About a year ago, Paul Shaughnessy boarded a plane to Vienna, Austria, where he was to deliver some not-so-upbeat news to Plaut AG's board of directors.
Shaughnessy, then the president of Plaut's $75 million U.S. consulting unit, had to explain why the unit, known as Plaut Consulting, Inc., was experiencing a sudden and dramatic slowdown in the sale of its consulting services.
Unknown to Shaughnessy at the time, his dour tidings would be of special significance to board member Gary DiOrio, Plaut's 41-year-old co-CEO and the person who had preceded Shaughnessy as head of the U.S. consulting unit. Named president in January 2001, Shaughnessy had been initially tasked with diversifying the unit's consulting offerings and breaking ground with vendors other than SAP — the developer upon whose products Plaut had successfully and exclusively built its consulting business.
The U.S. unit's less-than-happy news would trigger a number of changes within Plaut AG, beginning with the renewal of its exclusive focus on SAP consulting, and continuing, before year-end, with the resignation of DiOrio.
"Plaut's supervisory board has agreed to Gary DiOrio's request to resign from his position as co-CEO, Plaut AG," reads a press release that underscored an approach more commonly favored, perhaps, by fallen bureaucrats and White House appointees than consulting executives.
For his part, DiOrio wasn't exiting the firm. Instead, the release goes on to say that DiOrio would be resuming his role as CEO of Plaut North America, while Shaughnessy would be stepping down to head the U.S. unit's outsourcing business.
In essence, the two executives agreed to take a step back — an unconventional move for most consulting managers. Or at least one that few managers are willing to make publicly. Then again, Plaut AG is not exactly a conventional consulting firm. As the offspring of a European consultancy, Plaut Consulting, Inc., has often been a lightning rod for both good and bad news.
"When business is growing, it does so much more rapidly in the U.S. than in Europe, and when business is declining, it declines much more rapidly in the U.S. than in Europe," says DiOrio, who believes it's often difficult for European managers to understand the "huge swings" American businesses have to endure. "It's difficult for European managers to act quickly because they are apt to be more methodical, because there's time to act, whereas here, when a recession sets in, it's swifter and Europe has a hard time understanding that sometimes," he explains.
And so it was in the third quarter of 2001 when Plaut AG tallied a quarterly decrease in revenue of 11.4 percent, a dip DiOrio admits was almost entirely due to the U.S. consulting unit's sluggish performance.
"The primary area where we had difficulty last year was in the U.S. and the SAP consulting space," he explains. "While our margins stayed strong, our revenues declined dramatically. And that was our cash cow and our big profit-maker, so we had to take a hard look at the new lines of business that we were getting into."
Designed to help Plaut expand beyond its portfolio of clients buying back-office services, the new service lines included front-office solutions such as customer relationship management (CRM) and e-business consulting. Moreover, they led the consulting firm to hatch relationships with a number of new technology vendors such as Siebel Systems, a task that required additional time and resources — resources that had previously been dedicated to driving SAP-related sales.
"It became apparent to us that SAP's products in these areas are now ready … and it was better for us strategically to now focus on SAP. … Two years ago, they weren't strong in the front office or supply chain," DiOrio concludes.
Home Again
DiOrio appears to be back on familiar ground. Having first positioned the U.S. unit in the late-1990s, he is now hoping to regain its momentum by using an old formula — one that worked when he was last in charge of the U.S. unit.
Now that he's no longer required to be in Europe 20 weeks a year, his Atlanta office will once again become the command center for a major SAP consulting front-office push.
Today, the U.S. unit says that back-office consulting work accounts for only 50 percent of its revenue, compared to 1998, when the number was closer to 90 percent. In 2002, that number should rise again to near 65 percent.
According to Kate Murphy, research director at AMR Research, Inc., there was never any doubt all along about what Plaut's strength is.
"They definitely have a strong competence as both a reseller and a consultant systems integrator for SAP. It's absolutely key for them to stick to what they're good at and not go completely away from that," she says.
And now their percentage of revenues from service offerings looks quite different than it did just a year ago. DiOrio oversees a unit with 60 to 70 percent of its revenue coming from SAP, 20 percent from outsourcing, and the remainder from SAP reselling. Back in 2000, the business lines were broken down into Strategy Consulting, Front Office, Back Office, eBusiness, and IT & Hosting.
In spite of all its changes, Plaut Consulting isn't expecting a revenue jump this year. In fact, the consulting firm now expects a drop in revenue from the $80 million in sales it captured in 2001, due in part to the restructuring, and the sale of a hardware-selling unit that brought additional revenue into the firm. DiOrio, expects the sale of the unit to cut $15 million out of the firm's 2002 revenue stream.
Setting the Agenda
To help align the firm's businesses, a new global restructuring program, dubbed Target Ten, is now being implemented by Plaut across all of its business operations. Designed to improve the company's profitability in the short term, it is ultimately expected to raise the firm's operating profit margins to 10 percent across the board by 2003. In turn, the parent will accept "relatively" lower revenue growth.
DiOrio notes that the unit has already taken action in response to the restructuring plan, first by selling its hardware-selling unit, and then by choosing to partner inside Mexico instead of continuing to build its own operations.
One of the services with which Plaut now expects to drive growth is the unit's outsourcing offerings, now headed by Shaughnessy. As president of a service offering that accounts for 20 percent of the unit's overall revenue, he remains bullish for the unit's future.
"Outsourcing has been growing like gangbusters, and that led us to put a new data center in Phoenix that will be triple the size of the one here in Boston," says Shaughnessy.
Ted Kempf, principal analyst and program manager, Gartner Research, feels that outsourcing is something more companies are taking a look at, and for obvious reasons.
"In a general sense, given the weakness in the global economy, a lot of companies are taking a good hard look at outsourcing as a solid way of attaining cost savings. If you're an outsourcer, you can take the services you offer and get a lower cost and ship it offshore."
Tim Carlin, vice president of outsourcing for Plaut Consulting, says that about 80 percent of the firm's 35 outsourcing clients are SAP-related engagements.
According to Vito Raziminas, chief information officer at Flowers Bakery (a baking company reporting more than one billion dollars in annual sales), Plaut's offerings were competitive with those of much bigger consultancies.
"We actually put out requests for proposals, and received several quotes from the Big Five. Plaut did two things: First, they came in with a price they were confident in, and it was a situation in which there weren't going to be constant negotiations. Second, they backed all that up with seasoned consultants."
And while Shaughnessy may have taken a step down within Plaut's management ranks, DiOrio believes that the firm finally has the right person to rev up its outsourcing.
"His expertise is outsourcing, and he built the business and made it successful," says DiOrio. "He needs to be driving that business, and he's the one who can most effectively drive that business. For everybody, it's the right answer."
Only time will tell if Shaughnessy feels the same way, and if two steps back will mean one big step forward for Plaut AG.
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