A.T. Kearney's Seven-Year Itch

Meanwhile, EDS's internal IT consulting arm, E.solutions, rocketed its quarterly revenues 38 percent year over year to nearly $318 million — the second trouncing of A.T. Kearney in two consecutive quarters. Revenues for the group were up 43 percent in the fourth quarter of 2000. Today, E.solutions is a $1 billion organization comprising more than 5,000 consultants in 25 countries, compared to A.T. Kearney's $1.33 billion in revenue and nearly 3,000 consultants worldwide.

Explains Brown: "We haven't done a good enough job over the years of integrating and collaborating the Kearney power with the rest of EDS, and that's changing with compensation plans which guide behavior and with new leadership expectations."  The impact of  Brown's new expectations became visible last month when 400 employees were eliminated from A.T. Kearney's workforce as part of a semi-annual performance review process. Meanwhile, EDS's overall head count has grown nearly 5,000 from the start of the year to 127,000. Healing A.T. Kearney's wedlock blues is expected to require more than a reduction in head count, however. It is a task unlike any Brown has faced before, and one that, depending on his success or failure, possesses the power to alter the evolutionary path of the consulting profession.

Strategy's Listless Nuptials

To date, observers of the consulting profession supply little evidence to support the existence of a successful marriage between strategy consulting and systems integration organizations. Whether it be the acquisition of the re-engineering juggernaut Index by Computer Sciences Corp. back in 1988 or IBM's meandering efforts to grow strategic capabilities organically, pundits describe such unions as listless nuptials, and the EDS/A.T. Kearney match has so far offered little to contradict this. For the moment, EDS management continues to praise its strategy consulting marriage and the union's alleged wisdom.
"If you talk to any McKinsey partner, what they will tell you is that there has been a sea change in the high-value consulting market today versus five years ago, and if you don't know what you're talking about in terms of technology and systems integration and what bearing it has on strategy, you're no longer relevant," explains EDS chief financial officer Jim Daley. Daley came to EDS from PricewaterhouseCoopers, where he served as co-chairman and chief operating officer of the firm's U.S. operations.

Asked what strategic value A.T. Kearney offers EDS today, Brown says, "They are in the inner sanctum — they're in the boardroom. … and the power of having A.T. Kearney up front is just enormous. There are billions of dollars of co-sourced opportunities that we are pursuing together."
EDS management today suggests that for every dollar A.T. Kearney garners "up front," the integrator is likely to pull through another ten dollars' worth of integration services work. The performance of EDS's pull-through model has come under increased scrutiny, however, and many analysts believe the model has yet to deliver the pull-through volumes of which EDS management today boasts. Earlier this year at an EDS analyst conference, Brad Rucker, executive director of Bluesphere, a unit of E.solutions, said that E.solutions and A.T. Kearney would like their business to be 20 percent to 25 percent collaborative. He conceded the number was likely lower, but was unable to say where the percentage currently resides. Other EDS managers peg E.solution's collaborative business at about 10 percent.

A Remedy to Foster Collaboration

That number is now expected to grow, according to EDS and A.T. Kearney executives, who believe collaboration is now being driven by the company's streamlined leadership, better communication, and new performance incentives.
"In the EDS of the past, we were difficult for anyone to interface with," says Ralph Burns, global vice president of marketing and portfolio management for E.solutions,who is responsible for integration with A.T. Kearney (a newly created position). But the new organization structure is beginning to crack the code, he adds. Now, when groups want to collaborate, "we don't need an auditorium to get 50 people together."
What's more, CEO Brown has intertwined the success of both groups. A.T. Kearney CEO Dietmar Ostermann sits on E.solutions' global leadership team, and E.solutions president John McCain sits on A.T. Kearney's leadership team. Compensation for both men, as well as regional managers, is partly based on the other business line's performance. "We make sure we're linked at the hip when it comes to e-business-related market topics," says Ostermann.

Ostermann, a 39-year-old German native, has committed to spending 12 days a year in each region for business reviews, plus quarterly global leadership meetings, council meetings, and annual officers' meetings. This is in addition to calling Plano, Texas — A.T. Kearney's new headquarters — a move that now keeps Ostermann in earshot of the beat of Brown's drum.
Still, Ostermann emphasizes the need to keep A.T. Kearney's own identity. "My desire is not to keep up with the rest of EDS," Ostermann insists. "My desire is to do the right thing strategically for A.T. Kearney in the consulting industry." What's more, the firm's new leader says he has no plans to assimilate into EDS's business structure. "We are very proud of our partnership strategy. A.T. Kearney will always preserve its brand name, organization, and processes," he says. Yet he boldly predicts 10 percent growth for the firm this year.

To meet that goal, Ostermann has unfolded a three-pronged vision for the consulting arm. In addition to "reinvigorating" its traditional offerings, A.T. Kearney will continue forming collaborative ventures with third parties, such as its 2Source offering with i2 Technologies, Inc. But perhaps most provocatively, the firm will dedicate up to half of its business to joint projects with its sibling rival, E.solutions, to add the vital technology component. A.T. Kearney will do the e-business strategy and process design work and E.solutions will implement those changes.
Today, it appears that A.T. Kearney has more to gain by riding the e-business coattails of E.solutions, but one industry observer says that's only temporary. "Right now, the situation does appear lopsided. But sales and delivery go in cycles," says Bob Djurdjevic, president of Annex Research, Inc. in Phoenix. A.T. Kearney finished the first quarter with a strong backlog of new work, but those numbers have yet to show up on balance sheets.
E.solutions' Burns says that A.T. Kearney brings to the table tremendous intellectual capital that it can't build internally. "Seventy-five years of building around a CEO agenda is very difficult to replicate," he adds. Ostermann agrees, and says that the firm provides E.solutions with incredible value through its top-notch access to the decision-makers at Fortune 500 companies. "The major assignments in the e-business space are handed out in the corporate boardrooms, not somewhere down below," he adds.

A Marriage in Need of Adults

Today, A.T. Kearney and E.solutions share 50 to 100 joint engagements worldwide, according to Ostermann, "but we're just at the starting point." One of those engagements, for soccer's international governing body FIFA (Federation Internationale de Football Association), began in the summer of 2000. A.T. Kearney developed a global e-strategy to leverage Internet, extranet, and intranet technologies to span the 204 countries in FIFA's membership roster, and then collaborated with E.solutions to develop and operate a set of pilot solutions (as well as to design the detailed technology architecture).

Ostermann says that joint projects like these will continue, but he maintains they will never represent more than half of A.T. Kearney's clients. The balance of work will involve traditional strategy work in manufacturing and automotive industries, which Ostermann predicts will rebound by year's end, and new business in consumer products, aerospace, and transportation industries.
 Certain consulting profession experts believe greater management muscle may need to be applied if  EDS's vision of a pull-through model is to be realized, however. Dean McMann, chief executive and president of The Ransford Group, a consultancy based in Houston, says that EDS needs to adopt a fully integrated model — one where EDS and A.T. Kearney consultants serve clients in an integrated fashion and where both agree that they won't take on client business unless it fits the model.
"If a particular client has no interest in the integrated relationship, then EDS and A.T. Kearney have to say, 'We're not going to deal with them,'" says McMann. "And that's adulthood. But from what we observe, EDS is not doing that — they're doing the old-fashioned 'Why don't you invite us into your client?'"

To become fully integrated with A.T. Kearney, McMann believes that EDS managers need to begin admitting when new business clashes with the integrated model.
"If we're going to take a project that doesn't fit our business model because of a short-term financial need, let's admit it. What happens is that people get tired of having to say the wrong thing at management meetings and eventually they won't do it anymore," explains McMann.

Brown's Pair of Aces

All eyes fall upon Ostermann and McCain. Most observers say that the two enjoy a good working relationship. Both men share youth, a let's-make-it-happen attitude, and the ability to avoid being "mentally tied to bureaucracy," according to Burns.
"The two guys are very collegial. They complement each other," adds Bram Bluestein, A.T. Kearney's executive vice president with global oversight of industry practices.

McCain brings to the table 15 years of tech industry experience. He was named president of E.solutions in 1999 and was responsible for integrating several independent business units into a new market-facing organization. McCain's roots are in sales for Norton Company, a worldwide manufacturer of industrial products, before taking a marketing job at EDS in 1986. McCain was promoted in 1990 from sales executive to sales manager for the Energy business unit. In 1993, while in sales development, McCain helped re-engineer EDS's sales process. He later launched EDS's CIO Services business unit. At the peak of the Year 2000 market, he created a 1,400-employee organization focused on the Global 1000 marketplace by developing, packaging, selling, and delivering technology-based solutions.
"He's incredibly fast, which you had better be in the e-business space," says Ostermann of his colleague. "He's incredibly knowledgeable about technology. He and I come from two different worlds and add to each other's strengths."
Ostermann, the first European to head A.T. Kearney, has spent the majority of his career in management consulting and has a more global reach than McCain. Prior to his CEO position, Ostermann was managing director for the firm's operations in Europe. Prior to that, he was A.T. Kearney's unit head for Central Europe, and before that, managing director of A.T. Kearney Germany and leader for the firm's North American automotive industry practice.
"Dietmar has a very direct style. He cuts right to the heart of the issue and he likes clarity. He's very high-energy, with the capacity to work at both ends of the clock," Bluestein adds.

Organizationally, Ostermann insists that the two businesses operate in tandem. "Make no mistake, the E.solutions business is by nature a consulting business. It has the same style of problem-solving, but just more technological problem-solving, more comparable to a Big Five style." But when it comes to compensation issues, there are differences.
At A.T. Kearney, officers are compensated based on the firm's performance, similar to the pay systems of other management consulting firms, but ATK officers also receive "very significant" EDS stock options, according to Ostermann. The E.solutions business, conversely, has no additional stake in A.T. Kearney's success. The two groups say they're working to put additional incentives in place, such as attractive commissions for cross-LOB sales. But Bluestein says that they are reluctant to tie more cash awards to A.T. Kearney's or E.solutions' overall success.
"We want to incent the right behavior first. We have different strategic objectives in different regions. We're not trying to develop joint management," Bluestein notes.

A Make or Break Year

Some A.T. Kearney consultants say that those behaviors haven't been clearly articulated. "The leadership still has not communicated a clear message about our focus on 'high-value management consulting' versus 'joint projects with E.solutions and the rest of EDS,'" says one A.T. Kearney consultant. "These are fairly different businesses that require different rate structures, and selling and delivery models. The two models target different executives with the same organization. As a result, a lot of senior people are really confused about what business we are in and what type of projects we are supposed to be chasing. This has led to quite a bit of confusion and inefficiency in the firm lately."

Both A.T. Kearney and E.solutions executives say that those issues are still being ironed out, but overall, both groups are bullish on their future together. Not all analysts are as optimistic, however.
"This is the year that either A.T. Kearney makes it or they don't," predicts one industry analyst. "If revenues don't improve, EDS will either spin it back off … or they're going to have no more partnership structure and adopt the same incentive plans as E.solutions."
In a recent quarterly report, Deutsche Banc Alex Brown referred to A.T. Kearney as "one of the business wild cards to the EDS story." Citing its "internal dislocation challenges" with EDS and no gain in market share, the analyst firm remains "very cautious on the near-term prospects for the A.T. Kearney business."

For his part, Ostermann says there is no plan to give up the firm's so-called partnership model. The very success of the A.T. Kearney-EDS merger in 1995 was a product of Kearney keeping its own identity and sticking to its fundamental offerings while using the opportunities today that a large IT powerhouse provides for top management consultants, he says. He also points out that only one A.T. Kearney partner out of 141 left the firm after the EDS merger. To hire the best talent in the world, "you need to have processes in place like the consulting partnership model. That is what we're preserving within the framework of a large corporation."  It's a framework that, according to Brown's new dietary regimen, will permit "preservatives" so long as they're fat free.