THE REST of the Gang.

Facing competition for clients and employees, major consultancies reinvent themselves.

The biggest consulting firms are used to managing change--at a comfortable distance--for clients. But lately they're spending a lot of time managing themselves. Even without a new CEO at the helm, the major consultancies (see table on page 45) are very different places than they were just a couple of years ago.

The new economy--the driving force for change in 1999 and 2000--has vaporized, and some of the pressures these firms were facing, like competition from upstart e-consultants, have eased. But the information economy is still evolving. Clients still demand a combination of new services and old specialties. The pool of knowledge workers remains finite, and the latest knowledge of business processes, strategies, and technologies still have to be acquired at Internet speed. Where strategy used to be the starting point for a company's action plan, for the past decade technology has dictated strategy.

"How we define ourselves is a huge challenge," admits Ralph W. Shrader, CEO of Booz, Allen & Hamilton--though the thought could have come from the lips of any of his competitors.

A prime example of how things are changing is the convergence of these firms' once distinct specialties. They're moving into one another's territories. E-business has made the two inseparable. So, says Douglas M. McCracken, CEO of Deloitte Consulting, "It's not enough to have the best ideas anymore, you have to be able to implement them, too."

Deloitte, along with the rest of the Big 5 firms that began as accounting practices, has led the way in the "full-service" game, using its size and global reach to push into new services. But others are also finding new niches. Hewitt for example, known for its human resource and benefits strategies for global companies, has been moving into execution and outsourcing. "The Internet sped this up," says Tom Rodenhauser, president of Consulting Information Services LLP, which studies consulting practices.

To Hewitt, full-service once may have meant including a benefits information phone-line in a clients' human resources program, then setting it up and manning it. Lately Hewitt is also developing, building, and managing Web sites that clients' employees can turn to for everything from lists of doctors to investing advice. "Outsourcing is the fastest growing part of our business," says Hewitt CEO Dale L. Gifford. "We serve 14 million of our clients' employees."

While convergence is happening holistically at Hewitt, other firms are compartmentalizing their efforts, developing divisions or spinouts to draw attention to new capabilities.

Booz Allen, for example, has been "a true blend of strategy and technology," according to Rodenhauser. The two service lines contribute equally to the firm's revenues, reports Kennedy Information Research, which collects data on consulting firms. But the two practices have always been distinct, The strategy unit is based in New York City and aimed at the private sector. The technology practice is at company headquarters in McLean, VA, where it can serve the government. E-commerce created both the opportunity and necessity to bring the two businesses closer.

"Finding commercial applications that feed off our government expertise will be a building area for us," predicts Shrader. The firm's first effort, Aestix, is a spinout that designs and builds the e-systems necessary to carry out Booz Allen strategies. These include online marketplaces and global inventory tools. "Giving it a separate identity was important to send the message to staff and to clients that we were on top of things," says Shrader.

These new endeavors put huge human resources demands on consulting firms. Competition for knowledge workers has eased with the economic slowdown--PWC was the first firm to announce lay-offs in its consulting business this spring--but recruiting and retaining workers is still a priority.

After all, Kennedy Information predicts the industry will have compound annual growth of 12.5 percent over the next five years, down slightly from the 14.6 percent growth it saw in 1999. At the same time, demographic shifts, such as boomers heading into early retirement, point to a shrinking pool of knowledge workers. As these firms seek people with different skills to deliver their services, they're finding competitors, customers, and even vendors all looking for the same kinds of employees.

"Even with the new economy over, workers know they have more options than ever," says Dean McMann, CEO of Ransford, a New York City firm that provides consulting services to the consulting industry. "And the type of talent and amount of talent you have determines what work you're able to do."

So to better lure and hold onto workers, these firms are offering better profit sharing and bonuses than ever before. They're also fundamentally changing the way their people work and manage their careers.

"Before, the path to partner could take 14 years and was pretty nebulous," says Alden Cushman, vice president of research at Kennedy Information. So Deloitte and Accenture have cut in half the time it takes to make partner. Meanwhile Hewitt and Booz Allen are attempting to clearly lay out for workers what opportunities are open to them and what skills they need to grasp them.

But even with improved recruitment and retention efforts, firms realize that to ensure they have fresher and more relevant information than the next guy, they need to team up with other companies. "If you don't have a skill a customer needs it's better to look outside than to spend two years (not providing it) while you're training people," says McMann.

So these giant firms are turning for the first time to nimble free agents or small niche players who can provide expertise on a particular project. For example, Quaero, a company specializing in customer relationship management, has done outsourced work for KPMG. McKinsey has also referred clients to the firm if it didn't have the expertise in-house. "McKinsey will bring us together with their client and brief us on the aspect of the project that we're better at," says Naras Eechambadi, a McKinsey alumnus and the CEO of Quaero.

Firms are also forging alliances in ways they never have before. For example, RoundArch is a joint venture between Deloitte Consulting, technology provider Broadvision, and advertising firm WPP Group. The company combines strategy, info-tech, and branding services. Deloitte, and several other firms, have also launched venture capital funds.

Looking ahead, as firms continue to seek new business lines, McMann wouldn't be surprised to see co-branded services, "McKinsey and IBM collaborating on an e-commerce solution, for example," he suggests.

The job of consulting firms is to "help global companies address the complex issues they face in the networked economy," explains James J. Schiro, CEO of PWC, who in May announced plans to step down.

Looks like the industry will have plenty of opportunity to practice on itself first.

                          the rest of the gang
Company name                 CEO                   2000 revenues
PricewaterhouseCoopers       James J. Schiro       $6.6 billion [+]
Deloitte Consulting          Douglas M. McCracken  $5 billion [*]
Computer Sciences Corp.      Van B. Honeycutt      $3.8 billion
McKinsey & Co                Rajat Gupta (mg dir)  $3.4 billion
Mercer Consulting Group      Peter Coster          $2.1 billion
Booz, Allen & Hamilton Inc.  Ralph W. Shrader      $2 billion [**]
Towers Perrin                Mark Mactas           $1.4 billion
Hewitt Associates LLC        Dale L. Gifford       $1.3 billion
American Management Systems  William H. Purdy      $1.2 billion

(+.)Announced resignation in May pending selection of successor

(*.)Includes other consulting services within Deloitte Touche Tomahtsu

(**.)For fiscal year ending 3/31/01

Source: Company Reports