Andersen Consulting, Bain & Co., McKinsey & Co. — their names connote professionalism, knowledge and, perhaps, a touch of the complacency that can result from earning huge sums of money for dispensing "best practice" advice. But as the world goes digital and the new economics kick in, the big management consultants are suddenly looking much less serene as they come under fire from a group of Internet-focused upstarts.
If white-shoe formality epitomized the old dispensation, the new one comes more casually attired and with a laidback approach summed up in the quirky names the upstarts have given themselves: Razorfish, Sapient, Icon Medialab. Though many of them are '90s creations that began as Web designers, and few have produced significant profits, these e-savvy young consultancies are attracting blue-chip clients like cbs, Nokia, Sony and American Express that were once primarily the clients of the big agencies. They have also forced the mainstream firms to highlight their Internet skills and focused the industry's attention on the digital world.
That success is paying off in growth. Swedish-American Razorfish, for example, saw its revenues more than double to $170 million in 1999, and now boasts a worldwide staff of 1,400, up from just 100 in 1998. "We are still young, only five, and we are becoming more and more scary [to larger rivals]," says Anders Eriksson, head of Razorfish's European operations. Moreover, the growth of these Web-based rivals comes at a time when the major consultants are experiencing defections of both top people and promising novices to the wired world. Barcelona-based Cluster estimates that 40% of its 350 consultants came from other, larger competitors. "We are hiring senior people, project managers and above," says Cluster partner Juan E. Pujol. Icon Medialab snatched about 15 top people from the big players last year.
To be sure, the traditional management consultants are hardly in dire straits. E-commerce has brought boom times to advice-land, after a period of slower growth. Andersen Consulting, the world's largest consulting firm, had revenues last year of $8.9 billion, an amount that some of their multinational clients would envy. Revenues for the global consulting industry were up 10% in 1999 to $97 billion, according to New Hampshire-based Kennedy Information, and increasing demand for Internet work could push revenues up by 15% in 2000. "We're turning away work now that we can't handle," says Chieko Sato, a principal at Mercer Management Consulting in London.
Razorfish's Eriksson admits the big fish are not losing money. But, he says "they are missing opportunities." He claims that the new-wave agencies' deeper understanding of information technology gives them a decided edge. "We think and breathe digital, our soul is digital. That is what sets us apart." Many global corporations concluded a few years ago that they needed an Internet presence, but had no idea what to do about it. And neither did the big consultants. That opened the doors for Web designers like Razorfish and Icon Medialab. "They [the smaller firms] responded quickly to opportunities. They moved fast and they continue to move fast," explains Emily Green, managing director of IT analysts Forrester Research in Amsterdam.
The web-advisers soon realized that slapping a Web face on an old company wouldn't work, that a company's website had to be integrated with its entire operations. Cluster's Pujol says that in the new economy, a website must be central to all elements of a business strategy, including marketing, logistics and pricing. "This is why this time, integration is fundamental. This is the integration that specialized consulting companies are starting to offer as opposed to the most traditional ones."
And some big consultants have been associated with a few highly publicized IT embarrassments. For example, the London Stock Exchange's sets trading platform, which was built and is mostly operated by Andersen Consulting, crashed last month. In its planned merger with Frankfurt's Deutsche Börse, London will scrap sets for Frankfurt's Xetra system.
Clients of the specialty firms believe they are more e-savvy. Mobile phone maker Nokia, for instance, uses Razorfish and other small e-focused firms to help it design its Web strategy. "Their specialization is one of the key reasons why we opted for these types of consulting companies, because they do understand the medium better than the larger firms," explains Sami Oinonen, Nokia's Internet manager.
Traditional management consultants admit they were ill-prepared for the rush of interest in IT, but claim they're now leading the e-drive. "Eighteen months ago we weren't the first place (clients) would come to about the new economy," concedes Bill Bound, e-business leader for Europe, the Middle East and Africa at PricewaterhouseCoopers, "but in that period things have changed quite a bit."
The majors now at least talk the talk. For instance, Andersen's website brags that it is working "... to create the eEconomy." Yet there's a lingering perception that the big consultancies are still lagging the trend. "They are moving into it," says Bryan Hickson, recruitment consultant at BLT, a London management recruiter, "but is it quickly enough?"
What the big companies do have is impressive firepower, including mammoth research budgets, tax and legal departments and global reach. As the digital revolution weaves its way through old-economy business, it begins to play to those strengths. PwC's Bound notes that global giants in industries from automobiles to pharmaceuticals are now looking to move supply chains online. "And guess who they'll come to for that," he says. Solving age-old problems like figuring out revenue streams and brand-building strategies is the traditional consultants' strength.
Old-fashioned strengths certainly help, but traditional firms are also overhauling their operations to mimic their Web-focused rivals. They are starting Internet practices, creating their own incubators to nurse fledgling startups, and taking a more entrepreneurial approach to business, including flexible work schedules and looser dress codes. "Value pricing," in which consulting firms take a stake in a client's business in lieu of fees, is also catching on. PwC's planned restructuring into two separate businesses, accounting and consulting, is largely driven by its desire to own shares in client firms without upsetting regulators. Some firms are also considering letting individual consultants take stakes in client businesses, too. The changes are designed to not only help lure more cyberclients, but to stanch the exodus of consultants to dotcoms.
Meanwhile, smaller firms realize that to continue winning contracts from multinational clients they must grow. And fast. Ulf Dahlsten, Icon Medialab's CEO, says his firm "can now offer global solutions, which was something we couldn't do six months ago." But while his international staff totals 1,550, Andersen Consulting has 65,000 employees worldwide. Still, Razorfish's Eriksson insists that the Internet-focused firms will redraw the consulting landscape: "We believe strongly that everything that can be digitalized will be. And when everything is digital, one or two [larger firms] may be out of business."
But Michael Comish, a former consultant who now heads Atom Films Europe, a provider of Web entertainment content, thinks it premature to write off traditional firms. "Remember, they're full of people who know how to do things, how to figure out business plans, how to turn things around. This is what they do for a living." And with that living in jeopardy, they'll undoubtedly make use of their own best practices to save it.