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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. 
Perspectives of the IT Organization and the CIO
CIOs and their IT organizations play a central role in the demand for IT consulting. In our discussions with a number of leading CIOs about their impact on the shape of the IT industry, six themes emerged:
1. IT is now an established function in the structure of most organizations. For many years, the IT function was the "new kid on the administrative block." In that tenuous capacity as a newcomer, it was necessary and appropriate to use resources and expertise from outside the company. It was natural for companies to rely on outside sources for guidance on key design and investment decisions and for resource capacity itself. This reliance helped fuel the growth of IT services. Now that a strong IT function is accepted as central to a healthy company as are the HR, Finance or Purchasing functions, the degree of reliance on outside support is both sharpened and diminished.
2. The roles of IT in some companies are being redefined by the nature of what remains to be done after everything else is outsourced. Not everyone is convinced that this IT function design by "default" is a good thing. For example, one CIO sees establishing the "information backbone" of the company as about all that is left after outsourcing maintenance of the data-center, running of the network and programming. This CIO will not outsource ownership of design or maintenance of the so-called information backbone because he believes that the ability to do that is central to the competitiveness of the company.
3. As an established function, IT in the company now has more degrees of freedom to source services for highly specific purposes and value. One CIO describes the IT organization of the future as consisting of the following:
- Business analysis to understand the needs of the businesses
- Technical architecting to oversee and interface between IT and business systems
- Project management to implement change consistent with the practices of the company
- Management of IT processes
For each of these four capabilities, this CIO easily identifies the IT consulting outsiders who currently provide that service to his corporation. And, he states that his strategy aims to steadily bring more capability on the first three into his own organization. He prefers that these capabilities reside in his organization and then, by default, go to the outside if he has no alternative.
4. CIOs have migrated from being mainly IT technical experts to participating in high-level dialogue about the strategic direction of the company. For example, the views of the CIO may be central to design or re-design of the business model or significant in assessing the viability and future value of a major acquisition. One CIO told us, "If you have good people in the IT organization, they are good partners with the businesses." In the past, consultants helped bridge the needs of the businesses and the capabilities of IT. As an established strategy partner with business and corporate executives, the CIO and staff satisfy many of the IT-related strategy needs that IT consultants satisfied in the past.
5. Many CIOs say they will do less outsourcing in the future. This is driven by several factors, including a decrease in the number of new, "gorilla" ERP and CRM initiatives and the increasing need for rapid and flexible modifications to existing systems. What they do outsource will be the "body shop" activity when they need more capacity, but they plan to keep the deeper expertise in their companies.
6. Off-shore suppliers are providing an increasing share of IT services for activities such as coding. These are companies like Infosys, Syntel and WiPro. They market and deliver services on line and are viewed as providing rapid response, high quality, and low-cost service. One CIO told us, "...typically the outsource company will have 60% of their people on a project offshore and the other 40% at our location." These offshore providers were 50% of the cost of the large, U.S. IT consultants.