WHY CONSULTING IS SCORCHED GROUND » Business, new and repeat (ha!), is hard to come by » Clients expect consultants to implement, not merely advise » There are too many consultants around » The imperative to separate audit and consulting is hurting some firms » Investment banks and software services companies pose a threat

I like consultants. They're suave, dress well, speak even better, and are never reluctant to proffer sound-bytes. Only, my last article on consultants- it began with a joke about how a consultant was a man who knew 99 ways to make love, but didn't know any women (Doctor Heal Thyself, Business Today, July 21, 2000)-left me with few friends in the domain. The quotes dried up, my stories suffered, and my Editor (it's always capital E) started treating me like an incapacitated war vet.

Now, just when I am about ready to be rehabilitated into the area-a consultant actually called me last week, and he wasn't returning my call-Mr Know-it All has assigned me this article. "There's chaos in consulting," he growled. And out of the window went my rehab-hopes: to consultants, pariah I was, and pariah I would remain.

Still, my Editor was right (that should make him happy). The consulting business in India is in a mess, a bigger mess than what it was in 2000. Foreign consulting firms in India are slashing billing rates, pruning costs, discreetly downsizing, and desperately diversifying-all this, just to stay alive. The diversification makes things worse in some cases: consulting firms are stepping on the toes of software services companies in a desire a capture a slice of the lucrative technology transformation pie, and on those of investment banks as they try to get a foot into the happening corporate finance advisory business. Phalanges hurt, both software companies and investment banks are fighting back.

"The margins in the strategy business are higher, but the volumes are more in technology consulting." Salil Parekh, Managing Director, Cap Gemini E&Y

"Globally, all firms have taken a beating. They have not been able to sustain their business in mature markets." C. Srinivasan, Managing Director, A.T. Kearney

The sheer number of their consultants on the bench in India is also forcing some firms to bodyshop. Increasingly, relatively inexpensive Indian hires are assigned to global projects, if any: the business isn't booming anywhere in the world. "Globally, all firms have taken a beating," explains Dr C. 'Srini' Srinivasan, the Managing Director of A.T. Kearney's Indian ops. "They have not been able to sustain business in mature markets-in India, this has an impact on the way clients see consulting firms." The good doctor is right, but there are things closer home that bode ill for the business too.

Separated at Death

A year ago, the Big Five could have got away with a presence in both audit and consulting (there's nothing illegal about it). On paper, the synergies between the two businesses are considerable: accounting firms have specialised practices (such as telecom); auditing the books of several telecom companies, over, and over, and over again, gives them insights into the dynamics of the business; and a presence in consulting provides them with a profitable outlet for such expertise. A partner at the Indian arm of one of the Big Five explains that the consulting link gives firms the leeway to subsidise their audit offerings. He claims it isn't unusual for a firm to offer large (and established) companies huge discounts on audit fees-all in an effort to understand the business and build consulting expertise.

Now, post Enron (Andersen was raking in huge consulting revenues from the company even as the shredders in its audit practice worked overtime), most audit companies are trying to hive off their consulting arms-Ernst & Young was among the first to do it when it sold its consulting practice to Cap Gemini in May 2000. Actually, change part of the previous sentence to, "most audit companies are desperate to hive off their consulting arms." The IBM PWC deal shows how desperate: in 2001, when hp was considering acquiring IBM's consulting practice, the number doing the rounds was $14 billion. On July 30, 2002, Pricewaterhouse Coopers sold its consulting arm-more than 32,000 employees, offices in 52 countries, and revenues of $4.5 billion-to IBM for $3.5 billion. In between, PWC sunk a few millions into building the Monday brand as its to-be-hived off; to-go-for-an-IPO consulting arm was christened.

Courtesy IBM, PWC's Monday never got beyond Sunday (sorry, couldn't resist that). And now, whisper wicked tongues in other consulting firms, many of PWC's consultants are waiting for IBM to put a number to the non-monetised Monday shares they were allotted before heading for the exit. Finding a job won't be easy, though.

"We have grown faster than we expected, but come September, we expect only a modest increment." Gautam Dalal, Chief Executive, KPMG

The deal could impair some of PWD's existing projects where it is working closely with EDS and Oracle, both IBM competitors. Not that other Big Five consulting arms are in the pink of health: Andersen Consulting's Indian arm is still looking for a lifeline-its parent's deal with KPMG Consulting seems to have stalled and the buzz is, the company is close to arriving at an understanding with Deliotte's India arm; in turn, KPMG Consulting, created in 2000 hasn't quite set the corporate world on fire (nor helped put out those already on). And Deloitte is in the midst of a painful amputation of its consulting division. Much of the damage is at the global level, but the Indian operations are hurting too.

Natural Selection At Work

You don't need to hire a consultant to figure out what went wrong. There are too many consultants. "There is over-capacity all around," admits Arun Maira, Chairman, BCG India. And there is too little business. "The companies that needed help to design their strategies have already taken the help of companies that provide this service," explains Ernst & Young Chairman Kashi Nath Memani. And not always benefited, if we may add. Yet, consulting firms remained bullish on India. Call it irrational exuberance, call it euphoria, but their ranks swelled and swelled.

"We have been focusing on our IT solutions centre as well as outsourcing in the last 12-18 months." Sanjay Jain, Managing Partner, Accenture India

McKinsey's is a classic case study. Maybe because it had an Indian CEO (Rajat Gupta), it scaled its India operations up to levels that some of its competitors allege are unsustainable. The firm made a loss of Rs 16 crore (on a consolidated basis in India), they claim. McKinsey told BT that only CEO Rajat Gupta and not head of Indian operations Ranjit Pandit would respond to questions, but till the time this magazine went to press, Gupta's responses hadn't arrived. For the record, McKinsey denies that there has been a slowdown in its India-business. One release cites India as among the fastest-growing McKinsey practices with 135 consultants. Growing, maybe, but who would have thought (even a couple of years ago) that McKinsey would end up working with companies such as Desai Brothers (a Pune-based beedi manufacturer) or Eagle Flasks.

"The IT firms are getting into consulting and consultants are getting into what they normally avoided." Arun Maira, Chairman, BCG India

Companies too, have become wiser. No longer can a pin-stripe walk in, bill an obscene amount for a report that will have to be implemented by the client, and walk out. Today, it is the rare company (rare gull is more like it) that doesn't want the consultant it hires to help with the implementation. "The old style of consulting is dead," says Narayan Seshadri, Head, Andersen Business Consulting. "Today, the client-consultant relationship is more like a partnership." And no longer is it possible for consulting firms to send their best and brightest to pitch a project and then hand over execution to a clutch of trainees. ''Today," stresses the CEO of a largish manufacturing firm, "before I hire a consulting firm, I want to know who will work on our project." Why, some companies even hire former consultants to manage the consulting firm (or firms) they hire. "A number of firms are coming to us with such requests," laughs R. Suresh, CEO of headhunting firm Stanton Chase. Set a consultant to manage a consultant.

Any Business Is Good Business

With business drying up, consulting firms are diversifying into hitherto untapped areas such as technology (or it) consulting. "it strategy is an integral part of business strategy," says the Gartner Group's Sujoy Chohan, "and increasingly, both need to be addressed together." The result is a it consulting rush (For specifics, see, Infosys Ver. 2.0, in this issue).

BCG's Maira isn't happy with this. "Increasingly, there is muddiness over what consulting is," he rues. "The it firms are getting into what they call consulting and some consultants are getting into areas they normally avoided." His take: consulting is a confused industry today and will remain that way until the taxonomy of the business catches up with what's happening on the ground.

It isn't just tech, consulting firms are open to just about anything that'll bring in the moolah. "We see an increase in M&A activity among clients," says Kearney's Srinivasan. "There is a need for firms that can offer a complete range of services-pre-merger strategy, operational assistance, and post-merger (integration)."

Consulting firms, then, are open to any relevant diversification that can compensate for the rapidly drying up strategy business. "The margins in strategy are higher," admits Cap Gemini Ernst & Young Managing Director, Salil Parekh, "but the volumes are more in technology consulting." And so, the suits are looking at offshore software services (as part of their larger offering), even outsourcing services targeted at the Indian market. "We have been increasingly focusing on our it solutions centre as well as outsourcing in the last 12-18 months," says Sanjay Jain, Managing Partner, Accenture India.

All this flux is certain to change the very topography of consulting. Diversified consulting firms will survive (contrary to the counsel some consultants gave their clients). Others will resort to alliances, even joint bids. And the industry will never be the same again.