A Best of Breed Approach In a Competitive Consulting Game
Imagine sitting in the hot seat of a game show and plowing through questions on popular songs and history, when the silver-tongued host hits you with this one, "Give me the correct names of the top five global IT services companies." Chances are most contestants would have to pass on that question and hope for another category.
Considering the flood of activity in mergers and acquisitions, rebranding and reorganizations in this space, you almost need crib notes to keep track of who the leading players are in the consulting/services field.
Although we did not include the global services category in our Best of Breed survey this year, we did conduct a recent email study of our readers to gauge their brand knowledge and preferences as it relates to integration and service companies. Not surprisingly, the survey of 196 CGT readers showed a clear lead for IBM Global Services (www.ibm.com) following its acquisition last year of PwC Consulting, the management and consulting services arm of Pricewaterhouse Coopers (www.pwcglobal.com)
We asked our readers, "Which of the following companies do you view as a leading integrator with customized solutions for the consumer goods industry?" IBM Global Services was selected by 59 percent of the respondents, more than double the recognition of its nearest competitors. The other top companies named were: Accenture (www.accenture.com), which was selected by 23 percent of the respondents.
BearingPoint (www.bearingpoint.com), which was formerly KPMG Consulting, came in at 22 percent; followed by HP (www.hp.com), 19 percent; Cap Gemini Ernst & Young (www.cgey.com), 17 percent; EDS (www.eds.com), 14 percent; and A.T. Kearney (www.atkearney.com) at nine percent.
IBM Dominates
IBM's dominant position in our study closely mirrored the company's leading position as measured by revenue. A recent report from AMR Research found that IBM combined with PwC generated almost $42 billion in services revenue in 2001. That was almost double the closest competitor, EDS, which had revenue of $21.5 billion during the same year. Accenture ($11.4 billion), CSC (www.csc.com) at $10.5 billion), Cap Gemini Ernst & Young ($7.3 billion), Deloitte Consulting (www.dc.com) at $3.5 billion and Bearing Point/KPMG ($2.9 billion) rounded out AMR's (www.amrresearch.com) Global Seven list.
In addition to the mergers that have taken place among the services companies, the overall demand for consulting services has been shrinking. Two to three years ago, a large number of consumer goods companies were in the middle of extensive enterprise suite implementations that typically involved the use of a services firm. With the majority of consumer goods firms now focused on specific point solutions, they are being much more selective in their approach to hiring outside consultants.
Changing Dynamics
Dana Stiffler, a senior research analyst with AMR Research, pointed out that the changing dynamic of the industry has forced the services companies to reshape their offerings. "Applications management and outsourcing now account for the most significant, or only, growth in service portfolios. The emphasis now is on repeatable, scalable transactions, not relationships," Stiffler says. "Our primary research consistently indicates that large corporations don't need or want a one-stop shop. We believe the one-stop shop is more viable as a middle-market approach. Large users have and always will work with services firms in a best-of-breed fashion."
This competitive climate has also made it much easier for second-tier services companies to compete with the big seven global providers, AMR's recent research showed. Based on a study of its user clients, AMR found "thought leadership in the second tier is increasingly competitive." Specific benefits of second-tier service providers mentioned by AMR clients included: more senior staff participation, more willingness to customize; less attachment to methodologies and better customer service.
Closing the Gap
The closing of the gap between the top players and the second tier has also meant more aggressive rates are generally available for end users. AMR's recent report found that rates among the Global Seven have fallen into line with the overall market, dropping from an hourly rate of $300 to $400 a few years back to closer to $100 this year. In addition to lower hourly rates, AMR also found that more services firms are willing to accept "risk-reward contracts."
In addition to increased competition among different sized consultants, these firms are also faced with enterprise software vendors grabbing a bigger slice of the services market. As they have recently looked to make up for flat or declining software sales, vendors such as Siebel PeopleSoft, Oracle, J.D. Edwards and SAP have ramped up the services side of their businesses. For example, services revenue in 2001 accounted for 48 percent of Siebel's business, 64 percent of SAP's business and 69 percent of PeopleSoft's revenue. AMR's recent report found that end users were especially partial to using software vendor's services groups to handle upgrades and modular extensions of their own products.