Buried in a court file in Jefferson County, Alabama, is a copy of a contract that helps answer a small part of the question “How is it that you become the biggest consulting company in the world?” In great detail, it explains exactly what Andersen Consulting would do over time for O’Neal Steel Co., how the consulting engagement would play out, and what would be achieved.
Andersen’s plan was to take O’Neal’s operating structure, particularly its customer service department, superimpose the latest in technology, and bring it all up to 21st Century standards. But it was a consulting marriage that did not work. Instead of landing in the scrapbook of successful cases, which almost all consulting companies are eager to present, it landed in court, a staging area for a catalog of charges and countercharges. Computers didn’t work as expected, rollouts didn’t occur on time, defects were abundant. It was the basic consultant-client nightmare. These things happen.
But down in “Count I–Breach of Contract,” paragraph 24, items “h” and “i,” sits the framework for a broader discussion about the consulting business and what it does to make its money, and perhaps for some thoughts about what is right and what is wrong in the marketplace. Andersen Consulting is accused in those paragraphs of “h. failure to improve overall operating efficiency so that O’Neal could achieve substantial reductions in personnel; i. failure to achieve operating efficiencies which would eliminate the need for at least 100 employee positions, as well as other intended benefits such as improved customer service, increased sales and improved pricing. . .” Behind that claim is an agreement between Andersen and O’Neal that would have seen the consulting company reap a small fortune based on the number of positions it could cut, or lose money should it be unable to cut any jobs. The incentive on both sides is clear: The more positions you shed, the bigger your check; the fewer, the bigger your penalty. It is both uncomfortable to read and uncomfortable to think about.
And that, unfortunately, is one of the more simple answers to the question “How is it that you become the biggest consulting company in the world?” You do it by tapping the spirit of the moment–the computers and technology that would lift Andersen early in its history from the bowels of an accounting firm into its own strong position, the downsizing virus that swept through American businesses in the case of O’Neal Steel and countless hundreds of other companies only a few years ago–and by agreeing to do whatever a client wants.
It provides the perfect “technology-made-me-do-it” cover for the executive who argues it was all just a move to stay competitive and the ideal “I-was-only-responding-to-client-commands” rationale for the consultant. True to that construct, Andersen says it does not include these kinds of job elimination incentives in its standard contracts, and that this was a special case negotiated with the individual client. But the reality of the arrangement is apparent.
On Sept. 14, 1992, the date on “Exhibit A” in the O’Neal Steel lawsuit against Andersen Consulting, it was all about money.
The O’Neal case will eventually work its way through the courts, and the issue of the downsizing agreement is unlikely to play much of a role. The case is about the claim that Andersen wasn’t able to do much at all, despite its promises. The job elimination festival as depicted in the contract never got to happen. The balls-out era of downsizing has become tainted of late, and the new focus in consulting seems to be on the need to empower employees and make them feel wanted. If that gets enough of an audience, undoubtedly Andersen and its peers in the business will embrace it with as much fervor as they embraced job cutting.
That is how you become big and profitable in the world of consulting. In the world of consulting, no one is bigger than Andersen Consulting. And it has the profits to match its size.
The story of Andersen is a story of astute decision making and aggressiveness in an era of unprecedented change. It is also the story of how a collection of accounting companies used technology to move quite aggressively into the world of management consulting, sweeping past their more conservative, blue-blood competitors.
Only a few decades ago, the thought that Andersen and its management advisers could challenge a McKinsey & Co. or any of the other top strategy houses would have drawn a resounding collection of snorts and rebuttals from any collection of business analysts. But it has become remarkably successful in a short period of time. Just as it embraced downsizing in Alabama, it smelled computers as a moneymaker even before IBM realized they would be so profitable. It recognized the change in business culture that would transform publicly held companies into bottom-line profit machines. It knew before anyone else that the world of business would view technology as the key to productivity. It understood what was meant when futurists said that international borders have disappeared and the economy has become world driven and world scale.
Andersen’s story is both the measure of those developments and a revealing account of the kinds of pressures that rippled through accounting firms as management consulting was growing in importance. It also tracks, from the very beginning, the development of computer science as a lucrative target for consultants, although one that has always been full of risks because of the nature of technology, its sophistication, and the fact that it is sold on a collection of bright promises that don’t always come true.
The seeds of the world’s biggest consulting business were there even a quarter of a century ago, when Andersen Consulting was a small collection of management consultants who found themselves growing far beyond the confines of their conservative world. Arthur Andersen & Co. was founded by accountants, run by accountants, and, most importantly for Andersen Consulting, wedded to the idea that there could be room for only one kind of culture, the culture of accounting. There were so many signs of trouble over the years that it is remarkable all of the accounting houses didn’t conclude early on that the accountants and consultants were the oil and water of business services.
Today, Andersen is the strongest example of the arrival on the management consulting scene of the big accounting firms, which field thousands upon thousands of consultants all over the world. They compete for business and for staff with all the strategy and aggressiveness of armies on the battlefield. There is a reason for that. The accounting business was basically constructed on the assumption that there would always be a dependable pool of clients who needed the numbers to add up the right way at least several times a year, to the point at which fees were almost viewed as annuities.
That was before management consulting started growing with all the persistence and eagerness of a healthy baby. Its revenues, pegged to the very expensive services it offered, started playing a bigger and bigger role in the financial health of the accounting companies. If the pool of potential big-time accounting clients was essentially stagnant, along with the kind of services offered by accounting companies, now mature businesses, management consulting was a field with almost unlimited potential and an endless array of clients.
No one seemed to know what to make of management consulting inside of Arthur Andersen, except for the fact that it had found a way to turn the business world’s emerging passion for computers and its thirst for advice into a proven moneymaker.
Technology is one of the important subtexts that runs along beneath the story of Andersen’s growth. As time passed, computers became less and less the scary machines humming away down in a well-cooled data processing room and more and more components of how businesses actually ran. This trend would reach its zenith in the mid- to late 1980s and come to fruition in the era of business process re-engineering that began with an article in Harvard Business Review in 1990 and exploded in popularity a year later with the publication of a book about re-engineering.
Technology plays such a big part in re-engineering efforts that it is generally impossible to separate the two. And business processing re-engineering, an idea so heavily hyped it seemed every company was off on a re-engineering romp in the early 1990s, has been a bonanza for the technology consultants. Andersen says about a quarter of its 1994 revenues–almost a billion dollars–came from business process re-engineering.
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Andersen has done well enough . . . to maintain a hold on the leader’s position in the world of technology consulting, and its strong move into strategic consulting will be closely watched. There were concerns among analysts in 1994 that this shift would dilute Andersen’s strength as a technology leader, but Andersen’s partners are betting that the melding of technology and strategy will be viewed as the kind of marriage that separates it from its many growing competitors on the information technology scene. If it is a weakness, it has not shown up on the balance sheet. And Andersen’s sophisticated move into the world of virtual consulting, with its fancy showpieces and strong emphasis on the belief that technology and strategy must march hand in hand, could be the ideal consulting ticket for businesses that have been shy about bridging the gap between their executives and their technicians.
Perhaps a better measure of the move is that some consulting houses that once based their billings almost solely on strategy advice are moving much more deeply into the world of information technology as quickly as they can. Either they absorb or are absorbed by technology specialists–the EDS-A.T. Kearney merger, for example–or they reach out to connect with technology-based companies when necessary.
Beyond all of that, Andersen has the bigness it needs to be present almost everywhere. Even its big golf outing was a world-scale production. Inside the company, it is pushing hard on the fact that its consultants are now connected all over the world through something called the Knowledge Xchange, a sophisticated computer communications system aimed at tapping Andersen’s many layers of experience. It is also in position to leap into whatever is ultimately created by the convergence of computers, telephone systems, cable, television, education, and entertainment. No one knows yet what this market will be or how it will be shaped, but as surely as it awaited the arrival of computers, tapped into the era of changing business culture, and has shifted into strategy, it is getting ready.
The assumption is that it will be big and profitable and present a whole collection of challenges and opportunities, all centered around the changes it brings. True to Andersen’s history, it has invented a word to cover it. It calls the emerging mishmash of information technology components the “Infocosm,” a word that has already seeped deeply into Andersen’s corporate rhetoric, even though no one really knows what it is yet.
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Tuesday: Sears, Roebuck and Co. CEO Arthur Martinez was careful to retain control over consultants.
