In the late 1990s, U.S. companies went on a technology-buying binge, shelling out millions for tech gear to run their businesses more efficiently. Many of those purchases proved to be big disappointments--the new gizmos often provided little return on investment. Redundant tech systems drove up licensing fees and maintenance costs. And incompatible computers often complicated matters more than they helped.
That, combined with the slowing economy, has resulted in a meltdown in information technology buying. Once-burned and twice-shy managers are avoiding spending on technology that failed to live up to its promise. Instead, they are turning to a new breed of IT consultants who can help squeeze more out of what they've already got. Says Brent Habig, chief executive of up-and-coming supply-chain specialists Tigris Consulting: "It's a hugely appealing category of solutions for buyers who are frustrated."
It's also an increasingly attractive market for consulting companies themselves--as Habig well knows. Although small, at just $15 million in sales, Tigris has signed 15 big-name clients looking for help wringing more performance out of aging IT systems in the past 12 months alone. Its roster now includes the likes of Procter & Gamble (PG
), Unilever Group (UL
), and Sears Roebuck (S
). With global consulting revenues up just 3% or less in each of the last two years--down from a record 27% annual growth in 1998--many see this market as a small beacon of hope in an otherwise dismal climate. Consulting experts Kennedy Information Inc. estimates that such services are now growing at 6% to 8% a year, and will bring in about $6 billion in revenues in 2002.
Unlike the 1990s' craze of spending millions for new gear and armies of consultants who worked on extended contracts, the trend now is toward shorter, less expensive deals that make the most use out of existing IT resources. Booz Allen Hamilton Inc. helped a large Wall Street firm save $12 million a year in IT maintenance by combining four separate customer-relationship management systems into one. Tigris accomplished a similar feat for Kennametal Inc. (KMT
), a $1.6 billion metal-cutting tool manufacturer based in Latrobe, Pa. Says Mark D. Steele, Kennametal's director of purchasing. "Why use a sledgehammer when a tack hammer will do?"
Even more appealing: Tigris agreed that it would be paid only if it succeeded. Such contingency-fee arrangements are becoming increasingly popular with some firms. Among them: the A.T. Kearney unit of Electronic Data Systems Corp. (EDS
), which has 83 such deals in the works. In today's climate, says A.T. Kearney CEO Dietmar Ostermann, a consultant willing to "put your money where your mouth is" has a better chance of winning business.
With consulting work scarce, rejiggering IT systems to boost performance is likely to remain a permanent feature of the consulting landscape. Says Michael E. Weissel, vice-president of Mercer Management Consulting: "Virtually every company has some system [about which] they think, `we could have spent that money better."' For consultants schooled in turning such regrets into revenues, there's no time like the present.
By Louis Lavelle in New York
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Copyright 2002, by The McGraw-Hill Companies Inc. All rights reserved.
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