Outsourcing

Revolution meets evolution on the consulting front

Layoffs and earnings warnings continue to rule the day for consultancies. Columnist Tom Rodenhauser says this all confirms that consulting is an innovative business but often an abysmal investment.

The nadir for e-consultancies is rapidly approaching. Proxicom, Viant, and marchFIRST all announced massive layoffs and/or earnings warnings this week. Like gasping fish flopping around as floodwaters recede, there is little left to do but wait for the vultures. Or as Aunt Matilda used to say: “Break out the forks, boys; these suckers are done!”

Companies writhing the death wriggle prove yet again that consulting can be a great business but often a lousy investment. Unlike privately owned consultancies, which cater to the needs of clients and partners, publicly owned consultancies serve three masters: clients, partners (aka senior executives), and investors.

Operationally, both types of consultancies follow the same time-for-money model. But partners at private firms have considerably more flexibility to weather bad times—think drastic price-chopping to woo new clients. Partners will forego the new BMW for the sake of the company. But public consultancies are severely penalized when they attempt such tactics because analysts don’t reward long-term strategy over short-term expectations.

Let’s hit the rewind button. The publicly owned Internet consultants assured us they could manage Wall Street by managing their clients. The statements didn’t jibe with the fundamentals of running a consulting business. Chest-thumping consultants who claim objectivity should have the fortitude to walk away from bad business propositions.

Really? When analysts rewarded revenue over profits, the e-consultants duly pushed growth rates through the ceiling and opened dozens of offices. When dot coms were all the rage, consultants willingly installed great systems that fueled crappy business models.

Such policies go against the industry’s purported Hippocratic oath: Don’t enable bad business models with good systems and don’t take on clueless clients lest your own reputation suffer.

Against their better judgment, many e-consultants partied like it was 1999. To be fair, old-guard consultancies played some of the same games—we don’t hear much crowing over venture-unit investments these days. But the vast weight of meritocracy that drives most of those firms precluded them from galloping over the cliff.

We’re at a point where the great shakeout of 2001 has commenced. The fish will quit flopping soon. In the Darwinian world of consulting, those that promise revolution are often eaten alive.

Heard on the street
NerveWire announced that Roger Nelson has joined its board of directors. Nelson is a 30-year veteran of Ernst & Young and the former deputy chairman of E&Y's consulting services. Speaking of E&Y, we hear that high-level executive changes are in the offing for CGEY. The company just marked its one-year anniversary in February. Given CG’s penchant for hands-on management, it wouldn’t surprise us to see some shuffling.
Inside Consulting is written by Tom Rodenhauser as a free weekly supplement to The Rodenhauser Report. The report informs senior advisors and business executives of consulting trends and best practices. Subscription cost is $295 per year for 10 issues. Copyright 2001, Consulting Information Services, LLC. Reproduction is prohibited. Quotation with attribution is encouraged.