Shaheen's advice machine.

George Shaheen suspects knowledge capital will be the business currency of the 21st century - and he wants Andersen Consulting to be able to coin it.

Whoever said advice is cheap obviously hasn't reckoned with the $20 billion management consulting industry, which has been growing by more than 10 percent a year for the last seven years. For all the talk about downsizing for clients, consulting firms are expanding at a meteoric rate. Chief among them is Andersen Consulting, which has grown by more than 22 percent a year for the last three years and currently employs more than 45,000 people, an increase of 20,000 since 1991. About 55 percent of its people are in the Americas, 35 percent in Europe, and 10 percent in Asia/Pacific. Currently the firm has 1,000 partners, 1,500 associate partners, and almost 9,300 managers with locations in 47 countries around the world. With 1996 annual revenues of $5.3 billion, the Chicago-based finn is the biggest in the industry, bigger than than some of its Fortune 500 clients. With few acquisitions, nearly all this growth has been internal.

Once defined by McKinsey; Booz, Allen; Boston Consulting Group; and Bain & Co., management consulting is no longer narrowly limited to elegantly bound corporate strategy reports. Today three-fourths of all engagements, according to International Data Corp. (IDC), include some form of IT implementation or process redesign. In fact, the line between advice-giving and business process re-engineering (BPR) is blurring. Since it helped GE install its first computer in 1954, Andersen has had a 43-year history in technical consulting. It has leveraged its technology and systems integration pedigree by expanding into virtually every comer of consulting and management services from enterprise strategy to facilities management and outsourcing. Andersen has become the Merrill Lynch of consulting - a mega services giant competitive in every segment. According to Marianne Hedin, IDC's consulting research manager, EDS, IBM, Cap Gemini, Computer Sciences Corp., McKinsey, and Booz, Allen pose the greatest threat in various segments, although none compete across We board and none, save McKinsey, has the same global presence.

Since it became independent of Arthur Andersen in 1989, Andersen Consulting has been led by George Shaheen, 52, who first joined the organization in 1967 and became partner in 1977. Its head office may be in Chicago, but its head man lives in San Francisco and nominally operates from Palo Alto, but spends most of his time traveling the globe. If one's mental image of a management consultant is either a Viennese accented polymath, or a condescending if overeducated B-school type, be prepared to have your paradigm shifted. without pretense or PhD, the CEO of the world's largest consultancy exhibits an affable and direct manner true to his - and Andersen's - midwestern roots.

What it may lack in terms of age or mystique, Shaheen's machine makes up for in market muscle and technical skills. Historically, that has translated into battalions of junior and mid-level consultants commanded by a handful of partners tackling a client problem; process and method role. The "Andersen way" is to train and retrain its people to act in teams applying a uniform approach to achieve a predictable result. The red-suspendered toffs at McKinsey may sniff at such prosaic methods, but they have enabled the firm to build expertise outside its traditional strengths, such as change management. "Clients will put up with a lot of things they don't like about consultants because with us they can count on reliable delivery," allows Jack Wilson, AC's managing partner for industry markets and knowledge products. "Andersen's strength as a finn has generally been its understanding of where a given industry is headed," adds Bonnie Digrius, vp and research director of Garmer Group's IT group. "Because IT has been at the forefront, driving change, Andersen understands the business challenge as well as the implementation issues."

While systems integration, operational strategy, and more recently, BPR will remain key strengths, Shaheen is staking AC's future not only on its global reach but also on what he calls its business integration model - aligning a client's technology, people, and processes with its overall strategy. Companies will only realize true value, he believes, when their ideas and intangible assets can be harnessed through personal actions of the workforce. He sees much of the "new value" coming from leveraging knowledge capital - the expertise, know-how, experience, and tacit understandings people carry with them but cannot readily share.

Each year the finn spends up to 6.5 percent of annual revenue - a huge sum by any standard - on training and development. This year it's investing an additional $401 million in R&D initiatives to develop knowledge capital, including the Financial Ideas Exchange in New York, which showcases new technology for financial services clients; the Center for Strategic Technology in Palo Alto, which works with vendors in Silicon Valley to develop new IT applications; and the Centre for Thought Leadership, a global think tank designed to create and commercialize emerging management ideas.

If knowledge capital is destined to become the currency of the 21st century, as Shaheen often asserts, it is not surprising that the firm invests heavily in an electronic knowledge sharing system. Based on Lotus Notes groupware, Knowledge Xchange is one of the largest intranet systems of its kind. At the end of every consulting engagement, all relevant information is loaded into the system. Because much of the data are confidential, access is not universal, but it allows for a growing database of solutions that save consultants from having to reinvent the wheel when confronted with a new challenge. Since pay and promotion are indirectly tied to one's contributions to the Xchange, it receives a constant diet of new knowledge. Cost? "I've never asked for the total number," admits Shaheen, "because I don't want to be deterred. Our future depends upon our being conduits of new knowledge."

The Andersen juggernaut is not without its own challenges worthy of a consultant. According to Garmer and IDC client surveys, Andersen has yet to break into the front ranks of so-called "thought leadership," one of several attributes users consider when assessing a strategy or BPR engagement. More problematic are the so-called softer aspects of doing business with clients - when self-assuredness about "the Andersen way" is sometimes seen as arrogance. As one CEO, who asked not to be identified, said, "Yes, they implement and deliver, but they also leave dead bodies along the way." "'How well do you match with our culture?' is a question more and more clients are asking," adds Gartner's Digrius. "Andersen doesn't do this as well as, say, D&T or AMS. It's a serious issue with a growing number of clients who are kicking the tires and checking references assiduously."

"One must reckon that the people we frequently work with on an engagement are not the same group who are our advocates who brought us in to help solve a problem," Shaheen responds. "We have a professional point of view which must be argued - sometimes contentiously - if we are to be true professionally and to our [TABULAR DATA OMITTED] clients' desire to achieve results. I think we're pretty good about this issue but would never claim that we're good enough. There's room for improvement."

1995 LEADING WORLDWIDE MANAGEMENT CONSULTANTS(*)

(U.S., in millions)

                               Total Mgt.     Total Corp. Services
                               Cons. Rev.     Rev. Mgt. Cons. %

McKinsey & Co.                 $1,800         100%
Andersen Consulting             1,260          30%
Ernst & Young                     900          60%
EDS/A.T. Kearney                  650           5%
Deloitte & Touche                 600          53%
Coopers & Lybrand                 600          43%
IBM                               600           5%
KPMG Peat Marwick                 600          55%
Price Waterhouse                  590          45%
Sogeti S.A. (Gemini)              540          20%
Boston Consulting Group           500         100%
Booz, Allen & Hamilton            490          45%
CSC                               420          10%
Arthur D. Little                  370          72%
Bain & Co.                        350         100%
Mercer Management Consulting      260         100%

* Includes tier 1 (corporate strategy) and tier 2 (BPR, change
management) only

The last 10 years have been good for management consulting. Change and uncertainty are good for trade. But how much total quality, core competency, organizational flattening, downsizing, and out-sourcing can the market bear? The recent spate of books such as The Witch Doctors: Making Sense of Management Gurus and Management Redeemed: Debunking the Fads that Undermine our Corporations - not to mention the elevation of Dilbert author Scott Adams to the status of folk hero - suggest a reaction against consultants, or at least the gurus who retail management theory du jour.

Smiling ear-to-ear, Shaheen welcomes the scrutiny. "The battleground of the future is to create specific value and directly link that with consulting," he says. Increasingly, more companies are structuring contracts to tie a consultant's fees directly with the value added. (Andersen's Wilson believes up to 40 percent of the firm's contracts are value-based, although Gartner's Digrius says that figure is closer to 20 percent.) Such deals are not for the fainthearted, since the more risk a consultant is asked to assume, the more upside potential there has to be.

Shaheen dismisses speculation of taking the firm public but is circumspect about its relationship with its sister company. AC turns over a portion of its annual profits to Andersen Worldwide, a Swiss umbrella organization that acts as the coordinating body for both organizations. The fact that Arthur Andersen has entered consulting and has started a new venture - Arthur Andersen Knowledge Enterprises - adds to brand confusion and internecine discord. During a recent meeting with analysts in New York, Shaheen denied that a split was forthcoming in the wake of Larry Weinbach's stepping down as chairman of the parent, but did not rule it out in the future. At this writing, the group's 2,700 partners were meeting in Paris to choose a successor and sort out the acute conflicts between the two sister organizations. The choice - Shaheen's nomination cannot be discounted - will signal where the future lies.

He expects the firm to double in five years, particularly as it spreads its practice in Asia and the Americas. Andersen's partnership arrangements with companies such as J.P. Morgan, DuPont, and BP/Mobil, whereby clients' complete IT infrastructures are absorbed - employees and all - by IS providers, has also boosted domestic profits. The DuPont deal, valued at $4 billion over 10 years, is split between Andersen and Computer Sciences Corp., and represents the largest and most far-reaching IT outsourcing arrangement yet undertaken. In seeking to "redefine the industry by building a different kind of firm," Shaheen has set Andersen up as the target for others to beat. Even the folks on Park Avenue. Digrius notes, "have noticed that Andersen sells more corporate advice than McKinsey."

- J.P. Donlon

STRIVING TO LEAD THE PACK

How do you distinguish Andersen from EDS; CSC; McKinsey; Booz, Allen; Bain; and ethers? Considering the fuzzy claims every firm makes for Itself, how is a CEO supposed to make an Informed choice in his selection?

About 10 years ago, we began putting into place a new client service model, "business integration," that took a revolutionary approach to client service. We said that instead of just looking at an isolated piece of a company, like strategy or technology, what really makes sense is to create solutions that consider the entire organization. When we work with a client, our goal is to ensure that our solutions help align their processes, technology, and people in support of overall strategy. Consulting finns that don't take this integrated approach may be recommending a strategy that can't realistically be implemented or installing technology that people don't understand.

How do you react to the term "Andersen Android"?

I think it's a very misinformed expression. Andersen Consulting is a dynamic, entrepreneurial organization with thousands of extremely bright people representing most every culture and country.

What sometimes confuses people is that we are believers in the importance of standardized training and methodologies. One of my top priorities is for us to provide the same level of high quality service no matter where our clients are located around the world. This often means bringing in teams of our people from several different countries, which happens most often in our developing Asia/Pacific area. Standardization makes cross-cultural teaming possible. The other benefit for our clients is that standardization allows our people to focus on creative solutions, rather than on rudimentary activities. We don't have to start from scratch every time.

What has George Shaheen done personally to shape Andersen Consulting and perhaps influence the consulting Industry itself?

When I became managing partner of Andersen Consulting in 1989, we were just beginning our existence as a separate organization. Much of my initial work was to simply put into place the right infrastructure and management team. Following that, I oversaw our first strategy-setting process out of which came our vision, mission, and core values. Through the years, my top priorities have been to establish our client-service model, "business integration," and to build our global presence.

What do you see as your agenda for being the best?

Business advantage is usually gained by leveraging something. In today's world, the opportunity to leverage technology - which is really the ability to deliver more relevant pertinent information - can make all the difference in the world. So you ask yourself as a business leader, "How do I do that?" You start by understanding how the application of technology and the more efficient flow of information can help you alter the way you do what you do. Then it all fits together. That's what we did. We said we could be a more effective global consulting firm if we could just arm all of our people with everything we know.

THE COMMUNICATIONS FACTOR

What is most useful to your running the finn in terms of Information?

The accessibility of electronic communications with people. It's just a potpourri of things that allow me to stay close to the practice and have more immediate input. By the time information catches up with you in delay mode, there's nothing you can do about it. So this helps me get what I need quicker and be in a position to make a contribution.

How involved are you in day-to-day operational choices, like the decision to develop non-consulting products?

Very involved. In fact, I spend 80 percent of my time on the road visiting clients and our people. However, one of the great things about being a partnership is that we've got 1,000 owner/operators out there on the front lines in most every country in the world. So I tap into the market intelligence of my partners on a daily basis and use this as I develop, oversee, and refine our master strategy.

On individual products, I rely on the partners who are closest to the particular industries and clients. For example, I'm not dose enough to the market to recognize the need for a product like IS Oil, an SAP software package we helped develop for the energy industry. Although I review these plans from an overall standpoint, I rely on my partners to determine if they make sense from a marketplace standpoint.

Was there a particular epiphany or moment in your own career at Andersen that made a difference for you?

Yes. When my wife died. It was 1978. I had just made partner in September. She passed away in February. You go through a tragedy like that and you look at problems at work and see, it wasn't the end of the world. So it put things in perspective for me about what's important. What became much more important to me at that time was creating opportunities and jobs for others. Because when you go through something like that, you have a real anchor toward security, obligations, and responsibilities and how, if it happened to someone else, would you take care of them?

How does the recent deal with DuPont relate to the evolving trends of your helping clients leverage their own knowledge?

DuPont is a prototype engagement of today and, more so, tomorrow. So it's exactly the kind of business we want. The advantage to DuPont is they have access to this organization. This technology will be embedded in their shop overnight. Our methodologies will be available to their people. Their people have basic, very good IT skills, and they understand the company. We have a way to leverage that through our approach more effectively. So the dynamic is very positive.

Are you, in a sense, outsourcing the outsourcer for what they formerly did in terms of their own IT?

Yes. We'll bring 550 people onto our payroll. We will assign a group of our people to go over and manage that contract, that relationship, that responsibility, and we will blend the two together. There'll be an Andersen Consulting business process management unit in Wilmington, which will serve DuPont. Eventually they'll have access to our voicemail, our knowledge, our Lotus Notes, and the Knowledge EXchange.

This is a pretty sizable chunk of their operation. Was it difficult getting them to accept the idea of turning the whole thing over to Andersen?

Management was very comfortable. But the workforce was uncomfortable because it's a change. Most people who work for a company like DuPont in Wilmington have made a career decision and have committed a loyalty to DuPont that will take them into their retirement years. So it's part of a lifestyle, and it plays out over time in a secure relationship of employee to employer. When you come in and do a BPM contract like this, where we took over a particular business enterprise, those people leave that world and enter a world they know nothing about, called Andersen Consulting. And their view of us is a consulting - global, hard-charging, do whatever it takes to get the job done. It's a different lifestyle. So we have to be very careful when we transition that work force that it transitions in a way that they understand they have a whole different role to play and understand that that's a legitimate role, a secure role, and a career-development role for them. It's about managing the process of change.

(DON'T) SHOW ME THE NUMBERS

Something like $650 billion is spent on IT in American corporations. The claim is that there is very little productivity gain observable from this, How should one look at this?

I believe that in the last less than a decade, it's all been about productivity gains. I think that's why the mainframe fell out of favor as the solution, because there was not a perceived productivity gain; it was just doing more of the same. The client/server environment has added, really, to productivity. It's tough to measure because we have distributed that computing power much lower in the organization. How do you measure the productivity improvement in Andersen Consulting since we invested in all this technology? I'll tell you I couldn't be in business without it. But I don't know how to measure it. When I made this decision to spend hundreds of millions of dollars on technology, I never asked for a specific business case. I felt we had to do it, and I was afraid if I asked for the business case and saw the number, I wouldn't do it.

But this is your core business. Suppose you're another company and you do have to make a business case for it. What should you do?

I think you understand with that investment what you hope to change or accomplish, and be very clear on that. And then execute and measure it so you can get that accomplishment. That's the only way you can do it. If you need different technology to reach a whole different class of customers, or to increase your market share, you better be able to predict or forecast what that is, and then you've got to deliver it. It can't be just whimsical, or because everybody else is doing it. It's got to make that type of business sense.

Do you have your own Internal metrics that allow you to measure gain for every dollar?

No, I don't know that. As I said, I never asked for a business case for it. All I can tell you is the three or four years we've been doing this, our earnings have exploded, our sales have exploded, the quality of our client list has improved. Now, can I link it to this? On a detailed basis, no. But I can tell you this: We've never been more effective in the marketplace. And I've got to go back and believe it's a function of how much easier it is to communicate with each other and the information we have at our disposal, to target customers, prepare proposals, and consummate deals.

Would you say that your modal for knowledge management is one that others outside the consulting industry could adopt?

I'd say, in a big company, the smaller you can make that company - and that's about communications - the more effective it will be. And the more you can leverage what you know to your competitive advantage, the better off you'll be. So, intuitively, it seems to me that more efficient and effective means of communication would improve the performance of any enterprise. And I think that's why smaller enterprises seem to be much more nimble and capable and successful than large companies, until they reach a certain point, and then they, too, seem to lose it.

I can remember when I first got into this business. We used to measure IT investment as a percentage of sales. And it never made any sense to me. Well, we don't quite look at these investments that way anymore. These investments, these types of programs, go back to the basic decision-making process of understanding why you're making the investment, what you hope to achieve, and that executing will give you those results. If our objective is to arm every man and woman in this organization with as much information as we can practically gather with regard to what we know and make it available to them, then I'm going to measure success by, did we pull that off? Did we get it in their fingertips? If we did, then I'm going to assume they're putting it to good use.