CIOs Take Back Control of Enterprise Projects from Consultants

Jerry Hale is giving the cold shoulder to the big consultancies that want to help him run his most important software projects. "I refuse to turn over the leadership of my ERP project to consultants," says Hale, vice president and CIO of Kingsport, Tenn.-based Eastman Chemical, which has 6,000 users of SAP’s R/3 ERP software. He felt burned by a consultant-led ERP project in the mid-’90s that went over budget, over scope and far beyond the original project schedule. So when the time came to replace that system with a new one, Hale decided to use his own people to do the project along with a few handpicked consultants brought in to do small, specific tasks.

David Johns, senior vice president and CIO at Owens Corning in Toledo, Ohio, doesn’t rely on consultants either. He and his IT staff now run Owens Corning’s big software projects themselves, using consultants only for certain tasks.

Hale and Johns are not the only CIOs breaking with the way enterprise software projects were handled in the past?with armies of consultants from the so-called Big Five accounting firms. Many CIOs are now dividing these massive projects into smaller chunks, spreading them out over longer periods and either demanding more from, or doing without, the Big Five altogether.

CIOs are taking back control, in large part because they have no choice. These consultant-intensive megaprojects have a painful history of failure. In a Conference Board survey of ERP project managers released last year, 40 percent of respondents said they failed to achieve their original business case even after being live for a year or more. More than 20 percent shut down their projects before completion. For all companies, even the ones claiming success, costs were on average 25 percent over budget and annual support costs went up by an average of 20 percent over the supposedly inefficient jumble of legacy systems they replaced. Another survey, by consultancy Robbins-Gioia earlier this year, found that 51 percent of companies were unhappy with the results of their ERP projects.

And now companies are beginning to see a replay of the ERP debacle with CRM. A recent survey by Fujitsu Consulting found that two-thirds of the companies that had installed CRM software failed to become any more "customer-centric."

Though there are many reasons why projects fail, CIOs are now concluding that much of the fault lies with the pricing and delivery models of what used to be the Big Five accounting firms: Accenture (formerly part of Arthur Andersen), Deloitte Consulting, Ernst and Young (now Cap Gemini Ernst & Young), KPMG International and PWC Consulting. In a recent survey of IT and business leaders conducted by Peerstone Research in association with CIO, none of the Big Five rated better than a C in terms of the respondents’ willingness to recommend them.

That is not good news for the Big Five. Their revenue growth has slowed in recent years (to 11 percent, 8 percent and 3 percent growth for PWC Consulting, Deloitte Consulting and KPMG respectively in 2000), while IBM’s IT consulting division, which trailed them all in 1999, now has nearly 50 percent more consulting revenue than its nearest competitor, Cap Gemini Ernst & Young, according to Global IT Consulting Report, a Fitzwilliam, N.H.-based newsletter. Cap Gemini Ernst & Young’s growth came mostly from combining operations in 2000, according to the newsletter. Of the Big Five, only Accenture maintained the growth rate that the Big Five had come to expect in the ’90s. Outsourcer EDS’s consulting division, though much smaller than IBM’s, is also gaining fast on the Big Five, according to the newsletter, growing by 72 percent to $650 million in IT consulting revenue. Their customers are happier too. IBM received an A-plus rating in recommendations in CIO’s survey; EDS got a B-minus.

The resentment against the Big Five runs deep. Respondents to the Peerstone survey and IT executives interviewed by CIO claim the Big Five send them undertrained, underqualified people, and bill them at high rates. There is high turnover among these junior consultants, causing major disruptions in projects. CIOs also accused consultants of constantly adding in new work, blowing budgets and schedules. IT executives, it appears, are fed up with the way consultants get paid for every hour they put in on the project, regardless of whether the project is on time, on budget, or yields positive results.

With the Enron scandal forcing the Big Five accountancies to spin off their consulting divisions, the very survival of those divisions may be at stake. IBM is broadly diversified, EDS and Accenture are firmly rooted in outsourcing, but the rest of the former Big Five consultancies still rely on big engagements for a living. "There is a wholesale examination going on at these firms of the underlying principles that they operate under," says David Caruso, vice president and research fellow of Boston-based AMR Research. "That’s the result of incredible push-back from users."

One thing is clear: The way these projects have gone in the past cannot continue if companies have any hope of getting a return on their vast investments?$40 million to $240 million for a typical ERP project in a Fortune 500 company, according to AMR Research. Even the consultancies agree.

"Western companies spent north of $300 billion on ERP since the mid-’90s, and if you put your hand on your heart, you can’t say they got that back," says John Parkinson, chief technologist for the Americas for Paris-based Cap Gemini Ernst & Young, the second biggest IT consultancy in the United States. "You look at it and say, I’m not sure that was the best thing to do?at least not the way it was done."

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