If conflict of interest -- perceived or actual -- is at the heart of the present restructuring at the top end of the business consulting market, then removing or at least walling up that conflict would seem to be the answer.
But while the Big Five are busily cleaving their auditing and consulting arms so that an Enron-Andersen event can never happen again, the spotlight has inevitably been thrown much wider, making the solution more complex.
Merrill Lynch’s $US100 million settlement over claims it misled investors with dud research was a rap over the knuckles by the New York State Attorney General along similar lines. The financial management and analysis firm released positive research reports about internet sector companies while private email messages by Merrill Lynch analysts revealed doubts about the same companies.
Although the company said the settlement provided “neither evidence nor admission of wrongdoing or liability”, it did issue a public apology for the inappropriate communications brought to light by the investigation: “We sincerely regret that there were instances in which certain of our internet research sector analysts expressed views that at certain points may have appeared inconsistent with Merrill Lynch’s published recommendation.”
The “may have appeared” is not only essential legalese but it’s key to the whole issue. The separation of church and state at the Big Five must also be seen to be done, hence the rush to change company names and strengthen corporate governance and auditing independence standards. Customers have to have faith that the advice on the multimillion-dollar products they are being advised to buy is not tainted by unstated commissions or unclear relationships. The division does, however, also split the collective knowledge of some very clever organisations.
The largest IT vendors are, on the whole, proclaiming an open world where you no longer have to buy the shop to use one product (or, setting aside questions of security, authority and payment in a world of web services, maybe just one application component). But most are trading off the diminishing returns from commodity hardware and software for the much nicer margins in services. The Big Five are already well established. Last year IDC released a report quoting US financial watchdog the SEC that found auditing revenues had been growing by 9% a year since 1993 while consulting services revenue had been growing 27% a year. Tough choice. The Big Five’s combined growth was slower over the past year than 1999/2000, says Australian business magazine BRW, largely because clients have reduced their IT and consulting spending.
But the large accountancy firms had seen the writing on the wall even before Enron, particularly after having been nudged by the SEC following the worst excesses of the dot-com era. Over the past couple of years they have split off, merged and transformed themselves into the Big Five of business and IT consultancy.
Cap Gemini Ernst & Young is now part of the group, having absorbed the consulting arm of E&Y in 2000. In April CGEY took over Andersen New Zealand, but said it had no IT consulting or development business to transfer. (Ernst & Young in New Zealand bought Andersen earlier this year, with the loss of 60 jobs.) Accenture was spun off from Andersen Consulting about 18 months ago, and strenuously reminds inquirers that the company is not linked to Enron’s accountants. However, Accenture last month pulled out of New Zealand with the loss of 105 jobs, promising support from Sydney for customers like state agencies Courts and Child Youth and Family. (Andersen’s future as an auditor is not assured, after an American jury found it was guilty of obstruction of justice for impeding an Enron investigation.)
KPMG Consulting claims some high-profile clients in this country such as Fonterra and Telecom, and reportedly believes it can pick up more customers with the departure of Accenture. Deloitte in February confirmed a split of its DTT and consulting arms, the latter possibly changing its name from Deloitte Consulting.
PricewaterhouseCoopers, its unwieldy name itself the result of a merger, is to call its consulting spin-off Monday. Monday will be the subject of a share float later in the year.
Time will tell whether these moves help restore confidence in the firms.
Consultants are often accused of straddling the advice-implementation fence, also reselling software and hardware, and hence there is some resistance to using them within the IT community. One IT manager, for example, feared new graduates coming in for three months and using their organisation’s impressive documented procedures to produce polished reports with no substance. Another noted that consultants aren’t ever likely to understand your business as well as you do, but that their institutional experience and skill may provide a vital view to help a large software suite project feel achievable. Others worry about the large consultancies’ final independence, given that they implement and service the largest, most costly IT projects: ERP, customer relationship management (CRM), enterprise application integration (EAI).
“Don’t engage a consultant unless you really feel you have too — within the CRM space they are rarely independent,” CRM vendor Stayinfront head Tony Bullen told Computerworld earlier this year.
He says if you do, make sure they have some knowledge of your IT need.
“Many of today’s CRM experts were ERP experts last year and had to switch to another area post-Y2K.”
Another question is whether there is enough work for the five to maintain offices in New Zealand; Accenture clearly thinks not. While most work at some time on global projects for their parent firms, standalone large IT projects don’t come along as often, given that most large New Zealand organisations already have, for example, ERP and financials suites in place alongside working data warehouses. CRM and EAI are the latest software market darlings, the first designed to extract better value out of customer interactions, the second to extract better value out of existing systems and make them work better together.
As noted in Computerworld last week, application integration is the top strategic project for CIOs, according to a Morgan Stanley survey of Fortune 500 companies. KPMG is particularly focusing on EAI, says research firm IDC, but it comes into competition with integrators large and small, such as Datacom, Synergy, Unisys, EDS and IBM. Just as the large application suite vendors are chasing medium-sized business downunder, so go the Big Five. But medium-sized consultants and integrators whose own market has dried up somewhat see cherry-picking as a viable option. Australian consultant Andy Zaple told fellow IDG publication Channel X that he was looking forward to a “level playing field” between the big five and independent operators.
“There are a number of the fat five that get a significant proportion of their revenue from the auditing/consulting crossover.” Another Australian consultant firm, Kaz Group, sees gains in IT outsourcing and consulting as a result of the restructuring, and Gartner analyst Rolf Jester believes the consulting business will grow again this year after a flatter 2001.
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