Part 2: Be Nimble or Be Gone!
By Joanne Sammer and Alan Radding
In the latter half of 1999, Joe Nemec recalls, he was working with an Internet start-up that was struggling to do well enough during the anticipated Christmas rush to survive into the new year. In this case, the stakes could not have been higher. The company's entire future rested on how well it performed during the Christmas season. And, of course, working on Internet time, "their definition of the short term was three days and long term was three weeks," says Nemec, a senior vice president at Booz-Allen & Hamilton in New York. Under these circumstances, "project teams cannot analyze and obsess; they have to learn and change."
When it comes to e-business, consultancies are not dealing with client projects that last months or years and feature project teams with 50-plus consultants. Instead, clients are demanding teams that can get in place quickly and produce results even more quickly.
David Pecaut, co-head, Boston Consulting Group's (BCG) global e-commerce practice, Toronto, identifies three types of e-business client engagements. The first are short assignments in which the client comes to the firm with a problem, which the consulting firm takes on in the form of a project. These typically run 2–6 months. "This is very similar to the kind of technology consulting projects we have done in the past," he notes. But this isn't where the big e-business opportunity lies.
The second are longer projects, which can run 36 months. These typically involve larger companies that feel they need to move very quickly into e-business. Here is where the new e-business consulting opportunities begin to reveal themselves.
The company puts BCG on retainer, and BCG moves an entire e-business team, consisting of 8–12 people, into the client company. The team conceptualizes e-business opportunities and structures various e-business deals. The experienced BCG team knows what to do and how to make it happen. "In effect, the clients are outsourcing a part of their corporate business development to us," Pecaut explains. Five of the top Fortune 500 companies already have engaged BCG for such e-business services.
The third type of engagement involves BCG becoming the temporary launch team for an e-business venture. "We can take an idea from concept to venture in 12 weeks and bring it live in 4–6 months," says Pecaut. BCG provides the start-up team and gets the ball rolling. As part of the process, the BCG people recruit permanent staff for the venture and taper off their involvement as the new hires come aboard.
The economics of e-business lead to a number of different pricing models. "The traditional time and materials contract is a thing of the past," observes Dave Skeels, vice president, A.T. Kearney, Chicago. Particularly when dealing with new ventures, whether from established companies or venture-backed start-ups, consulting firms are increasingly being asked to bet on the future. "This will involve risk-sharing and gain-sharing," he notes.
BCG certainly has no problem betting on the future, but not at the expense of its consulting fees. For e-business projects undertaken by its launch team, the company actually puts in its own capital and takes a commensurate equity position. However, it also charges the venture its normal consulting fees. "We do not discount the fees. We are getting premium fees because the demand is so high," says Pecaut.
"For small companies with promising projects, we might reduce our normal fee but take some options in the venture," says Raj Wall, senior partner, Axys Solutions, Dallas, which recently built a large e-business site for one of the national credit bureaus. For the Fortune 1000 crowd, however, Axys still prefers the conventional time and materials model. In cases where the client needs to move quickly and requires a series of deliverables, Axys may put together a retainer to ensure a certain level of service, with provisions for additional payments when extra efforts are required.
"It is not just fee-for-service anymore, but a much broader value proposition," observes Doug McCuaig, senior vice president, Ernst & Young (E&Y) Management Consulting Services, Toronto. E&Y takes an account-based approach to pricing e-business engagements. For companies identified as its top-tier customers and prospects, for which it wants to cultivate long-term arrangements, E&Y is quite flexible and will take on projects ranging from as low as $100,000 to as high as millions of dollars.
Increasingly, the norm is to complete a well-defined deliverable in a set time frame for a fixed price. A one-month project focusing on conceptualizing the strategy and showing a proof of concept might cost $50,000. The next step, a prototype, might require 90 days and another $100,000. The project just keeps rolling out step by step, each with a fixed time frame and deliverable for a fixed price.
E-business also is changing the way consulting firms handle engagements. The soup-to-nuts solutions and slow, waterfall implementation methodologies cannot match either the accelerated pace or the complexity of e-business engagements. For instance, an e-business consulting engagement involves not only business process analysis and technology implementation, but also branding, marketing, content development, advertising, and logistics. These capabilities often require skills beyond the core competencies of conventional consulting firms. Even the actual construction of the e-business site itself may be outsourced to highly focused technical specialists.
This changes the role of the consulting firm from doing to managing and collaborating. "Partnering is a big piece of e-business projects," says Mike Connolly, managing director, Diamond Technology Partners, Inc., Chicago. In the past, his firm maintained some loose partner affiliations, but now it finds itself performing in-depth research to identify the right partners for each engagement. "To speed the process, we're moving out of management consulting and into partnership management," he concludes.
The source of contact for e-business projects has also shifted. "These projects are much more strategically driven, so we are working at the level of the CEO and the CFO," explains Rob Kelley, vice president/e-business development, Broadreach Consulting Inc., Wayne, PA.
In the past, the point of contact for consulting firms often was the CIO or some line of business manager.
E-business is red-hot right now. But, five years ago, business process reengineering was hot. Three years ago, ERP was hot. Last year, EAI was hot. Six months ago, CRM was hot. As the Fortune 1000 finish ramping up their e-business operations, the intensity is bound to wane.
"This will last maybe four to five years," Pecaut speculates. But he doesn't see e-business disappearing. Rather, he explains, "E-business will become part of everything companies do. This is a core competency." As such, all BCG consultants will be e-business–related by the end of 2000, and e-business will become part of everything BCG does.
But Skeels believes that he can already identify the next big thing after this initial e-business thrust. "The next wave, beyond bringing up the e-business site and beyond fulfillment, is full business integration," he predicts. For both Skeels and Pecaut, then, e-business is here to stay, and mainstreaming will be its future.
Get ready.
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