Transforming a firm into a competitive e-business calls for meticulously planned and informed strategies. Understanding the e-marketplace and where one's firm can find its niche; implementing the right internal and external networks and acquiring the correct software and equipment; and developing an e-commerce strategy requires a holistic analysis of a business and its goals and practices. Increasingly, by the late 1990s and early 2000s, firms were turning to e-commerce consultants to help them make the transformation. In doing so, they sought services at the lowest possible cost which promised the greatest overall benefits.
Companies, ranging from old economy stalwarts to young hopefuls, often lack either the internal knowledge or internal resources necessary to devise and implement a successful e-business strategy. As the e-commerce shakeout in the early 2000s proved, a comprehensive and effective e-commerce strategy can make or break a company's online prospects. Moreover, the lightning pace of technological development typically was too fast for companies, concerned with their core business operations, to keep up with. Finally, with e-commerce still a largely haphazard industry in the early 2000s, companies often face a great deal of confusion over just where to take their online hopes.
Customers' perceptions of companies are increasingly influenced by their experiences on the Web. In other words, a consumer's opinion of a firm may sour if he or she encounters excessive delays in downloading pages or convoluted Web-purchasing procedures. Because of this, firms turn to consultancies for expertise in meeting consumers' online expectations. When a firm transitions to the Web, its internal business practices may be too specialized to understand the subtle nuances required to make a Web site customer-friendly and appropriate to their line of work. E-commerce consultancies not only try to eliminate those features of their clients' Web sites that detract from the customers' online experience, but try to integrate the feel of the Web site with that of the firms' call centers and storefronts. In short, consultants try to help companies shape how they relate to the world online, and integrate the image they project on the Internet with that of their bricks-and-mortar operations.
As a result, the market for e-commerce consulting was booming, despite some setbacks in the early 2000s. Framingham, Massachusetts-based research firm International Data Corp. forecast total revenues for Internet-related consulting services to skyrocket through the middle of the 2000s, from $16.1 billion in 1999 to $99.1 billion in 2004.
The nature of e-commerce consulting contracts can vary considerably. Some consultants are brought in merely for short-term planning. In this case, they simply may offer guidance or play devil's advocate en route to mapping out a broad direction for e-commerce strategies. Such consulting operations typically are conducted on an hourly basis and last a very short time, from several days to several months. Other contracts amount to more comprehensive partnerships in which a consultancy agrees to handle e-commerce strategies and concerns as they arise over the long term, meeting new challenges as they present themselves. In such contracts, firms essentially outsource an essential component of their business to a consultancy. These agreements can last for years, or indefinitely through the lifetime of the client company. International Data Corp. estimated that the average e-commerce consulting project lasted about eight months, where the first three months are spent devising an e-business strategy and the final five months are devoted to constructing the technological and organizational infrastructure for that strategy to be realized.
Consultants usually start by running several days of workshops with company leaders to map out where the firm currently stands and where it wants to go, and to get a feel for the challenges involved in getting the firm online in a competitive manner. In this way, consultants can pare down the project to keep it within the scope of the company's and the consultant's practical reach. According to Fortune, some major consultancies offer very short-term assessment and evaluation services. Big Five consultancy KPMG, for instance, launched a three-week program called Saved, which promised an assessment of companies' e-business systems and recommended improvements, while IBM's Global Services provided an online e-commerce evaluation program.
The myriad issues within the broad spectrum of e-commerce—from securing online transactions and customer data to implementing cutting-edge software and choosing a model for the Web site—add up to a ripe market for consulting firms, creating niche markets in which consultancies can distinguish themselves and begin to build market share. According to Fortune, specific areas of e-commerce consulting were more or less characterized as follows: technology implementation was the specialty of systems integrators and the Big Five consulting firms; e-commerce business strategies were the domain of management consultants; consultants known as "interactive strategists" focused on the marketing, customer service, and outreach aspects of e-commerce; and start-up consultancies known as "i-builders" worked to combine technology, strategy, and marketing consulting for quick overall development of an e-commerce presence. Fortune provided rough estimates of costs and project durations for each category, reporting that management consultants generally work for three to four months and cost between $400,000 and $800,000; interactive strategy consultants take six to eight weeks and charge $200,000 to $400,000; systems integrators and Big Five consultancies take projects for six months to three years and run between $1 million and $10 million; and i-builders' engagements last about four to six months and cost between $750,000 and $2 million.
E-COMMERCE CONSULTING TAKES OFF
Following the widespread fears surrounding the "Y2K bug" that generated so much business for technology consultants in the late 1990s, the most lucrative line of work for such consultants was the transformation of established businesses into e-commerce firms. Unfortunately, the Y2K issue was a vacuum for a lot of money devoted to companies' technology budgets. This was money that needed to be regenerated before it could be spent on e-commerce implementation, and thus kept the explosion of e-commerce consulting somewhat in check.
Nonetheless, the major consulting firms, including the Big Five, rapidly shifted focus to incorporate e-commerce services into their operations, sometimes launching entire new divisions devoted to large-scale or more focused e-business initiatives. However, according to many analysts the big consultancies, steeped in traditional consulting activities, had to regroup extremely quickly to adjust to the e-commerce onslaught. In so doing, Big Five players such as KPMG, PricewaterhouseCoopers, and Ernst & Young wound up laying off significant portions of their workforces while they reorganized their business lines, later rebuilding their ranks with a greater focus on e-commerce. In addition, according to Fortune, major companies in various industries chose to augment their businesses with selective e-commerce consulting ventures. For example, Chase Manhattan Bank partnered with the Big Five consultancy Deloitte Consulting to create a consulting service for the development of online payment systems, and Microsoft teamed up with Deloitte rival Andersen Consulting to offer e-commerce services using Microsoft's Windows platform.
The dot-com explosion, while creating a boom period for consulting, also put a severe strain on established consultancies, which were forced to scramble to recruit top-notch talent. Traditionally, consultancies mined undergraduate colleges and business graduate schools for their talent pools, but dotcom startups in the late 1990s and early 2000s were quick to tap into these sources for their own ranks. According to Consulting to Management, dot-coms gobbled up more than half of Harvard Business School's 1999 MBA graduates. Sometimes this hurdle was surmounted as consultancies offered to partner with dot-coms during the initial development stages, whereby the consultants themselves, while working directly with the startup, were actually maintained by the consultancies.
By the late 1990s, many e-commerce consulting firms turned to the stock market to generate the funding needed to purchase other technology and consulting firms and grab a piece of the market. Thus, they were following their clientele and launching initial public offerings (IPOs) at a dizzying pace by the end of the 1990s. With the field both full of promise and devoid of clear leaders at that time, firms saw the opportunity to emerge as major players by acquiring the funding necessary to blossom into full e-business solutions providers and build the capabilities necessary to procure the larger, more prestigious, and more lucrative e-commerce consulting projects.
Since many consultancies also maintain a hand in the accounting business, they were tailor-made for another branch of e-commerce consulting, which involved integrating old office accounting systems with Web-based and information technology. Particularly as business-to-business e-commerce and market-to-market integration heats up, the digitization of accounting and inventory systems for easy data sharing across business, industry, and regional lines will call for greater involvement of e-commerce consultants to provide technological expertise.
However, this movement of traditional accounting firms, including the Big Five consultancies, into the field of e-commerce consulting was not without controversy. The most prominent concerns included the potential conflict of interest posed by accounting firms who audit and devise tax strategies for the firms they also consult and provide e-commerce solutions for. In late 2000 the U.S. Securities and Exchange Commission (SEC) proposed new rules to bolster its auditor independence standards, which would compel the Big Five firms to scale back their e-commerce consulting operations. Recognizing the potential losses they would accrue the Big Five, along with the American Institute of Certified Public Accountants (AICPA), mobilized opposition to the proposed SEC rules, insisting that the scope of consulting not be curtailed.
Under traditional rules, auditors were forbidden to maintain a financial stake in the firms they audited. Through the late 1980s and especially as the Internet economy opened up in the mid-1990s, the line between these interests grew increasingly clouded, particularly as accounting firms branched out into consulting and often took equity stakes in their Internet-based clients—clients that, as startups, had no source of revenue from which to pay for the consulting services. The SEC feared that such financial stakes in clients' performance could potentially compromise the integrity of their auditing and accounting practices.
After months of ugly fighting, the SEC and the Big Five reached a compromise. In its final ruling in November 2000 the SEC announced that, while it wouldn't ban the accounting firms from consulting or helping to install information technology systems, the burden of proof was on the consultancies to prove there was no conflict of interest between their accounting and auditing practices and their consulting businesses.
For their part, Big Five firms increasingly spun off their consulting units, e-commerce or otherwise, into separate, independent businesses to prevent any accusations of compromised independence. However, even in such cases the line between their tax accounting and auditing practices on the one hand and their consulting activities on the other was nebulous. According to many Big Five executives, the nature of the new economy made it impossible for them to completely separate their tax and audit advice from other consulting activities.
Unfortunately for the industry, when the bottom fell out of the dot-com market in early 2000, companies severely retrenched their e-business consulting budgets, culminating in massive layoffs at e-commerce consultancies. The larger, diversified consultancies were able to manage without too much difficulty, but the smaller firms devoted to e-commerce consulting found themselves without the experience necessary to shift into new areas, and many were forced to shut down. After the market began to regroup and firms continued with their e-commerce strategies—albeit without the enthusiasm that characterized the late 1990s dot-com craze—the field began to expand again. The industry as a whole, however, gravitated toward established Fortune 1000 companies and away from riskier dot-com startups. In fact, many dot-coms diversified their operations to include e-commerce consulting following the Internet shake-out in an effort to stay afloat. Recognizing that, while the market euphoria may have abated, e-commerce was hardly at an end, such firms hoped to generate a revenue stream by helping other companies build their online storefronts and e-commerce strategies.
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SEE ALSO: Forrester Research; International Data Corp.; Startups; Y2K Bug