancies like Scient, Sapient, and Razorfish. As Gagnon describes this decision, Mainspring wanted to be the "architect and not the carpenter."
The emphasis on the pure-play aspects of consulting played well. Mainspring built a following in four key industry segments — financial services; retail; communications and media; and industrial life sciences — and a roster of Global 2000 clients like McGraw-Hill, Honeywell, and Kraft Foods. "They built a credible reputation and strong revenues by going to market and bidding on projects having already done tons of homework and studies upfront," says Anna Danilenko, senior e-consulting analyst at International Data Corp., a Framingham, MA–based market intelligence firm.
Mainspring's proposition was to provide the same values as a much larger strategy consulting firm "cheaper, faster, and better," Danilenko says. "I've seen their reports and market intelligence, and they were of very high quality. In terms of the industries they serviced, they were definitely competitive against larger consultancies."
And then the 21st century beckoned.
The Incredible Shrinking Universe
The flip side of the dot-com renaissance of the nineties is the dot-com collapse of today. Although Mainspring's clients were not, by and large, start-ups, the reverberations of this "boom and bust" cycle were felt in other ways. "The shift in the market from 'get me on the Web to allow me to take orders' to 'help me integrate all my Web pages and figure out what it means for the rest of my business' did not necessarily play into Mainspring's strengths," explains Alden Cushman, vice president of research for Kennedy Information, Consulting magazine's parent company.
Cushman contends that by narrowing its expertise to strategy consulting and not extending its service to technology implementation, Mainspring inadvertently cast a small role for itself in Act II of the Internet. "Once you get the strategy piece, you need the implementation piece," he says. "Sure, you can opt for two different service providers, but if you're looking for a business strategy firm exclusively, and you put together a short list, it's McKinsey, Bain, BCG, and, maybe, just maybe, you tack on Mainspring."
While Mainspring can offer referenceable accounts like the larger firms, "they certainly are not the strongest player here," Cushman adds. Danilenko agrees that specialization has its drawbacks. "Boutiques caught lightning in a bottle because of their specialized expertise, and they won many bids in the late nineties," she says. "But as e-business engagements became more complex, the opposite took hold. Although once pass
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.