No Close Shaves, Just a Trim

Large customers are pruning their consulting ranks. But for how long?

The long and short of todays turbulent economy can be summed up like this: long faces and a short list of consultants.

For decades, Fortune 1000 companies have talked about reducing the number of their service providers, and when demand lessens, some do manage to trim their rolls.

But when business conditions improve, the impetus for streamlining their supply chains fades away, and these organizations find themselves once again contracting with 12 or 15 different consultants, integrators and outsourcing companies.

Many industry observers see that pattern repeating this time around. Bert Ellis, chairman of iXL, notes that the ebb and flow is a natural outgrowth of the business cycle. Right now, he says, the primary driver is cost-cutting. "Pricing is under huge pressure, and customers are demanding heavy discounts," notes Ellis. "But the only way to achieve that is through volume discounts, and that means [customers have to cut] their supplier ranks to give their remaining consultants more hours."

John Gray, VP of worldwide alliances at BEA Systems, agrees that its all a function of the business cycle. A year ago, he says, the labor supply was tight and customers that were in a rush to get their Web sites up were forced to contract with multiple service providers. Now that supply is outpacing demand, adds Gray, customers have time to perform due diligence on their consultants and are requiring proof of capability and sustainability.

If they can reduce the number of their consulting relationships to three or four, Gray concludes, they can more effectively ensure quality of service.

Among those Fortune 1000 companies looking to pare down their consulting partners to achieve lower operating costs are DuPont, JP Morgan Chase, Kraft Foods and Morgan Stanley.

Nevertheless, there is a strategic element in this years trim down, and some say the shakeout could be more lasting. A spokesman at Lante Corp., for example, says its enterprise customers want to rationalize their disparate Internet initiatives and are relying on smaller groups of integrators to develop common corporate Net platforms "as a way of instilling more coordination and cohesiveness into their organizations."

But whether or not this cutback becomes permanent , it is placing added pressure on the stressed-out sector. Independents that are trying to emerge intact and stay out of the graveyard of failed e-consultancies must wedge themselves in among the Big Five. Firms like iXL and Cognizant Technology Solutions have an advantage in that they have targeted the Fortune 1000 all along, but, advises iXLs Ellis, theyve still got to prove themselves to a very skeptical audience.