Consulting REINCARNATION.

Talk about change: Five of the 14 largest consulting firms have newly minted CEOs. Meet the fresh five -- and tour their world.

Accenture, Cap Gemini/Ernst & Young, Deloitte Touche Tohmatsu International -- you need a scorecard to keep up with the break-neck corporate identity shifts in the consulting industry.

The business is going through profound transformation. Lately, there's been a much-publicized move to separate audit functions from consulting, several key industry players have gone public, and, of course, the Internet has opened new opportunities even as it's challenged the way these firms do business. "The industry is going through a real shakeup," says Tom Rodenhauser, president of Consulting Information Services LLP, which studies industry trends.

Change is pronounced at the leading firms, or those with $1 billion or more in consulting revenues. Thus, an auditing firm that does at least $1 billion in consulting qualifies. Of the 14 firms that meet this criterion, fully five have installed new CEOs within the past year--and PricewaterhouseCoopers will be the sixth now that CEO James J. Schiro has said he will step down as soon as a successor is named. This package contains profiles of the fresh five in place: Joe Berardino at Andersen; Rand Blazer at KPMG Consulting; Joe Forehand at Accenture; Dietmar Ostermann at A.T. Kearney; and Geoff Unwin at Cap Gemini/Ernst & Young. Chief Executive also caught up with CEOs from other leading firms to gather the veterans' perspective.

The primary issue--no question--has been the deliberate segregation of the audit and consulting sides. Some years back, clients began asking traditional auditing firms such as the old Coopers & Lybrand to help them program computers to keep the books, and a new breed of professional services firms offering a blend of auditing and consulting was born.

Recently, these firms have begun splitting in two. Andersen Worldwide went through a messy and public divorce that pitted audit against consulting and ultimately resulted in two new tirms, Accenture and Andersen. Cap Gemini purchased Ernst & Young's consulting practice. PricewaterhouseCoopers has lately explored the option of putting its consulting arm on the block.

There's a widespread--and erroneous--perception that the Securities and Exchange Commission (SEC) is forcing these firms into shotgun divorces. There's no denying that former commissioner Arthur Levitt, who feared conflicts of interest, was a zealot on the issue of the audit/consulting separation. He led a charge that resulted in minor reforms, including some rather specialized and technical limits on the kind of consulting that can be done by an auditor and a reform requiring public companies to disclose any consulting work done by their auditors.

But the real driver behind the spate of recent divorces is a profound mismatch between audit and consulting. In revenue generation, auditing tends to be a sleepy line, producing single-digit annual gains. Meanwhile, consulting is capable of double-digit growth.

Of course, professional services firms tend to be partnerships where the fates of auditors and consultants are intertwined. This resulted in so-called transfer payments. Basically, consultants forked over cash to subsidize their slower-growth brethren on the audit side. Andersen Worldwide consultants griped that the payments cost some partners as much as $200,000 annually. Tensions simmered for years, culminating in the breakup this past August.

It's worth noting that even post-Accenture, Andersen retained a sizable chunk of business that can be deemed as consulting. Already, the company is busily building up that practice. To paraphrase thief-celebre Willie Sutton, consulting is where the money is.

Consulting is also a diversified industry. Traditionally, firms have carved out one of three main specialties: strategic consulting, implementation, and outsourcing. Strategic consulting, the bailiwick of the A.T. Kearneys and McKinseys of the world, is the high-end, featuring consultants who examine a client's business practices from a broad and theoretical perspective. But convention holds that strategic consultants don't like to get their hands dirty with actual execution. That falls to the implementers at places such as Accenture and KPMG Consulting. The food chain culminates in outsourcing, involving unglamorous but lucrative engagements, such as doing a company's payroll and running telephone call-in centers. The annual $500 billion consulting industry pie is apportioned as follows: 10 percent strategic, 60 percent implementation, 30 percent outsourcing.

But lately, firms have been migrating onto one another's turf. This makes sense. If you are McKinsey, why be content to wear tweed and offer pithy business advice? Why not roll up your sleeves and snap up those lucrative implementation gigs? If you're Accenture, why be content to implement visions developed at the various strategic shops? Why not hatch your own visions? "Ask any Accenture partner who he wants to be when he grows up," says James Emerson, publisher of Emerson's s Professional Services Review. "He'll say he wants to be a McKinsey partner, but do implementation as well. Everyone wants to do it all now."

The Holy Grail is a one-stop consultancy, offering the range of services from strategy to implementation to outsourcing. In this context, the 1995 acquisition of A.T. Kearney by EDS is eminently logical. It pairs an old-line strategic consultancy with a specialist in implementation and outsourcing. The combo's ultimate aim--as yet unrealized--is to be able to channel clients along the spectrum of services. A client that sought out A.T. Kearney for strategic advice could be directed to EDS for implementation. A firm that looked to EDS for outsourcing might consider A.T. Kearney for its strategic needs.

Of course, the entire consulting-service spectrum is being utterly transformed by the Internet. All the major firms are vying for a piece of the action. Initially their prospects looked questionable. The Internet promised a new golden age for business, old rules be damned. Traditional organizational structure and traditional ways of valuing a company's stock--out the window. Looking to an old-line consulting firm for Internet advice seemed downright risky. Such firms appeared antiquated, old-economy, hopelessly out-of-touch. Better to turn to hip upstart e-consulting outfits like Viant, Scient, or Sapiens.

What a difference a year makes. New economy standard-bearers such as Boo.com, eToys, and Violet.com are kaput. Viant, Scient, and Sapiens are struggling to stay afloat. New golden age, rest in peace. Enter Wave 2 of the Internet revolution, one Jack Welch once predicted would belong to large, established companies. Not surprisingly, large, established firms prefer to work with large, established consultancies.

"Clients are tired of the e-consultants," asserts Dietmar Ostermann, A.T. Kearney's new CEO. "They don't trust guys with long hair and earrings to come in and redefine their strategy. They don't trust those guys to change entire processes like product development or supply chain management. But those processes need to be revised in the context of the Internet."

The major consulting firms are also taking an active role in guiding and shaping the second wave of Internet startups. Accenture has started a VC arm to help fund fledgling businesses that appear promising. Several firms--notably Cap Gemini/Ernst & Young--have also created incubators for startups, providing a facility where representatives from the various start-ups can meet to share ideas and expertise. Legal, clerical, and consulting services are also available on site.

Sound business principles underlie this co-mingling of large consultancies and tiny startups. There's the possibility of a big payoff if a VC recipient takes off in a big way. That could bring a consulting firm a tidy chunk of change. Helping small companies in need also has a business development dimension. Today's startup is tomorrow's client. Finally, a startup might develop a service useful to a consulting firm's existing client base. For example, many of the recipients of Accenture's venture capital are software companies. Accenture is gambling that one of those companies will hit the jackpot and create the next SAP, giving Accenture first crack at helping its clients install the revolutionary software.

Delving into all these new areas is expensive. Both setting up a high-tech incubator and migrating along the consulting spectrum into new areas of specialty like outsourcing require a considerable outlay.

At the same time, consulting firms have historically been private partnerships. Even the most cash-rich partnership can't match the war chest a publicly traded firm can amass. Thus, going public is another trend. "You are limited in how creative you can be if you're not publicly held," says Alden Cushman, vice president of research at Kennedy Information, which studies the consulting industry.

By joining forces with Cap Gemini, Ernst & Young's consulting practice effectively went public. The same thing happened when A.T. Kearney was acquired by EDS. Meanwhile, KPMG International simply spun off its consulting arm in a February IPO. KPMG issued 112 million shares at an $18 target price and was able--in the blink of an eye--to raise $2 billion. Accenture's partners met in April and decided to float a block of shares publicly, with the aim of raising as much as $1 billion. Down the road, a full-scale IPO is possible.

Another compelling reason to go public: employee retention. In the consulting industry, brainpower is everything. Consulting firms don't own plants and facilities. Neither do they have patent portfolios like a Microsoft or a Merck. All consulting firms have are the skills and accumulated knowledge of their workforce. Yet they face astounding turnover. Going public provides consulting firms a weapon in the talent-retention battle: stock options.

Even consulting companies that remain private are seeking to reproduce the fleet-footed options culture. For example, Deloitte Touche Tohmatsu has started offering so-called C shares, internal certificates that go up in value based on an employee's tenure and various incentives. Meanwhile, all these firms are trying to simply become better places to work. Consulting is permeated by a corporate culture that might well be termed "modem Dickensian," characterized by long hours, high stress, and abundant travel. But an effort is being made to change this. Most firms are now offering some version of flex-time, aimed particularly at retaining mid-career women with children. Many firms are also amending the up-and-out model, providing career opportunities for people who fall off the partnership track. "The big quandary facing this entire industry is how to turn consulting into an appealing place," says publisher Emerson.

Again, people are everything in consulting. David Maister has a rather unusual job--consultant to a number of consultancies. He's a close observer of the industry. And he's come to the conclusion that the CEOs of consulting firms are particularly important in setting the tone. "At these firms success comes from enthusiasm, excitement, drive, and passion," says Maister. "That comes from the top. It's the main responsibility of a firm's leader."

Without further adieu, let's meet consulting's fresh five:

The Consummate Insider

JOE BERARDINO

Andersen

Berardino, 50, is something of an old-fashioned guy. He's spent his entire career with Andersen, starting out in 1972 as an auditor. Even in this era of rampant job-hopping, he sees no disadvantage to being a one-company man. "I've had many different careers at Arthur Andersen," he says. "I was an expert on taxes, then media, then telecommunications. I feel as if I've been with a different organization nearly every single year."

The variety was good preparation for Berardino's current job as CEO during a time of extreme tumult for the 88-year-old Arthur Andersen. A binding arbitration ruling handed down this past August split the company. Arthur Andersen--stripped of its lucrative consulting arm--was clearly the losing party. Former CEO Jim Wadia stepped down a mere three hours after the ruling. When the dust cleared in January, Berardino was named CEO.

Immediately, he set about rekindling morale, visiting employees in 15 different nations during his first weeks on the job. To signal a readiness to move on, Arthur Andersen became simply Andersen. The company has reestablished a relationship with Accenture, now a major client for its auditing services.

But Berardino is also hard at work building Andersen's consulting practice back up. He was widely credited with taking a lead role in preventing the SEC from enacting rules to keep auditors out of the consulting business. At one critical juncture last October he called Arthur Levitt in the middle of the night to keep negotiations on this dicey issue from breaking down.

Out of the $10 billion in revenues Andersen will generate this year, roughly 20 percent will come from consulting. The company is strong in the risk management area, where it has a $500 million practice. But Berardino is also trying to establish a presence in the crowded field of e-commerce consulting. "Yes, we're in the swimming pool with some sharks," he allows. "But frankly, the pool is very big. We're global, we have good relationships, and the market trusts us."

There will be no IPO for Andersen, says the old-school Berardino, who wants no part of the short-term pressures of Wall Street and Main Street. "That's a great big advantage of a partnership," he says. "This is our family business. People can't take it away from us. I feel very strongly about that."

Married 24 years, Berardino lives on Long Island, where he grew up. His spare time is devoted to fundraising and support for Fairfield University, a Jesuit college and his alma mater. "I feel the Jesuits take a really healthy approach to education," says Berardino. "And they have a pretty good brand, I believe. After all, they've been in business for about 450 years."

The Career Officer RAND BLAZER KPMG Consulting

Rand Blazer rose through the ranks, literally. He's a one-time military man, an experience that's left him uniquely qualified to lead newly spun-out KPMG Consulting into challenging new territory.

Blazer's father was a career officer and World War II veteran. The family moved around quite a bit: Tokyo, Stuttgart, Oahu. But they stayed put long enough for Blazer to attend high school in Baltimore, MD, after which he attended college on an ROTC scholarship, earning an economics degree at Western Maryland College and an MBA from the University of Kentucky.

In 1973, Blazer began a four-year stint in the U.S. Army, serving in the 101st Airborne division, where he rose to the level of captain and was ultimately responsible for helping the army install its first computerized personnel system. Along the way, he observed at close range the 101st Airborne's young brigade commander, Colin Powell. "He was a very strong leader," says Blazer. "With him, you saw focus, you saw mission-accomplishment, you knew he would get the job done."

Blazer's army computer experience made him eminently marketable. In 1977, he became a consultant at the Big 8 accounting firm Peat Marwick Mitchell, which had a small consulting division that focused on so-called federal services engagements. Blazer's clients were the various armed forces divisions--Army, Navy, Airforce--and he helped them manage projects, introducing engineering and financial discipline.

Blazer became a partner in 1985, and in 1991 was given responsibility for the federal services division, which included civilian clients such as the IRS. Between 1991 and 1997, Blazer grew the practice from $10 million to over $150 million. Next mission: serve as one of three co-chairmen for the entire consulting practice of the firm now known--after a series of mergers and changes--as KPMG International.

Like Andersen, KPMG International recently elected to split its audit and consulting functions. But in KPMG's case the breakup was not contentious. A publicly traded consulting firm--it was decided--would be in a better position to recruit talent and undertake M&A activity. It was also determined that Blazer's motivational brio made him the right choice to head up the newly formed KPMG Consulting. "I learned from my dad early on that you don't eat until the troops eat," says Blazer. "I believe that I have a responsibility to my people that goes beyond everything else."

On February 8, 2001, KPMG Consulting went public. Shares were tendered at $18, quickly rose to $24.25, but have since slid to $15.90 [at press time]. Blazer is confident that KPMG Consulting's stock is simply being punished indiscriminately, beaten down with the rest of the market. Meanwhile the company is busy doling out options. Already, 99 percent of KPMG Consulting's 9,000 employees hold options. Blazer believes he has already detected a change in his charges' outlook. "We are the masters of our own destiny now," he says. "What we do will lead to what we get."

It's a brave step to launch an IPO featuring a $2.5 billion slice of a 104-year-old company. Whether Blazer, now 50, will be able to emulate Colin Powell's mission-accomplishment is an open question. Meanwhile, when not building a public company, Blazer devotes his spare time to building a private residence. He recently moved into a house in Potomac, MD, that he and his wife spent two years designing, pouring over blueprints, working with subcontractors, and even selecting screws for the kitchen cabinet handles. "Building this on schedule and at cost brought all of my military and consulting training to fruition," laughs Blazer.

The Driving Force

JOE FOREHAND

Accenture

Forehand still speaks in the languid drawl of his native Alexander City, AL. But his style is better summed up by a favorite saying: "More fuel, less brakes." Under Forehand's high-energy guidance, Accenture is not only the world's largest consulting firm--with 71,000 employees and more than $10 billion in annual revenues--but is also undergoing the most thorough transformation among its peers. Last year's fractious split with Andersen is quickly receding as the company recasts itself.

Forehand, 52, majored in industrial engineering at Auburn University and earned a masters in industrial engineering at Purdue. Then, in 1972, he joined Arthur Andersen's administrative services division, the forerunner of the firm's future consulting arm.

Forehand grew with the firm's consulting business, working with clients in everything from the oil industry to packaged goods. By 1998, he was managing partner of the firm's largest industry group--the $3 billion communications and high-tech practice.

This breadth of experience made Forehand a natural for the CEO job when--after an 11-year tenure-- George Shaheen left in 2000 to join Webvan, an online grocery retailer.

Forehand assumed the helm in the midst of massive change. For starters, there's the firm's new name, Accenture. It's an Exxon-type appellation--wholly made-up, suggestive of certain corporate identity attributes, carefully screened to make sure there aren't any obscene or comical connotations in any of the world's many languages, and now being promoted in a $175 million media blitz.

Under Forehand's stewardship, Accenture is trying to increase its outsourcing business, now 17 percent of revenues. The company is also on an alliance jag, forming 150 in recent years. While some are of the nonexclusive variety, several promise to create substantial business opportunities. For example, Accenture and Microsoft have teamed up to create a separate 1,000-employee company called Avanade dedicated to helping Accenture clients set up the Windows 2000 operating system.

Venture capital is yet another new line for Accenture. So far it's provided funding to roughly 50 companies, with emphasis on software makers and infrastructure providers for the Internet and mobile telephony. In Forehand's view, Accenture's venture capital initiative is not really meant to be an investment scheme. Rather, it's designed to help out promising young companies that might someday be in a position to serve Accenture's clients. "We want to be able to provide the best innovation to our clients with new technology at the edge of the digital frontier," says Forehand.

And now comes the latest change for Forehand and Accenture: a partial flotation the partners agreed to in April. The move sets the stage for the firm to become fully public in the future. Partners are currently in discussions on the topic, and investment banks have even been engaged to explore the option of going fully public.

Forehand is an avid reader who especially enjoys business titles. A recent favorite was Jack Welch & the GE Way.

It contained one Welch-ism that Forehand found particularly compelling and relevant to his situation at Accenture: "You've got to start each day like it's the first day of your new job."

Young Turk 

A.T. Kearney

DIETMAR OSTERMANN

"I'm the first to admit that you need a lot of luck," says Dietmar Ostermann, A.T. Kearney's 39-year-old wunderkind CEO. But look closely at the rigorous way Ostermann has approached his life and career, and it's no surprise that he's landed atop a consulting firm at an astoundingly young age.

Ostermann grew up in the town of Rosengarden, near Hamburg, Germany. At 14, as an exchange student, he spent a year in Southfield, CT. After returning to high school in Germany, he became the youngest-ever elected member of Rosengarden's community parliament. He found it good preparation for the diplomatic skills needed in his future life as a consultant. "I learned in politics that you have to wrestle with the issue of constituents," he says. "You have to not only find the right solution, but also one that is acceptable and doable."

From the University of Hamburg, Ostermann received a dual degree in business and engineering. Summers he interned at a Daimler-Benz plant, garnering real-world experience in product development and design. Then it was off to the University of Southern California for a masters in industrial engineering. After graduation, he joined BMW and helped design an assembly line for the 3-series.

The automotive experience was perfect preparation for A.T. Kearney. Founded in 1926 as a spin-off of McKinsey, A.T. Kearney is a strategy shop with a tradition of serving manufacturing firms, particularly car makers. Ostermann shined, rising quickly through the ranks to become the firm's North American practice leader, working with automotive clients such as Detroit's Big Three and their suppliers.

At 36, Ostermann was handed a huge job--managing director of A.T. Kearney in Germany, the largest operation outside the U.S. Again he worked with automotive clients such as BMW and suppliers such as Getrag, a preeminent manufacturer of transmissions. In a little over three years, Ostermann doubled revenues and tripled profits at A.T. Kearney's German operation.

Given his dual experience--international and automotive--Ostermann was a prime candidate to become CEO when Fred Steingraber stepped down after an 18-year tenure. "He has an incredible capacity for work and travel," says Steingraber of his successor, pointing out that A.T. Kearney now derives 65 percent of its revenues from overseas, versus just 7 percent in 1980.

But Ostermann takes over during a challenging time. In 1995, Steingraber engineered a merger with EDS designed to create a full-service consultancy offering everything from strategy to outsourcing. But it's proved difficult for the two firms to integrate, especially given A.T. Kearney's strong brand, deeply independent culture, and long, proud tradition. Rumors have it that Steingraber and EDS CEO Dick Brown did not get along.

Ostermann is trying to bring the firms closer together. While Steingraber worked in Chicago, Ostermann has moved his offices to EDS headquarters in Plano, TX. And he feels he can work with Dick Brown to find synergy while maintaining A.T. Kearney's distinct brand identity. "His management style is hard-charging," says Ostermann. "He doesn't accept any excuses. That's a culture that I can adapt to well because I would say that I am similar."

Even in his spare time, Ostermann is a whirlwind of energy: jogging, skiing, and collecting vintage wines--'94 Opus One is a favorite--while raising four kids. He maintains one home in Plano and another in Germany. As befits a global business leader--and auto enthusiast--Ostermann drives a Mercedes in Germany and a BMW in the U.S., while his American-born wife drives a GM van in Germany and a Lincoln Navigator in the U.S. "Keeping track of the keychains is hard work," he says.

Hard Charger GEOFFREY UNWIN Cap Gemini/Ernst & Young

Plenty of CEOs are golf fanatics, but Unwin is unparalleled. For his 55th birthday, he invited a group of friends to play 55 holes at a Finnish course north of the Arctic Circle, thereby affording near 24-hour daylight. The group teed off at 3 a.m. and finished up at 9 p.m. "We lost about 500 balls between us, but it was very exciting," says Unwin.

This episode speaks volumes about Unwin, 59, who has an intense drive but took a rather unconventional route to his current job. Born in the town of Newcastle in northeast England, Unwin's first job out of Durham University, where he studied chemistry, was as a chocolate taster for Cadbury Schweppes. He tasted chocolate for quality and consistency, consuming roughly 2.5 pounds a day in the process. "I couldn't do that today," he says. "I'd be the size of Orson Welles."

But the chocolate-tasting job wasn't all fun and gorging. It exposed Unwin to statistical techniques that ultimately pushed him into the realm of management science. He joined Hoskyns Group in 1968 as a consultant and climbed the ranks to become its managing director. In that capacity, he made Hoskyns Group the first British consultancy to offer outsourcing services. He also took the firm public in 1986. Over the next five years, Hoskyns was the second-best performer on the London stock exchange.

In 1990, the company was acquired by Cap Gemini, then in the midst of a buying binge. Over the next few years, the company made more than 50 acquisitions. Unwin was in the thick of the M&A activity, and he found it excellent preparation. "All that experience was of extreme value," he says, "leading up to what I regard in my career as the acquisition of a lifetime."

In 2000, Cap Gemini acquired the consulting arm of Ernst & Young in a deal valued at $11 billion, the largest ever in the industry. Unwin was named CEO of the new Paris-based firm, which has 59,000 employees worldwide and $8.5 billion in revenues.

Job one for Unwin has been melding the two businesses. Pre-merger, Ernst & Young did two-thirds of its business in the U.S.; Cap Gemini was heavily concentrated in Europe. Unwin envisions a "bridge" quickly transporting best practices and techniques back and forth between Europe and the U.S. "I see competencies in mobile telephony being exported from the Nordic area of Europe into the States," he says. "And I see many areas of technology going the other way, from the States over to Europe."

Unwin is also extremely concerned about talent retention. The merger really took a toll on both Cap Gemini and Ernst & Young's consulting arms, and led to an overall attrition rate of 26 percent last year. As a consequence, Unwin says he spends nearly two-thirds of his time on retention issues.

As one step in shoring up its workforce, Cap Gemini/Ernst & Young has issued 2.4 million options since the merger. Now that the dot-com boom has cooled, Unwin is also trying to lure back talent lost to start-ups. One division even went so far as to send Valentine's Day cards to invite select alums back.

Unwin also promises Cap Gemini/Ernst & Young will trade its unwieldy name for a new, sleeker Accenture-style moniker.

"It's a secret," he says. "We have some very exciting plans."

                             the fresh five
Company          CEO                Est. 2001 revenues
Accenture        Joe Forehand       [greater than]$10 billion
Andersen         Joe Berardino      $10 billion total revenues,
                                     $2 billion consulting
Cap Gemini/      Geoff Unwin        $8.5 billion
Ernst & Young
KPMG Consulting  Rand Blazer        [greater than]$2.5 billion
A.T. Kearney     Dietmar Ostermann  $1.5 billion
Source: Company Reports