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The future of IT consulting

[Q+A] A working paper from Harvard Business School foresees big changes in the evolution of IT management consulting. Who will be the winners, the losers and those in between?

6 min read
A Harvard Business School working paper traces the evolution of information technology management consulting and trends for the future. In an interview, the paper's authors, professor Richard Nolan and HBS Interactive Senior Vice President Larry Bennigson, explain their findings. Q: Your research refers to the PC in the 1980s and to the Internet in the 1990s as triggers of explosive growth for the IT consulting industry. Have you identified a third trigger for this decade?
A: The trigger in this decade that underlies autonomous computing is "computer-to-computer" communication. By the end of the decade, more than 60 percent of computer communications will be computer-to-computer. Computer-to-computer vastly speeds up the pace of business. For example, end-to-end supply chains can be automatically adjusted by point-of-sale computers that are directly communicating with warehouse computers, which in turn directly communicate with manufacturer computers. Manufacturers' computers can then directly communicate with their suppliers' computers. In addition, computer-to-computer communications can track demand and adjust logistic systems in order to automatically direct a product to geographical points of demand.

Can you describe some of the enablers and drivers behind the growth of the IT consulting industry? How has globalization impacted this growth?
There have been several enablers and drivers of growth of the IT consulting industry. First, innovations in frameworks and methodologies, along with trained professionals, have provided value-added services uniquely available from the consulting firm. For example, the Boston Consulting Group and McKinsey came up with unique conceptual frameworks for assisting management in sorting out action plans for their various lines of business.

Newness and complexity have been a second driver. Andersen Consulting, now Accenture, has provided expertise in designing and coding complex computer applications. SAP and Seibel Systems have developed unique package software. They have also provided specialized consulting services in order to assist in the implementation of the package software.

A third driver has been the building to critical mass of high levels of expertise that are not economical to maintain in a particular company. For example, computer security consulting requires a high level of expertise, which few firms can economically maintain in-house. By providing these kinds of services to many firms, critical mass can be maintained in the practice group, as well as ensure that the group stays on the leading edge of the subject matter.

Related to this third driver is the focus that a separate consulting firm can maintain in managing a highly talented group of knowledge workers. The management and incentive systems are quite different in a consulting firm than in, say, a product firm. Consequently, a product firm may not be attractive to various knowledge workers who prefer to work in the consulting environment.

A fourth driver is the demand for process and behavior change that IT implementation puts on most organizations. IT was not just a new technology.

By the end of the decade, more than 60 percent of computer communications will be computer-to-computer.
To capture the value that IT represented, organizations had to address changes in structure, culture, people, process, and leadership. Many organizations turned to the consulting industry for help in understanding and managing these significant changes.

Finally, the IT consulting industry enjoyed an unprecedented frenzy of convergence of first, the adoption of systems such as enterprise resource planning (ERP) and customer relationship management (CRM); second, the management improvements such as Biological and Physical Research Enterprise (BPRE); third, the problems to solve such as the Year 2000 bug; and fourth, new territory to pioneer such as e-business.

Who are the current players who have successfully adapted to the changing IT environment? What is the key to their success?
More than 50 percent of today's capital budgeting expenditures involve computing in one form or another. As a result of the pervasiveness of IT, literally all consulting firms have had to integrate IT expertise. Indeed, with hyper growth in the 1990s, consulting is still in a restructuring mode.

Within this context, Accenture has continued to broaden its consulting service scope. Accenture has built an impressive education and training facility called St. Charles, outside of Chicago, which focuses on maintaining currency in the skill levels of their professionals, as well as providing a leading tool for equipping their professionals with the new skill required with emerging IT.

Another type of example is the IT product firms that incorporate certification and training for their own consultants, independent consultants, and customer professionals. Microsoft, Sun and Novell are examples of these kinds of companies.

What are your predictions for the future of IT management consulting?
We believe that the recent restructuring in the IT management consulting industry is at a point of industry transition. That transition coincides with the emergence of new drivers of IT management consulting growth. While the transition is still being played out, we can see some of these new drivers taking shape.

Until recently, there had been an IBM de facto industry standard for the operating system, and a de facto standard in the use of Common Business-Oriented Language (COBOL) for applications development.

It is tempting but risky to completely turn over IT initiatives to IT consulting firms.
By the late 1990s, new applications development had become almost exclusively supplanted by package implementation. In addition, networking and the Internet moved the IT infrastructure for the IBM standard to an emerging environment characterized by open standards.

Accordingly, the IT infrastructure became simpler and more complex at the same time, through the innovation of layers and application programming interfaces (APIs). The implication for IT management consulting is a rather complex demand to provide both strategic perspective and implementation savvy on managing the considerable risks of not being able to realize the strategic competitive advantages of computing because of failures to effectively manage implementation challenges.

Further, within the context of the management challenges of balancing strategic opportunities with implementation capabilities, there are dampening forces on industry growth. For example, the wave of ERP installations and BPRE projects is now beyond its peak. While outsourcing is still an established practice, companies have gained experience, and can now do much more for themselves that they, in the past, have looked to outsiders to do. Managers know more about IT, more about the business, more about organizational potential and implications of IT and more about designing their own backbone and architecture.

There are forces that will drive new demand. Security is fast becoming a ubiquitous issue. The Internet will experience dramatic growth in Asia and Europe. New applications such as bioinformatics and telematics create new consulting segments. And the adoption of Internet2 will eventually have broad impact.

IT consulting, as much as any product or service, creates its own demand. A high degree of industry adaptation in the IT consulting industry will be required in the future. By introducing innovations and educating the market about the competitive benefits of those innovations, IT consulting invents and "earns" its opportunities for growth. This ability of IT consulting to lead and to adapt is key to its robust development.

What lessons can operations managers take away from your research?
There are a number of lessons that we think are important for operations managers to be taught:

Many functional and business leaders have become conversant about IT, and many IT specialists have become knowledgeable about the strategic and business benefits of IT. Companies that encourage and incorporate this integrated and more sophisticated capability within their organizations will have an edge over those that have to rely on outsiders for the integrated view.

The rate of change in IT capabilities is a companion to the rate of change that most companies experience in other technologies, markets and initiatives of competitors. We have noted that the successful IT consulting firm must be able to anticipate, sense and nimbly respond to change. This is equally true for operations managers who face the daunting task of implementing new IT capabilities while ensuring that they are also prepared for the next version or generation.

The emerging IT environment is at a level of complexity such that efforts to build IT infrastructure and integrated applications require specialized expertise that is often available only in IT consulting firms. Good operations managers will ensure that their organizations have the ability to work effectively with and integrate the value from networks of service providers with a variety of special capabilities.

Finally, we think that it is tempting but risky to completely turn over IT initiatives to IT consulting firms. A significant number of your own IT professionals and users should be included in integrated IT initiatives.

 
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