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A State of the Union on the Consulting Industry

  • March 01 2002, 1:00am EST

In September of 1999, I sat down with eight CIOs from across the Midwest. It was our semiannual CIO Roundtable ­- an opportunity for IT executives from varying industries to come together and share stories about their greatest challenges, best practices and recent triumphs.

As the CEO of a mid-size consulting firm, I founded and sponsored the group and benefited by listening in on their lively discussions.

"So what's the biggest threat to your business in the coming year?" someone asked near the end of the morning-long discussion.

For once, the response was universal: the Internet.

These high-tech executives worked at some of the largest, most established companies in the country, and they all agreed that the Internet revolution posed a serious threat to their businesses.

"Next to these well-funded start-ups, I hate to say it, but we could be viewed as dinosaurs," said the CIO of a national retail organization. "And if predictions are accurate, traditional retailers that don't get on the ball with e-commerce will be extinct."

Well, that's no big surprise, you say.

Back in 1999, we were all shaking in our shoes, wondering if we'd be able to keep up with the young dot-commers rocketing to the top of the NASDAQ and racing to the nearest designer coffee shops in their brand new BMWs.

The surprise is this: As the leader of a private consulting firm, for once, I had something in common with these CIOs. The Internet was the greatest threat to my company's future as well.

Wait a minute. Consulting companies were the primary beneficiaries of the dot-com boom, weren't they? They made money hand over fist -­ raising rates and taking advantage of the extreme demand for high-tech expertise. Right?

Wrong ­- on both counts.

Just like well- established successful companies in every other industry, many high- quality consulting firms suffered during the dot-com boom.

How were we supposed to compete with all those well-funded start- ups luring away our employees with exorbitant sign-on bonuses, stock options and, in the case of one now-defunct Atlanta-based consultancy, brand new BMWs?

Sound familiar?

If the dot-com flight of employees hit corporate IT hard, think of what it did to the backbone of the consulting industry. Just like traditional retailers, for a time, traditional consulting businesses were viewed as antiquated and out of step by the IT industry's best and brightest.

Here's an example of how extremely un-cool we became: Leaders of pure- play Web consultancies refused to join the Information Technology Association of America (ITAA), the largest trade association representing the IT industry in the U.S. Why? Because members of the ITAA were viewed as "old- economy" firms that soon would be out of business.

Established consulting firms struggled to maintain their hard-won, long-term relationships with clients as Web shops breezed in, wowing executives with flashy demos and investor-funded expense accounts.

Granted, mistakes were made by some of the biggest, most promising consultancies in the business that became Web shops overnight. We all know how those sad stories ended.

As one manager told me, "Who would you choose: a well-funded start-up that is 100 percent dedicated to the Web or the trusted consultancy who might be able to hire the help needed to get my mission-critical Internet initiative off the ground?"

The consulting industry, as most professions, has its share of detractors. Even before the Internet revolution, every third or fourth Dilbert cartoon had something hilarious (and often true) to say about the slick nature of some folks in the business.

However, if consulting occassionally got a bad rap before the rise of the Internet, things became decidedly worse after the boom went bust.

The fact is that these well-funded Web shops overpaid their employees and, more often than not, under-delivered on client promises ­- and the entire consulting industry suffered for it.

Sadly, for all of its truly excellent innovations, the dot-com boom represented the very worst the IT industry had to offer: implementing technology for technology's sake.

It was about quantity, not quality. It was about technology, not business.

It's About the Business

Still, there are some positives that have come out of all this upheaval. Today, people are spending more time talking honestly and realistically about the ROI of implementing new technologies. Salaries of IT professionals are slowly getting back to normal. While there may be fewer players in the consulting arena, you can still get reliable services at decent rates from many of those that remain.

Best of all, the dot-com revolution gave IT a household name. That, my friends, may be the single greatest benefit of the Internet revolution. Now more than ever, business managers and executives outside of IT understand the potential value and impact of technology. The pendulum is swinging away from technology for technology's sake and toward the practical notion that sound business policies and goals ought to be the driving force behind any technology implementation.

To borrow from a well-worn statement from the Clinton era: it's about the business, stupid.

Here's a helpful mantra for all of you dot-com survivors: Which of my corporate goals and objectives is this technology solution designed to meet? What is the estimated ROI? What specific business problem will this technology solve? How soon will this technology investment pay off?

If you're not asking these questions on a regular basis, you're part of the problem and not part of the solution. If a consulting firm (or any vendor, for that matter) tries to sell you a technology solution before truly understanding your business, tell them they're barking up the wrong tree.

Choosing an IT Services Vendor: Barking up the Right Tree

With the economy still floundering, partnering with a solid IT services vendor is not only practical, it's necessary. It is a buyer's market right now, so do your homework.

Here are a few suggestions for finding the right consulting vendor for your organization:

  • Ask to see evidence of the company's financial stability including bank references, auditors' statements, etc. If they say something about their "burn rate," run away.
  • Find out the vendor's success rate on projects ­- there are plenty of companies that don't track this type of thing for obvious reasons.
  • Find out what type of methodology the company uses for managing projects.
  • Ask for client references from companies in your industry. Start at the bottom of the list when making your calls.
  • Ask for details on the vendor's recruiting policies. What is the company's employee retention rate?
  • When reviewing project proposals, ask for a detailed explanation of how the estimated cost was calculated by the vendor. Too many companies are burned by unscrupulous vendors that submit low- ball proposals to win the business only to turn around and charge extra when the project invariably goes over budget.
  • Does the company conduct customer satisfaction surveys? How often?
  • Finally, meet with the company's top leaders if possible.

While you're conducting due diligence to find the best IT services vendor for your business, remember this: the single biggest challenge for any reputable consulting organization is differentiating themselves from the firms that crashed (and burned their customers) during the dot-com fallout. There are some truly great consulting companies out there offering quality service at reasonable rates. It will be worth your time and effort to seek them out.

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