By John Foley
Issue date: Sept. 9, 1996

magine a sharpened pencil in front of you. The point represents companies leading the way into the information age, where intellectual assets count for more than the ability to make and sell products. The eraser symbolizes the industrial past. While most companies belong somewhere along the pencil's shaft, the professional servi ces sector is at its very tip.

That's the analogy used by Ellen Knapp, vice chairman and chief knowledge officer at New York accounting firm Coopers & Lybrand, to describe where professional services companies stand in an increasingly services-driven economy. "It's the only pure play in the knowledge economy," Knapp says. "All of our assets are knowledge assets."

Says Allen Frank, chief technology officer at KPMG Peat Marwick in New York and partner in charge of KPMG's enabling technologies practice, "We're basically a giant brain. For us, the knowledge-management environment is the core system to achieve competitive advantage."

That thinking explains why the InformationWeek 500 professional services companies--a diverse group dominated by Big Six accounting firms such as Coopers & Lybrand, KPMG, and Deloitte & Touche--are often among the early adopters of new technology. Windows 95, Lotus Notes-intranet integration, and SAP AG's R/3 enterprise applicati ons are a few of the things on their 1996 agendas. "We've got to know the technology before our clients do," says Doug Greenleaf, CIO of Deloitte & Touche.

The IT budgets of many professional services companies will grow substantially this year compared with 1995. The increases range from 3% at Coopers & Lybrand to a whopping 50% at KPMG, which spent $95 million on IT in the United States in 1995.

Frank says the higher level of spending at KPMG will continue for at least three or four years, as the organization prepares for the 21st century. The goal is a knowledge management environment that ties together legacy systems, an intranet, the World Wide Web, data warehousing, document management, new applications, networking, and network management.

All this is meant to give KPMG professionals ubiquitous access to the firm's brain trust. "You can no longer separate our technology strategy from our business strategy," Frank says.

The pace of innovation is similar at other professional services comp anies. Technology managers at these organizations are deploying new software, developing intranets, putting systems in place to support Internet service offerings, and extending enterprise networks to support remote users and international sites.

For instance, Deloitte & Touche has upgraded all of its 16,000 PCs in the United States with Microsoft's Windows 95. Among other things, Windows 95 is needed to support an integrated suite of internally developed applications called Audit System 2, now used by Deloitte & Touche's 7,000-plus auditors in the United States. The suite automates much of the auditing process, dramatically reducing the paperwork involved.

Next for Deloitte & Touche's 240-person IS department in Nashville, Tenn., is deployment of SAP R/3 client-server applications. The software could be used to combine Deloitte & Touche's internal operations, especially in the area of consulting services, according to Greenleaf.

Other technology projects at Deloitte & Touche include slashing the number of servers deployed in the United States by almost half, from 550 to 300. That includes phasing out Novell NetWare and IBM OS/2 servers and replacing them with Windows NT systems. The firm also is adding about 500 employees per month to its international Lotus Notes network.

Coopers & Lybrand is in the pro- cess of building an intranet to support Coopers & Lybrand Intellectual Capital (CLIC), an initiative to deliver up-to-the-minute industry information to its professional staff worldwide. The accounting firm also is converting physical libraries in 120 U.S. locations to virtual libraries, called Cyberlybs, on its intranet. Earlier this year, Coopers & Lybrand launched its three-year-old Tax News Network (TNN) on the Internet.

"CLIC and Cyberlyb are internally focused," Knapp says. "They exist to assist our partners and staff. TNN is one of the first examples of creating an electronic community between Coopers & Lybrand and our client base."

Coopers & Lybrand is ready to offer even mo re services over the Internet as the market develops. It has trademarked the Cyberlyb term and registered the cyberlyb.com domain name. "We have the option to take this concept and create subscription-based library services related to highly professional technical data," Knapp says.

Deloitte & Touche also has established an Internet presence by selling tax advice and other financial services on the Microsoft Network.

Cyber Chances
Other professional services companies, propelled by the nature of their business, also are cashing in on cyber opportunities. James Scielzo, senior VP and chief technology officer at advertising and public relations specialist Young & Rubicam Inc. in New York, estimates that one-third to one-half of the firm's 12,000 employees are involved in the creative process or production of commercial communications.

Multiple lines of business at Young & Rubicam are leveraging those skills to help customers create Web sites. "It's a significant and strategic busines s for us," Scielzo says.

Young & Rubicam is wired for multimedia. Nearly 35% of the company's desktop computers are Apple Macintoshes (the other 65% are Microsoft Windows-based PCs), and by year's end, all employees will have Web browsers. The firm uses video servers along with its 3,500-user Notes network, and is building links between that network and an intranet. Its worldwide frame relay network increasingly carries graphics, video, and sound files.

The most significant problem Scielzo foresees is getting the network capacity to support all that traffic. "The hardware and software exist to do what we want to do," he says. "The biggest challenge for the future for us is going to be bandwidth. The cost really needs to drop more quickly than it has."

Ernst & Young is facing the same problem. "Traffic has gone up dramatically, by a factor of 10, in the last couple of years," says E. Allen Hershey, national director of technology innovation. The New York Big Six accounting firm is solving the bandw idth dilemma by building a 45-Mbps backbone using asynchronous transfer mode (ATM) services from Sprint.

Professional services companies also are continually pouring more computer and communications resources into overseas locations. For many of these organizations, more than half their work force is located outside the United States.

Then there are the growing ranks of mobile workers. At Deloitte & Touche, 80% of employees are now equipped with Pentium notebooks running Windows 95. "We're a portable, mobile company," says Greenleaf. "You don't make money sitting in the office."

Coopers & Lybrand sees mobile computing as a way to dramatically cut the cost of expensive office space. The firm has begun setting up metropolitan offices for "hoteling," where equipment and workspace are assigned on an as-needed basis. "We believe we will be able to put $40 million back on the bottom line on a recurring basis as these initiatives mature," Knapp says.

The infra-structure employed by Ernst & Youn g, which includes the ATM network, is set up to accom- modate nomadic groups of professionals that settle in at client sites for days-- or years. Hershey says the biggest challenge is sup- porting teams of 50 or more consultants involved in a major reengineering project. "We have the biggest teams for the longest times at the strangest places," he notes.

The accounting firm is experimenting with wireless technology for auditors, who often find themselves working in out-of-the-way conference rooms at client sites. "They have to go places where there may not be much of a local infrastructure," Hershey says. "Wireless tends to be of interest to those people."

Jay Pursell, director of computer services at manufacturing and services conglomerate the Marmon Group Inc. in Chicago, says the group's 60-plus companies are largely autonomous when it comes to the use of IT. The companies include Getz Bros. exporters, the Trans Union credit agency, and Marmon/Keystone, a distributor of alloy tubing.

Half of th e group's $6.1 billion in 1995 revenue came from services and half from manufacturing, which explains its heavy investment in engineering and computer-aided design systems. On the flip side, fewer than half the group's 28,000 employees have their own PCs.

One thing the Marmon Group companies have in common is a desire to establish a presence on the Internet. Half have Internet connections, and one-third have Web sites. "There's a pretty big audience out there on the Internet, and all of them are potential customers," Pursell says. The group's total IT spending for 1996 is $135 million, a slight increase over last year.

Other professional services companies are pursuing even loftier IT goals. At KPMG, theorists are pushing the idea of "thought optimization." Frank describes it as a way of problem-solving in which there is less emphasis on "scientific method" as a way of reaching a goal. "We think there's a physical limitation as to how far you can take that," he says. The better approach, he says, is h ypothesis-driven: "You focus on the problem as early in the process as possible. You want to get to the big answers early."

KPMG's philosophy has an IT requirement--the organization's workers and information resources have to be seamlessly networked. That explains why the firm's directors decided to increase IT spending by 50% this year. "The system aligns itself to the thinking process," Frank says.

This kind of leading-edge thinking has professional services companies optimistic about the future. Many expect their experience as IT implementors to fuel growth, especially through their already fast-growing technology consulting practices. That, combined with a growing realization among corporations that success in the future will come from innovative thinking and knowledge management, leaves professional services companies feeling that they are sitting pretty.

"There's a real trend away from the focus on downsizing, cost-cutting, and business process reengineering, and a great deal more focus on i nnovation," Coopers & Lybrand's Knapp says. "It's an enormous opportunity for professional services firms."

To view the IW 500 Professional Services chart in PDF format click here

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