E-Commerce Consultants - E-commerce Consulting Takes Off

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.