Consultants: Profit-makers or cash-guzzlers?

More and more local businessmen appear to be questioning whether consultants in general deliver sustainable benefits or less than impressive assurances peppered with the latest industry buzzwords. These concerns become even more relevant given that local research house, BMI-TechKnowledge believes that IT spend on consulting will continue to increase in the next four to five years.

According to its research report, entitled "South African IT Services Market, 1999 - 2006", the IT consulting category expanded to R925 million in 2000, exhibiting an average growth of 14% in revenues in this space in 1999.

In 2000 AST led the way in so far as market share in IT consulting was concerned with 15.5%. Second place went to IBM South Africa with 9%.

South African IT Services Market, 1999 - 2006, BMI-TechKnowledge

This growth was calculated across a wide definition of IT consulting, including consulting at the business level such as strategy assistance, process improvement, capacity planning, best practices, business process re-engineering, knowledge management and change management services for businesses. It also covered IS strategy, IT and network planning, architectural assessments, IS operational analysis, technical system and network designs, supplier assessment and maintenance planning. In addition, it comprised product-specific consulting such as how to incorporate a new software product into an existing suite of applications or accessing the performance of a network and fine-tuning specific access devices.

According to the report, in 2000 AST led the way in so far as market share in IT consulting was concerned with 15.5%. Second place went to IBM South Africa with 9%, while Comparex was ranked in third place with an 8.2% market share.

Other vendors that generated substantial revenue from IT consulting in 2000 included Dimension Data I-Commerce, MGX and Oracle.

BMI says these and other consulting firms are well positioned to maintain healthy growth rates in SA. Key drivers will include the ongoing convergence of IT and business functions within local companies; the continuing need for business restructuring to reach a level of efficiency capable of withstanding current and future competition from Western markets; and deregulation and privatisation in key sectors such as telecommunications, finance and energy.

The report adds that business services directly connected with new technologies will also continue to spur demand for IT consultants, particularly in the integration of enterprise application suites such as enterprise resource planning, customer relationship management and supply chain management. It states that the influence of the Internet, the proliferation of mobile telephony, and the growth of e-business will keep consultants busy advising local businessmen on how to take advantage of these.

So, with monies spent on IT consulting set to continue to grow, how should wary companies requiring outside assistance approach choosing a consultant?

According to several firms operating in the IT consulting space, fundamental to the delivery of any benefits to a company by consultants is a clear understanding on the part of the commissioning company as to why the consultants were brought on board in the first place.

"If you don`t know exactly what it is you want to achieve, then you won`t be able to manage the consulting process effectively and won`t get the results you were expecting," says Paul Aucamp, MD at Bentley West Management Consultants. Founded in 1996 and a member of the AST Group, Bentley West is a "new generation" consulting firm that aims to add value in both the physical and digital worlds.

Pierre Fourie, managing partner at consulting firm KPMG, which provides a full spectrum of business advisory services, says there are two main reasons why companies generally approach consultants. The first is to ensure that a company`s operations are running smoothly and efficiently. The second is to look at new innovations and projects.

Either way, says Chris Holden, GM of professional services at SAP Africa: "Clients look to consultants for their expertise, for knowledge transfer and for their ability to adopt a 'done it before` approach based on real experiences."

Given the tremendous impact consultants can have on a company`s viability, once the commissioning company has decided why it needs to engage them, the next step is to make sure its consultants can actually deliver the goods.

Says Fourie: "You get a guy that works in a certain industry all his life. Then he gets retrenched, retires or leaves for some other reason. Then he decides to start up as a consultant. However, although he has the experience and exposure required, he hasn`t had the necessary training in terms of methodology and doesn`t really understand general management requirements, business processes or how to interact with the internal staff members charged with looking after their company`s IT systems. So, he`s not really a consultant, is he?"

Fiona Buchner, MD at Peppers and Rogers, a management consulting firm which focuses on customer-based business strategy, is very specific about the type of people that get to join her team of consultants. "In our area of specialisation, which is a relatively new business philosophy, we look for people who have a deep theoretical understanding of CRM and who couple it with real world experience in implementing change into an organisation. They need to be familiar with the real world challenges of implementing their recommendations."

She adds that business acumen is a must. "No area of business operates in isolation and a consultant must always be able to understand the impact of their consulting across the business functions. A consultant must be confident in their knowledge, be able to converse up to board level and be able to demonstrate their expertise through the delivery of actual value. The ability to communicate ideas, concepts, strategies and deliverables is imperative."

Clients look to consultants for their expertise, for knowledge transfer and for their ability to adopt a 'done it before` approach based on real experiences.

Chris Holden, GM, professional services, SAP Africa

Colin Smith, director at Brenton Blue Consulting and strategic advisor to the Meta Group, agrees. He believes consultants require in-depth experience in their specific field, including senior management experience. "A good consultant needs to view things on a broad spectrum and that breadth of vision only comes with experience. There are too many people out there trying to earn a fast buck by posing as consultants and then learning the particular skill or expertise 'on the job`."

Smith says he is concerned about the more traditional technology firms offering IT consulting as part of their services portfolio. "I worry about this: it depends at what level the consulting is pitched at. If it is at a purely technical level, then it is okay but so much of an organisation`s consulting need is at a more integrated and strategic level. It is not about product or technology choice as that comes later, and yet I see many traditional technology firms diving straight down into this level. The broad business philosophies and organisational impacts are ignored and remain unaddressed and then everyone wonders why the new product and technology option isn`t working."

Mike Emmett, IBM services executive, financial services, believes: "There are too many smooth-talkers who understand a bit of technology but do not understand the consequences of implementing it."

Holden adds to this from a slightly different perspective. He points out that independent consultants are in the business of selling their time. "This is their livelihood, which means it is extremely difficult for them to take time off to invest in keeping their skills and knowledge current." Sooner or later, they are going to become unable to deliver on the market`s consulting requirements, he says.

However, even established consulting firms do not always have an easy time of it.

Asked what his biggest challenge in the local consulting space is, Fourie replies it is what he calls the "not invented here" syndrome. "When we come forward with research on best practices, some local companies are simply not open to suggestions. Also, another challenge is the cultural environment in companies that simply resist change. There`s no positive excitement in these companies and, because of that, no energy renewal among their teams."

He says that in general, local companies see consultants as knowing more about management than they do, which he says is not always the case. "Many management teams know exactly how they should be managing their companies. Consultants should be employed to go where management can`t go - they should be the hands that reach places management can`t."

Emmett believes the biggest challenge in the local consulting market is educating clients. "Clients don`t like to be told they don`t understand their business properly and need to sort out internal inconsistencies before throwing money at problems. Invariably they like to buy solutions that sound elegant, easy and cheap. But most big, hairy problems are solved by big, hairy, ugly solutions that are usually expensive and difficult to implement. My biggest challenge is giving good advice and winning work as often these are mutually exclusive concepts."

So, are these consulting firms doing as well as BMI believes they are? Fourie says that although "business remains good, it could be better". Having moved past all the consulting work that arose as a result of the Y2K scenario, he says KPMG has continued to grow well. "But the market has been tough in the past six months. There are a few reasons for this, but one of the main ones is definitely the events of 11 September.

"After things like this happen, business sentiment becomes negative and new initiatives tend to fall by the wayside. Also, the destruction of the World Trade Centre had an enormous impact on the leisure and tourism sectors. Consulting work here has all but dried up for now."

He says the Enron scandal has also added to the current negativity in the consulting market.

Most big, hairy problems are solved by big, hairy, ugly solutions that are usually expensive and difficult to implement.

<em>Mike Emmett, IBM services executive, financial services</em>

Aucamp says the terrorist attacks in America have led to several international corporates based in the US postponing new projects. Despite this, he believes that worldwide, IT spend on consulting will continue to show global growth rates of between 12% and 15%.

Smith agrees that times have become tougher. "People have been burnt once too often by consultants and are very careful about committing millions of rands to such initiatives without being absolutely sure of the business benefit."

This raises another issue - how should consulting firms charge for their services?

Many local businessmen seem keen on a risk-sharing agreement with their consultants. Buchner favours this approach. "This is something we have deliberated over extensively. We believe that to achieve sustainability in this market it is imperative to work on these kinds of models. It mitigates the clients` risk for a potentially expensive initiative, and allows the consulting firm to put its money where its mouth is and stand in line to derive more financial reward than the standard pricing model of hourly rates. Annuity revenue for consulting work is extremely attractive to consulting firms, but requires them to deliver - or even over-deliver - on customer expectations.

Emmett is not so sure. He thinks risk-sharing can lead to consultants concentrating on short-term "wins", rather than focusing on long-term, sustainable objectives.

Yet another issue that sparks debate in the consulting field is whether there is a skills shortage developing in SA.

Holden says there is a definite shortage of SAP skills in SA and the company`s ethical code prevents it from headhunting people from its business partners. He says the market constantly expects more of consultants in terms of added value. Staying in step with the rapid developments in technology across the breadth and scope of SAP`s offerings is also a major challenge for these consultants, he states.

Annuity revenue for consulting work is extremely attractive to consulting firms, but requires them to deliver - or even over-deliver - on customer expectations.

Fiona Buchner, MD, Peppers and Rogers

He says there is not a pool of consultants in SA that consultants can readily be drawn from. SAP Africa has chosen to recruit employees with solid experience in technical and business disciplines and train them up on the company`s range of products.

Holden adds that the SAP skills brain drain is slowing, largely due to the events of 11 September. "I`ve seen quite a few people who were going to leave shelve their plans," he says. Some are still leaving for the UK, which has been in a boom period for the past two years, he says. However, employers abroad wanting to attract SAP consultants are now looking for more specialised skills. "The days of commoditised SAP skills are now coming to an end."

Despite the problems facing the local consulting industry, most players in this market believe it will continue to grow.

As Emmett says, ongoing mergers between companies and the closing gap between IT and business functions are both ongoing industry drivers. And, as Aucamp points out, companies are starting to stick to their core business, which is also creating demand for consulting services.

Says Buchner: "CRM consulting is most applicable in a down economy. In a booming economy the focus of an organisation tends to be on acquiring new customers, while when times are tougher companies need to look at leveraging their existing customer base to increase profitability. This leads to a strong demand for CRM consulting."

We never let anyone with a one-dimensional approach handle the client contact relationship.

Pierre Fourie, managing partner, KPMG

She believes that the traditional IT consultants who are purely "techies" with limited business acumen will soon find themselves out of work. Aucamp concurs, saying that consulting companies with strong business and technology skills will be the ones who will grow the most in the new few years.

All the vendors specified the need for teamwork between customers and consultants, saying a close working relationship based on trust, which allows information to move freely between all involved parties, is essential.

Says Fourie: "In our business, each of our team members has a home base or area of expertise. For example, some of them might have a financial background and go into financial management consulting. When we go out to a client and propose for work, whichever partner interacts with that particular client understands all the required components, ie management, business strategy, business processes and procedures, HR requirements and IT needs. We never let anyone with a one-dimensional approach handle the client contact relationship."

In short, the bottom line for SA companies considering approaching consultants is this: know what you want in terms of results and deliverables, take a good look at track records before you decide on a particular consultant or consulting firm, and work on building and maintaining an open working relationship based on mutual trust and knowledge transfer.