InformationWeek
Defining The Business Value Of Technology
August 30, 1999
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As 2000 approaches, many IT services firms are shifting their focus to E-business
By Noah Shachtman
"These services companies have achieved a brand name through Y2K, and they've gained a credibility at a CIO level. Now they're going to try to parlay this name into other services," says Peter Bendor-Samuel, editor of Outsourcing Journal. "E-business is the next gold rush. If you can spell it, you'll have customers."
But keeping customers happy won't be easy. E-business presents a series of challenges to former Y2K fixers such as Emerald Solutions, IMRglobal, and Keane--not the least of which are the skills needed to do the job right. Services firms are taking steps to bridge the gap between Y2K and E-business, from acquiring businesses with Internet expertise to massive internal retraining and restaffing.
For Emerald Solutions, which was founded in January 1997 as a Y2K remediation factory, the pivot to E-business meant letting nearly one-third of its workforce go. "We knew from the start that Y2K was only a way to get our foot in the door," CEO Martin Wright says. Emerald quickly came under enormous competitive pressure from big services companies and low-cost overseas IT shops. Margins plummeted. By the end of 1997, the decision was made to reorganize radically in order to focus on integrating enterprise resource planning and other major applications with the Web.
"It was a painful process," Wright says. "Generally, back-room Y2K remediators are good at Cobol or Assembler, but they aren't forward-thinking people who are excited about their careers. Y2K was their last hurrah. They don't have communication or writing skills or the understanding of broader business issues needed for E-business work."
Emerald's aggressive action seems to have paid off. "We have more work than we can handle," Wright says. In all, 70% of Emerald's revenue this year--about $35 million--has come from E-business work.
More Than Y2K
Photo of Wright by Janine Bentivegna
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2K work? "It's like cocaine," one IT executive says. "It's hard to stop once you're hooked." But for IT services firms that have gleaned much of their revenue from year 2000 conversion work, rehab time is here. After years of living the Y2K high life, these companies must put into action strategies for replacing the frenzied billions they made easing millennium anxiety. Many say they're reorienting their companies to become E-business experts.
By the first quarter of 1998, Emerald had downsized its remediation shop, dismissing 30 of 100 people. They were replaced with customer-management and ERP experts, people who knew about integrating giant applications, and business analysts with consulting firm backgrounds. Emerald workers who survived the purge--mostly people with on-site implementation experience and project-management skills--were heavily retrained. By the end of the quarter, these employees had gone through four to six weeks of off-site PeopleSoft ERP training, at nearly $50,000 per head.
Clients such as Benjamin Moore & Co., which initially turned to Emerald for Y2K project management, are using the outsourcer for a variety of other projects. "As Emerald started on our Y2K project, it was obvious that we could leave them alone. They work as if they were my own staff," says Nick Puccio, CIO at Benjamin Moore. The Montvale, N.J., paint manufacturer has tapped Emerald to develop an intranet application to track laboratory projects.
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