CXO

The CSC shocker isn't so shocking

CSC's recent announcement of an earnings dip sent another wave of panic throughout the consulting industry. But as Tom Rodenhauser explains in this week's Inside Consulting, we should have seen it coming.


CSC’s warning on Monday isn’t as surprising as it appears. The company revised its earnings forecast downward to 35-37 cents a diluted share vs. previous analysts’ estimates of 92 cents per share. The collective “whoosh” you heard in El Segundo, CA, was the air coming out of CSC stock as it hit a 52-week low.

Conventional wisdom holds that clients are fleeing e-consultants for the security of established players. Yet CSC chief Van Honeycutt blames falling demand for its profit warning. Clients are holding back or canceling projects that were in the pipeline. He doesn’t expect the consulting business to pick up until later this year, so the company axed roughly 900 employees.

If Honeycutt’s assertions are correct, then the stiff upper lips of other integrators/outsourcers should be quivering, right? Maybe.

There’s a reason why CSC has been hit harder than its peers. Honeycutt has made it clear that CSC is an outsourcing company first and foremost. Over the past few years, there’s been a de-emphasis on consulting services as evidenced by executive shuffling. Rich Wunder, who came back to run CSC consulting after a brief stint with Lante, is the latest to manage the helm.

Few consultancies have suffered from executive malaise as much as CSC. Once hailed as “reengineering central,” the company now follows the philosophy that outsourcing is a driver for selling additional consulting services.

Yes, the world is moving to an outsourcing mindset. But the big money and higher margins remain with e-business consulting. CSC, like some other players, appeared to be stronger from a consulting standpoint during last year’s feeding frenzy. But outsourcing and consulting, while complementary, are not necessarily compatible under one roof. Those companies with shaky consulting capabilities (i.e., CSC) have a tough time when buyers become more finicky (i.e., now).

Since consulting is not an A-1 priority at CSC, it’s no surprise to see revenues dwindle. Lurching back and forth through successive consulting managers and fractious infighting makes it increasingly difficult to seize opportunities…even if they fall in your lap.

Interestingly enough, the move to offer more outsourcing services made by PwC, KPMG, and others will require a reverse priority shift. Perhaps they will be more successful floating downstream than CSC has been swimming up. Then again, there’s a reason why the two worlds have a hard time commingling.

Heard on the street
The Institute of Management Consultants USA (IMC USA) will hold its 2001 National Conference, “Consulting Center Stage,” May 3-5, 2001, in Atlanta. There’s a special rate for early registrants to the event: $520 for members and $620 for nonmembers.
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.

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