By Jack Sweeney
Back in 1996, as Microsoft Corp. management looked to grow its fortunes beyond desktop computing, the software maker's future CEO, Steve Ballmer, made no secret of the expansive role he envisioned management consultants playing in the software developer's future.
"I've been spending a lot of time lately trying to understand who at Andersen Consulting is in charge of deciding what to train all those new consultants on, and how we get it to be Microsoft-based," said Ballmer, exposing more than a hint of irritation over the fragmented approach many consultancies took to technology partnering.
Unlike the computer dealers and software distributors who helped Microsoft solidify its dominance on the desktop, the management consultants he viewed as a gateway to back-office computing projects did not appear to offer a single door-of-entry. For their part, consulting alliances were dependent on forming relationships with a patchwork of different specialty practices, each operating independently from one another. Still, the greatest obstacle between Microsoft and its future partnerships was not organizational.
Remaining mindful of the popularity its technology offerings enjoyed in the marketplace, Microsoft's top brass had begun to deem management consultants worthy of a word it used only sparingly — "influential." But what may have been a welcome compliment inside the world of desktop computing elicited only uneasiness from Andersen and any number of its consulting rivals.
A conspiracy of silence
The idea that consultants were influencing the purchase of technology inside their client accounts was unsettling to management consultancies, which preferred to think of themselves as trusted advisors, acting preferably out of the public eye, and, of course, only with their clients' best interest at heart.
This inbred public shyness was diagnosed as part of a "conspiracy of silence" in a 1969 book entitled the Business Healers — one of the few texts to trace the origins of the consulting profession.
"Consulting firms … seem to fear anything which migh t bare the true nature of their occupation to the public," explained Hal Higdon, the book's author. Much of Higdon's text seeks to expose the inner workings of the consulting profession and its dependence on the singular principle of independence — a principle that has recently become abbreviated as the profession marries into a myriad of other industries.
"As the consulting industry matures, we're witnessing the consolidation of related industries," says Stan Davis, the New Economy pundit and coauthor of Blur and the recently published Future Wealth.
"In the largest scheme of the economy, consulting is still a small slice, but what we've begun to see is a blending, partnering, and overlapping of industries, where consulting, venture capital, executive search, and technology are all blending together," says Davis, who believes that consultancies can't help but modify their precepts of independence in light of the emerging connected economy, where clients, partners, and competitors are increasingly one and the same. (See Davis interview, page 56.)
By parting with the more rigid underpinnings of its independence principle, the consulting profession is opening an evolutionary new chapter, where actions are no longer shrouded and consultants freely flaunt their influence, which by all measures is immense.
According to a CEO survey completed by Dataquest, between 65 and 75 percent of product selection decisions made by Fortune 1000 companies are today strongly influenced or actually made by third party consultants and integrators — and the percentage has been growing over time.
"CEOs are completely uninterested in hardware or software. They are interested in business results, and most of the time it's the consultant [who knows hardware and software] who has been enlisted to help the company find the solution," explains Denny Wayson, vice president and chief anayst of Dataquest's consulting and systems integration practice.
In the mid-1990s, Andersen, like most of its Big Six consulting rivals, preferred to conserve its technology-agnostic status, at least on the surface.
"Some clients like having a consultant that has a technical agenda, and some [don't]," Ballmer explained at the time. "The consultant without a technical agenda is where we have a harder time getting in with the customer. It's not that the consultants don't like us. It's just about [what] they are getting trained on."
This March, Andersen and Microsoft announced the formation of a 5,000-employee technology services company as part of a wide-ranging alliance to help build Internet businesses running Microsoft software. As part of the expansive alliance, Microsoft plans to give specialized instruction in Microsoft products to 25,000 Andersen employees — a third of the consultancy's workforce.
"This is the most significant partnership we've announced in a long, long time … I can't remember when we've done something of this magnitude," said Ballmer, who was named Microsoft CEO this past January. Be that as it may, the deal was even more significant for Andersen and the consulting profession as a whole. The largest and arguably most dynamic global consultancy had in one fell swoop forfeited any pretense of independence by linking its future to a software vendor's products. Andersen was not alone. Nine months earlier, KPMG had announced a $1 billion pact with Internet hardware company Cisco Systems. While both consultancies had built practices around so-called packaged ERP solutions, the new pacts were groundbreaking not only because they involved sizable cash transactions, but because of their exclusive nature.
"It would be naive to believe that we won't have some customers who have issues [with whether] we are completely independent, but I will tell you that having a bias, is a normal human thing, and whether you have an investment in a company or technology, or not, everybody has a bias" said Mary Tolan, the Andersen managing partner appointed to spearhead the firm's new growth strategy.
"Our partners are talking to our customers, so they can understand the trade-offs, and we find … if you come to the client with a point of view based on your accumulated knowledge, and what you do every day … it allows us to come to an outcome faster," said Tolan, who believes the growing speed-to-market requirements of e-business solutions are now making clients more accepting of consultancies with a technology bias.
Having freed themselves from the profession's principle of independence, Andersen, KPMG, and others are now free to flaunt their influence and use it to grow their own fortunes as well as their strategic partners'.
For Ballmer and other IT executives, Andersen and its management consulting rivals now occupy the high ground inside what technology vendors uniformly describe as the "channel of influence" — a cluster of external suppliers and services firms they believe are responsible for directing the product selection process in most major corporations.
Last month, at its annual conference for consulting industry analysts, Andersen's Tolan told the gathering that the consultancy was now "the world's most influential channel to business decision-makers." Because of Andersen's growing technology relationships, and its increased investment in Internet-related businesses, Tolan said that Andersen today wields more influence than even its most esteemed rivals.
"These [areas] have not historically been where clients have relied on McKinsey. This is out of their strike zone, and [as far as] business channel power goes, we really see ourselves differentiating our business here," said Tolan.
At IBM Corp., the influence of consultants has become amplified as technology decisions have become more closely tied to business strategy — a development the firm believes is driven largely by e-business.
"On the business unit level, we're seeing more and more clients seek their consultants' advice as far as how to deploy solutions, and it's clear that they are becoming extraordinarily influential in making product recommendations," says Wally Casey, vice president of worldwide business partner sales for IBM's Software Group.
How consultants migrated to the high ground of the venerated technology channel, and just what this means for the future of the consulting profession, has now been left as food for the pundits.
The great migration
Tony Scott, who today wears the exulted title of General Motors Corp. chief technology officer, enjoys a unique perspective on consulting's growing influence, having once been counted among the ranks of Price Waterhouse technology consultants.
"Typically, what would happen at PW is that our audit partner was in talking with the CFO of a company, or maybe the CIO, and a question would come up about technology, and they'd look to have some consultant drop by for lunch and talk about where technology is going and things to watch out for," explains Scott.
As the hunger for product knowledge grew among its clients, PW was drawn closer to its technology partners, he says.
"We would work really closely with Oracle, Sun, HP, IBM, or whoever, and get into their development organizations. That way, we could understand where they were going from a product perspective. In some cases, we'd do early adopter work with them or even participate in the development teams for certain things," says Scott, who, along with an army of other technology gurus, helped open new veins of opportunities beneath the expansive veil of IT consulting.
It was a path not all consultancies were prepared to take. While Bain and Boston Consulting Group chose not to build technology consulting capabilities, McKinsey's technology consulting efforts would have a false start in the late 1980s after the acquisition of a technology consultancy was deemed a failure.
"The strategy firms were very much concerned with the idea that if they linked up with a technology partner, they would no longer be perceived as the CEO's company. I think that was false, and not what people were concerned about," says Roger Nelson, the former deputy chairman of Ernst & Young and chief architect of the accounting firm's consulting arm (which catapulted to more than $4 billion in revenue in the late 1990s).
"You can be independent in point of view and not have an exclusive relationship. And I think we now see this happening slowly with the strategy firms," says Nelson, who, along with other Big Six managers, can be credited with helping to loosen the profession's dictums of independence at least as far as they relate to technology partnering and consulting's re-engineering fad.
"The way I look at re-engineering is that it was cleaning up yesterday's messes. It helped position companies to move into the future, but productivity is an efficiency play, one that props up a declining life-cycle curve, and so it's not about innovation. It's more about profits than it is about growth," says Davis, who suggests that consultancies will only be able to garner growth and innovation for their clients if they part with the principles that belonged to an earlier age — one in which wealth was conserved, not created, and talent was plentiful.
The winds of change
"When we list the criteria used by clients to select a consultant, product independence has fallen off the chart," says Dataquest's Wayson, who believes that consultants have in response eased off their own principles of independence.
To consummate its recent deal, Microsoft agreed to pay Andersen $385 million — a sizable sum, but one that may someday soon be perceived as a bargain, given the changing dynamics of the world's economy, where people's time and labor are quickly becoming currency, and where consultancies control vast reservoirs of human capital.
In essence, Microsoft may have just acquired 25,000 human capital units for a mere $15,000 a unit, or so goes the thinking now being advanced by Davis and other New Economy pundits, who foresee human capital being traded like gold futures. According to Davis, someday soon we'll likely see ERP programmers jump three points, while Microsoft Windows consultants drop down a quarter.
If so, the influence of consultants in the New Economy could grow much like the Dow Jones Industrial Average over time.
"We believe that tangible assets will start to lose their value as collateral, and intangible human capital will become more bankable," confides Davis, sharing a concept that many consultancies today are readying for deposit.
Sidebar: PowerPoints:
• Management consultants have historically preferred to not flaunt their influence in the marketplace and to yield the spotlight to their clients.
• Companies interested in partnering with management consultants often find there is no "single door-of-entry" into a firm, and alliances often depend on relationships with a patchwork of different specialty practices, each operating independently from one another.
• According to analysts, between 65 and 75 percent of product selection decisions made by Fortune 1000 companies are today strongly influenced or actually made by third party consultants and integrators.
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