Consulting Services Take A Hit From IT Budget Crunch

In the rare cases in which Eastman Chemical Co. hires IT consultants this year, Jerry Hale says he doesn't want them getting too comfortable. "If we do use consultants, we want them to solve the problem, quickly transfer knowledge, and move on," says Hale, Eastman's director of global business systems.

IT consulting services will be target No. 1 of budget-conscious executives in 2002. Of the 125 respondents to our Outlook 2002 study who plan to cut IT spending, four in 10 expect to cut consulting and outsourcing, far ahead of the next expense in line for cuts: hardware. Hale expects to maintain or slightly cut his IT budget this year. With fewer projects in the works, he'll rely more on internal resources and tap expensive consultants only for specific expertise.

While project consulting suffers, some businesses are continuing to make major commitments to outsourcing. Big companies cutting costs are handing large chunks of their IT operations over to outsiders, foremost among them are IBM and EDS. For example, in December, travel-service conglomerate Cendant Corp. gave IBM Global Services a 10-year, $1.4 billion contract to run its data center and PC support and pick up more than 500 Cendant staffers. BellSouth Corp. handed the operation of a Georgia Internet facility to EDS.

But traditional project-oriented consulting firms such as Accenture, KPMG Consulting, and others trimmed staff late last year. And they're straining to make themselves more appealing. Cap Gemini Ernst & Young restructured its services late last year to be more affordable. The firm is focusing on helping companies adapt to the difficult economy, including prioritizing IT projects, says Terry Jost, VP of business development at Cap Gemini. Layoffs at consulting firms play into the hands of people like Jane Aboyoun, CIO at TMP Worldwide Inc. She plans to trim consulting but increase her 252-person staff by 10%. Says Aboy-oun, "The market is good for hiring, and we can be a bit more selective."