InformationWeek

"At some point companies [that hire strategy consultants] will find themselves asking, 'How much better is the guy across the table at understanding my business?'" says John Katsaros, VP and senior analyst at E-commerce research firm Jupiter Communications. "E-business really comes down to five words: What does my customer want? And service vendors may not be the best ones to answer that."

Eastman Chemical, for example, ended a long engagement with Andersen Consulting last fall and now hires more specialized firms, such as business-to-business auction-site builder Moai Technologies Inc. "On the strategy side, we've been able to learn E-business at the same pace as the consultants," Buehler says. "The reality was, we got to a point where we didn't need to spend that money."

Toshiba America Business Solutions Inc. in Irvine, Calif., would agree. The copier, fax, and printer company, with about $1 billion a year in sales, has run a highly successful dealer extranet for the past two years. Last month, it launched ImageStore, a consumer E-commerce site that routes orders to the appropriate regional dealer. Toshiba used AppNet Inc. for some ImageStore development, but it did all the strategy and legacy integration work with staff resources.

"If there's a specific technical piece of E-business that can be done faster and cheaper [by outsourcing], that's one thing," says Lisa Richard, VP of strategic business planning. "But no one understands your focus and your customers' needs better than you do. Some people hire consultants to go ask the customers what they think. We say, 'Pick up the phone!'"

Another downside of hiring third-party service vendors and consultants is knowledge transfer-or, more accurately, the lack thereof. When third parties come in, "they know how to get work done quickly-and then they leave," Goodyear's Godic says.

Companies in the InformationWeek Research survey seem to expect that as an inevitable fact of life. Only 8% of companies cited knowledge transfer as the most important reason to hire outside help. Unless you plan to keep the contracted workers longer to train your in-house people, there's a problem of support and maintaining work internally after the contracted help leaves.

"That's a mistake we've repeated a few times," Godic says. "If you shortcut knowledge transfer from the application-development cycle, you'll run into problems later." The problem that arises is that internal staff is less able to perform emergency repairs and enhancements on applications essentially built by outside teams. Staffers need to learn how it's built, then solve the problem. "Without the knowledge transfer, the discovery mode takes a lot longer," he says.

However, having consultants or contractors hanging around after their development work is done in order to train internal staff can be very expensive. Goodyear is trying to have internal staff work with the contractors during the application development process so they'll learn during that time. However, with the limited IT talent resources, Goodyear staff doesn't always have the time to do that, Godic admits.

As with many other aspects of E-business, innovative approaches play a key role in decisions regarding service providers. Darby Group, for example, may use service vendors as a cost-effective way to try out new E-business technologies, such as live voice chat from the Web, before committing extensive staff resources. "It's an opportunity to test and pilot something," Bavoso says. "If it gets great customer response, then we can go full-bore and maybe bring it back in-house later on."

Instead of contracting with a traditional consulting firm, Eastman Chemical has taken a page from Web startups and formed a board of advisors for E-business. The board consists of Larry Downes (co-author of Unleashing the Killer App), Adrian Slywotsky (author of The Profit Zone: How Strategic Business Design Will Lead You to Tomorrow's Profits), venture capitalist Heidi Mason, and Eastman CEO Earnie Davenport. The board was formed last year and meets quarterly with Eastman's E-business managers. The managers have also met with Dell Computer chairman Michael Dell and Cisco Systems CIO Peter Solvik.

"The key expertise we need isn't within Eastman Chemical or within the chemicals industry or within consultants to the chemicals industry," Buehler says. "We've tried to extend our reach beyond traditional consultants to people who are really in the middle of all this."

IT consultants, take heed.

-With additional reporting by Larry Greenemeier

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