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Commentary: E-business consultancies need strong comeback

The difficulties many specialty e-business consulting companies now face matter less than how they plan to respond.

By Lorrie Scardino and Frances Karamouzis, Gartner Analysts

The increasing difficulties that specialty e-business consulting companies such as Luminant now face matter less than how they plan to respond.

Luminant follows several other consulting companies in cutting its work force and restructuring--notably, Razorfish and iXL. Several factors have contributed to the problems, including:

• Strong competition from so-called Old Economy players--for example, the Big Five consultancies, IBM Global Services, EDS and Computer Sciences

• Smarter buyers

• Greater project complexity

• Difficulty in executing increasingly complex projects

• Uncertain revenue from dot-com start-ups

The prognosis for the e-service consulting companies depends on how well they can focus their competencies on particular solution sets and disciplines. Most of the companies that grew explosively from 1998 to early 2000 often were not very discerning about the work they took on. They wanted to book revenue with high-visibility and high-impact clients. As a result, they took on work that many found difficult to deliver. But more importantly for their long-term viability, delivering solutions with such a broad focus makes it difficult to build intellectual capital.

See news story:
Net consulting firm restructures, cuts staff
The market is quickly moving toward measuring consulting companies according to the business value they create for clients during engagements. Many specialty consulting companies that grew quickly from their work with dot-coms are unaccustomed to clear metrics.

The big players that reinvented, reinvigorated and refocused themselves to bring e-business services to the market have become attractive again. As e-business models change from transacting business on the Web to fundamentally changing relationships between suppliers and customers, the traditional players have solutions to capitalize on the opportunity. The larger companies also see the benefit of alliance strategies, which enable them to bring diverse skill sets to an engagement. Therefore, many Old Economy companies are reporting their highest growth at a time when many specialty consulting companies are struggling in varying states of decline.

It is too simplistic to say that specialty consulting companies have cut staff and restructured because too many companies compete for the same projects. The market is huge--and growing. Gartner estimates that worldwide spending on e-business services will reach $160 billion in 2004, so it has room for many players. Still, the market probably does have too many companies today and will continue to consolidate, but that does not say very much about future directions.

Good reputations among peers and clients will be very important for specialty consulting companies in 2001. The most viable companies will take a long, hard, critical look at what they have done well. They will shed what they have not done well and will organize to build on their strongest competencies. It takes a strong management commitment to find a company's strength and to build intellectual capital and a market position around those focus areas.

(For related commentary on Luminant and its consulting focus, see TechRepublic.com--free registration required.)

Entire contents, Copyright © 2000 Gartner Group, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.