Answerthink Inc.: Old Questions, New Tactics

After early profits and a recent fall, consulting firm digs in to compete.

When Allan Frank, Ted Fernandez and David Dungan left their Big 5 accounting firm in 1996 to start an e-business services firm, their focus wasnt on building artsy Web pages. Instead, the three high-level executives were intent on building a business.

Now, an IPO, several acquisitions and 1,600 employees later, Answerthink is betting on its consulting skills to navigate the bumpy market conditions. Although the company has grown quickly since it started with a core group of about 49 fellow KPMG Peat Marwick consultants, Answerthink now finds itself lumped in with dot-com design firms.

The company went public in 1998 and has seen its stock battered of late. It wants to separate itself from the pack of beleaguered e-services companies abandoned by investors and analysts.

But Were Different Unlike front-end Web designers, Answerthink has an integrated service offering that includes benchmarking, software implementation and systems-integration skills.

"Its quite frustrating. We get put in the pile of e-integrators, and we dont see them competitively," says Allan Frank, president and CTO of Answerthink. "We compete with the Big 5, Cap Gemini and CSC, and larger firms."

Many on Wall Street dont see it that way. When Sapient announced layoffs on March 1, Answerthink was considered "guilty by association." Like Sapients stock, Answerthinks has fallen in recent weeks.

Despite the misperception, Answerthink certainly is different from traditional Web integrators. One of the key pieces of its go-to-market strategy is its research arm and its business-applications practice that offers consulting services around Lawson Software, Oracle and PeopleSoft. The research practice, Hackett Benchmarking & Research, acquired in late 1997, will play a bigger role for Answerthink as customers look for tangible answers in developing best practices and seek ROI validity before pulling the trigger on technology implementations.

"It [the research arm] helps get clients focused on where they might get the biggest bang for the buck," says Frank. "The ROI is used to focus the strategy. On the consulting side, we use the benchmark as part of our strategy engagement."

That type of approach will play an important role ahead. The company felt the sting of the dot-com fallout during Q4 when its revenue dropped to $69.1 million compared with $71.1 million in the year-ago quarter. On a sequential basis, its Q4 revenue fell 18 percent. For the year, the company reported revenue of $311 million and income of $7.9 million, compared with revenue of $260 million and income of $1.1 million in 1999. Thats a significant year-over-year improvement, but analysts were expecting far better results.

Pop Goes the Bubble The dot-com problems hit Answerthink particularly hard in Q4 as it recorded an $11 million loss, of which about $10.6 million was related to dot-coms not being able to pay their bills; the company also reduced staff by 150 people. "In the fourth quarter, we took proactive steps to address our exposure to dot-com projects and focus our organization on a Global 2000 client base," says Ted Fernandez, chairman and CEO.

Plenty of consulting companies and service providers have experienced similar customer troubles. Money-losing dot-coms and struggling Internet service providers have stiffed Covad Communications, Cysive, PSINet and other members of our Partner Index.

Answerthink is taking steps to minimize its exposure to future dot-com problems. Specifically, the company has lined up recent wins with larger enterprises. Many of these customers need high-margin services like CRM implementations.

One bright spot is Answerthinks business-applications practice, which grew during the fourth quarter compared with its strategy-consulting and technology integration, which dropped in revenue. "Our applications business is growing like gangbusters," says Frank. That practice, he says, covers areas such as human resources, supply chain and CRM.

"Value doesnt come from package slamming," says Frank. "We are focused on the true competitive advantage."

Answerthinks quest to stand out from the pack will be tested this year.