• 30 Mar 2003
  • Research & Ideas

The Future of IT Consulting

 
 
A new Harvard Business School working paper traces the evolution of IT management consulting and trends for the future. Read our e-mail interview with professor Richard Nolan and HBS Interactive Senior Vice President Larry Bennigson.
 
 
by Sarah Jane Johnston

The explosion of "computer-to-computer" communication in the twenty-first century is triggering a growth phase for IT consultants. Harvard Business School professor Richard Nolan and HBS Interactive Senior Vice President Larry Bennigson trace the evolution of IT management consulting.

Johnston: Your research refers to the PC in the 80's and the Internet in the 90's as triggers of explosive growth for the IT consulting industry. Have you identified a third trigger for this decade?

Nolan and Bennigson: The trigger in this decade underlying autonomous computing is "computer-to-computer" communication. By the end of the decade, more than 60 percent of the computer communications will be computer-to-computer. Computer-to-computer vastly speeds up the pace of business. For example, end-to-end supply chains can be automatically adjusted by point-of-sale computers directly communicating with warehouse computers, which in turn directly communicate with manufacturer computers, and, again in the chain, manufacturers' computers directly communicate with their supplier computers. In addition, computer-to-computer communications can track demand and adjust logistic systems to automatically direct product to geographical points of demand.

Q: Can you describe some of the enablers and drivers behind the growth of the IT consulting industry? How has globalization impacted this growth?

A: The enablers and drivers of growth of the IT (see working paper excerpt) consulting industry have been several. First, innovation in frameworks and methodologies along with trained professionals have provided value-added services uniquely available from the consulting firm. For example, the Boston Consulting Group and McKinsey innovated unique conceptual frameworks for assisting management in sorting out action plans for their various lines of business.

By the end of the decade, more than 60 percent of the computer communications will be computer-to-computer.
— Nolan and Bennigson

Newness and complexity have been a second driver. Andersen Consulting, now Accenture, has provided expertise in designing and coding complex computer applications. SAP and Seibel have developed unique package software, and have provided specialized consulting services to assist in the implementation of the package software.

A third driver has been the building to critical mass high levels of expertise not economical to maintain in a particular company. For example, computer security consulting requires a high level of expertise, which few firms can economically maintain in-house. By providing these kinds of services to many firms, critical mass can be maintained in the practice group, as well as ensure that the group stays on the leading edge of the subject matter.

Related to this third driver is the focus that a separate consulting firm can maintain in managing a highly talented group of knowledge workers. The management and incentive systems are quite different in a consulting firm than in, say, a product firm. Consequently, a product firm may not be attractive to various knowledge workers who prefer to work in the consulting environment.

A fourth driver is the demand for process and behavior change that IT implementation puts on most organizations. IT was not just a new technology. To capture the value IT represented, organizations had to address change in structure, culture, people, process, and leadership. Many organizations turned to the consulting industry for help in understanding and managing these significant changes.

Finally, the IT consulting industry enjoyed an unprecedented frenzy of convergence of 1) adoption of systems such as ERP and CRM; 2) management improvements such as BPRE; 3) problems to solve such as Y2K; and 4) new territory to pioneer such as e-business.

Q: Who are the current players who have successfully adapted to the changing IT environment? What is the key to their success?

A: In our working paper, we state that more than 50 percent of today's capital budgeting expenditures involve computing in one form or another. As a result of the pervasiveness of IT, literally all consulting firms have had to integrate IT expertise. Indeed, with the hyper growth during the 1990's, consulting is still in restructure mode.

A high degree of industry adaptation in the IT consulting industry will be required in the future.
— Nolan and Bennigson

Within this context, Accenture has continued to broaden their consulting service scope. Accenture has built an impressive education and training facility called St. Charles, outside of Chicago, which focuses on maintaining currency in the skill levels of their professionals, as well as providing a leading tool for equipping their professionals with the new skill required with emerging IT.

Another type of example is the IT product firms that incorporate certification and training for their own consultants, independent consultants, and customer professionals. Microsoft, Sun, and Novell are examples of these kinds of companies.

Q: What are your predictions for the future of IT management consulting?

A: We believe that the recent restructuring in the IT management consulting industry is a point of industry transition. That transition coincides with the emergence of new drivers of IT management consulting growth. While the transition is still being played out, we can see some of these new drivers taking shape.

Until recently, there had been an IBM de facto industry standard for the operating system, and a de facto standard in the use of COBOL for applications development. By the late 1990's, new applications development had become almost exclusively supplanted by package implementation. In addition, networking and the Internet moved the IT infrastructure for the IBM standard to an emerging environment characterized by open standards.

Accordingly, the IT infrastructure became simpler and more complex at the same time through the innovation of layers and API's (Application Programming Interfaces). The implication for IT management consulting is a rather complex demand to provide both strategic perspective along with implementation savvy on managing the considerable risks of not being able to realize the strategic competitive advantages of computing because of failures to effectively manage implementation challenges.

Further, within the context of the management challenges of balancing strategic opportunities with implementation capabilities, there are dampening forces on industry growth. For example, the wave of ERP installations and BPRE projects is now beyond its peak. While outsourcing is still an established practice, companies have gained experience and can now do much more for themselves that they have looked to outsiders to do in the past. Managers know more about IT, more about the business and organizational potential and implications of IT and more about designing their own backbone and architecture.

We think it is important that it is tempting but risky to completely turn over IT initiatives to IT consulting firms.
— Nolan and Bennigson

And, there are forces that will drive new demand. Security is fast becoming a ubiquitous issue. The Internet will experience dramatic growth in Asia and Europe. New applications such as bioinformatics and telematics create new consulting segments. And the adoption of Internet2 will eventually have broad impact.

IT consulting, as much as any product or service, creates its own demand. A high degree of industry adaptation in the IT consulting industry will be required in the future. By introducing innovations and educating the market about the competitive benefits of those innovations, IT consulting invents and "earns" its opportunities for growth. This ability of IT consulting to lead and to adapt is a key to its robust development.

Q: What lessons can operations managers take away from your research?

A: There are a number of lessons we think are important for operations managers:

Many functional and business leaders have become conversant about IT and many IT specialists have become knowledgeable about the strategic and business benefits of IT. Companies that encourage and incorporate this integrated and more sophisticated capability within their organizations will have an edge over those that have to rely on outsiders for the integrated view.

The rate of change in IT capabilities is a companion to the rate of change most companies experience in other technologies, markets, and initiatives of competitors. We have noted that the successful IT consulting firm must be able to anticipate, sense, and nimbly respond to change. This is equally true for operations. Operations managers face the daunting task of implementing new IT capabilities while ensuring they are also prepared for the next version or generation.

The emerging IT environment is at a level of complexity such that efforts to build IT infrastructure and integrated applications require specialized expertise that is often available only in IT consulting firms. Good operations managers will ensure that their organizations have the ability to work effectively with and integrate the value from networks of service providers with a variety of special capabilities.

Finally, we think it is important that it is tempting but risky to completely turn over IT initiatives to IT consulting firms. A significant number of your own IT professionals and users should be included in integrated IT initiatives.

About the Author

Larry Bennigson is senior vice president and Senior Fellow at HBS Interactive, overseeing the design, development, and delivery of the School's custom programs.