Andersen IT Consulting Clients Hold Firm

Andersen continues to hemorrhage large clients from its tax auditing business and merger talks with both Deloitte Touche Tohmatsu and Ernst & Young appear to have stalled, but several of the service provider's management and IT consulting clients say they're holding firm.

Longtime Andersen tax audit clients FedEx Corp. and Freddie Mac last week hired rivals Ernst & Young and PricewaterhouseCoopers, respectively, to replace Andersen. But spokespeople for both companies say Andersen's Enron-induced black eye and its legal problems haven't affected their relationship with Andersen as a business consultant. The Justice Department on Thursday indicted Andersen in connection with the destruction of documents sought by federal agents investigating Enron Corp.

Andersen said Thursday that it will fight the obstruction-of-justice charges. "The action taken against Arthur Andersen LLP by the U.S. Department of Justice today is without precedent and an extraordinary abuse of prosecutorial discretion. Given the circumstances in this case, this is a gross abuse of government power," the company said.

While Andersen's fate is still undecided, IT professionals say the firm's qualifications as a technology and management consulting firm should not be overlooked. "I think they did a great job for us and would hire them again in a heartbeat," says Brian McMillan, director of supply-chain systems for Verizon Communications Inc., which hired Andersen consultants in June 2000 to implement an Ariba Inc. E-procurement system. "A handful of people in Houston were up to no good, and unfortunately it taints the whole firm."

Andersen first helped Verizon develop a pilot implementation of Ariba Buyer 6.1 in September 2000 that let about 2,000 Verizon employees use the Internet to procure office and computer equipment from suppliers such Staples and OfficeMax. The following January, Andersen helped Verizon with phase two, an upgrade to Ariba Buyer 7.03 and the rollout of the E-procurement project to 220,000 users worldwide.

Andersen's experience implementing the three main software components of the E-procurement system--Ariba, PeopleSoft, and SAP--gave it the edge over the other large IT services firms considered, McMillan says. More than simply automating the procurement of indirect goods, Verizon's project required the integration of Ariba's application with PeopleSoft software Bell Atlantic had in place and an SAP system used by GTE. Verizon, a $67 billion provider of communications services, was formed through the merger of Bell Atlantic and GTE.

Tom Rodenhauser, lead analyst for Consulting Information Services, agrees that consulting talent is what distinguishes one service provider from the next. But with little chance for Andersen to sell its consulting business as a whole, the market will start to see Andersen competitors encircle the sinking firm, "looking for the strongest swimmers," he says.

Another client of Andersen's consulting business says it hired Andersen for its qualifications and would work with the company again if it remains intact. Lanier Worldwide Inc., a subsidiary of office equipment maker Ricoh Corp., this month wrapped up a yearlong E-business project with Andersen.

"I wouldn't hesitate to hire Andersen again if they were the most qualified," says Sean Magee, Lanier's VP of IT. Andersen worked with Magee and his staff to create Lanier Direct, a Web-based customer-support application that uses Blue Martini software to let Lanier customers order office equipment supplies and make service calls online.

Rodenhauser says he doesn't believe Andersen has much time left as an independent services firm. Andersen faces pressure from two fronts--the Justice Department indictment and an economy that's discouraged spending on discretionary services like business and technology consulting. Rodenhauser says companies won't miss the technology services that Big Five firms such as Andersen offer because these services are readily available from competing firms such as Computer Sciences Corp., EDS, and IBM Global Services.

"The separation between accounting and consulting is finally going to happen," Rodenhauser says. The neat, orderly world of the Big Five, which defined a good part of the consulting industry, will be gone, forcing buyers of consulting services to become more sophisticated when choosing consultants because they won't have their auditors selling them consulting services. "It'll become even more of a buyer beware market," he says.

Verizon's McMillan says Andersen's legal problems won't affect the way he selects service providers in the future. The selection process comes down to a service provider's talent and track record, he says. While a firm's ethics weigh into the equation, McMillan says the decision-making process is mostly a "gut feel" you get from interviewing the service provider's management and consultants.