The Sibling in the Shadows

Sometime this spring, Andersen Consulting is expected to finalize its divorce from its accounting sibling Arthur Andersen, putting an end to one of Big Five consulting's most dynamic duos.
Or will it? As the consulting behemoth prepares to step beyond its family's berth, Arthur Andersen Business Consulting, the auditor's other offspring, is ready to bask in the space vacated by its hard-charging sibling.
Long obscured by AC's sprawling shadow, AA's other consulting sibling, AA Business Consulting, is ready to be seen, and just how much there is to expose may surprise even the most well-informed consulting pundits. Boasting a workforce of more than 10,000 consultants, AA Business Consulting, last year brought in $1.35
billion in revenue.
"They haven't made a big deal out of [their growth] because it has not served their interests to do so," explains Marianne Hedin, manager of IDC's Consulting Services research program in Framingham, MA. "They knew that Andersen Consulting would eventually get wind of what they were doing, and get upset."
A quick history lesson: In 1989, Andersen Worldwide was established as the parent company for accounting firm Arthur Andersen and its newly formed sister company, Andersen Consulting. According to the firm's structure, Arthur Andersen would remain focused on its accounting, tax, and finance lines of business while AC was free to build its business consulting and technology capabilities.
After 1994, Arthur Andersen began quietly growing its consulting resources through a series of acquisitions that supplied the skills it needed to begin working with large audit clients. When AA's consulting businesses began to increasingly overlap with those of its sibling, AC began laying the groundwork to divorce its parent.

E-business on the horizon

So, just what type of consultancy is likely to step out from behind AC's long shadow? The answer being supplied by AA management may come as a surprise even to the firm's most ardent rivals.
No longer does AA view other Big Five consultancies as its main competition. Instead, the firm expects to be going head-to-head with many of the new upstart e-consultancies as it hurries to make e-business consulting 30 percent of the practice's work by the close of its fiscal year ending in August.
"We are not the first call typically from a strategy standpoint — our clients might turn to a McKinsey for strategy," says Charles Ketteman, the worldwide managing partner for Arthur Andersen's business consulting practice. "But they are turning to us to help them think about the implications of e-business. And the reason they turn to us is that they trust we will think it through from a very practical, business-oriented way."
For examples, TheStreet.com, a Web-based provider of financial news, tapped the firm to develop a global expansion strategy, while Motorola called on it to create an on-line ordering system for its Semiconductor Products division.

An appetite for e-savvy talent

To help escalate its advance into the e-space, the consultancy is changing its hiring mix. In the past, more than half of the new hires were experienced professionals recruited primarily from commercial businesses. The rest were undergraduates.
Now, about 65 percent of new hires will be undergraduates who have computer science and other technology degrees, while 35 percent will be experienced hires from other consulting firms. Of the 1,500 to 1,800 people it plans to hire by August, about 15 percent will be programmers, network technicians, and Web designers, to complement the firm's technology capability.
Besides recruitment, the firm's e-business credentials have received a boost from a business-to-business e-commerce joint venture called Sentius.com with Lend Lease, an Australian-based real estate company. The project will help companies sell their intellectual capital in an organized way over the Internet. Such joint ventures between Big Five consultancies are likely to be examined closely by the Securities and Exchange Commission, which has recently been working to bolster the enforcement of auditor independence codes.
"We take the SEC regulations very seriously," says Ketteman. "Our audit business is very important to us, and we make sure we follow the rules. We think we can deal with the regulatory requirements and still do our business."
Many of his competitors have already taken action. Shortly after an SEC report found that PricewaterhouseCoopers partners owned investments in their corporate audit clients, the firm announced that it was planning to separate its auditing and consulting practices. Ernst & Young's planned sale of its consulting division to Cap Gemini Group is expected to alleviate similar pressures.
It might also have been easier for Arthur Andersen partners to follow the rules. Unlike PwC, which works heavily with the Global 1000 companies, Arthur Andersen's business consulting practice has traditionally focused on middle-market clients — companies in which partners would not be as likely to invest.
However, other strategies could open AA to greater scrutiny. Arthur Andersen announced in January that it has provided a way to give its consultants equity in their clients. Recently, the firm established Arthur Andersen Ventures, a $500 million venture fund to invest in Internet start-ups focused on business-to-business commerce, new media, and Internet-based services. In addition to hatching innovative ways of working with its clients, the firm intends to have its consultants enjoy the financial rewards of its venture activities, Ketteman says.
"It's particularly tricky now," says IDC's Hedin. "The fact that they can potentially invest in companies, and that the auditors may have a role in it, can get really messy. There are all kinds of benefits for consultants in doing this. But there are also risks involved, and I don't think they've look at them yet.
"They are late in coming into the market, and that's a drawback, clearly. But they have the advantage, which Andersen Consulting does not have, of having a pretty strong presence in the middle market. That middle market is burgeoning and very fast-moving, with lots of opportunities."
Ketteman says that Arthur Andersen's presence in 84 countries offers capability unmatched by e-consultancies such as Viant and Scient. "These guys have to build international capabilities if they want to play internationally. We're already there. We have the legal structure, the facilities, and the culture in place," says Ketteman.
Hedin agrees that AA's offshore credentials could be an advantage for the consultancy. "Arthur Andersen has a very solid brand name in Asia and a pretty good one in Europe," he says. "And, of course, Europe has a very fast-growing e-business market, and you'll see the same thing happening in Latin America and Asia."