Consultancies Change with the Times
Unlike many established consultancies, which often focus on short-term fixes to legacy problems, the new Ernst & Young Applications Services aims at longer-term assignments involving the lightweight Java language. According to Bruce Shoger, chief operating officer of Ernst & Young Applications Services in Chicago, demand is strong for Java applications that can integrate Internet and intranet front ends with existing systems.
"It's about providing viable alternatives for IT departments that reverse the traditional consulting model," Shoger says. "Rather than keep existing staff consumed by support for legacy systems while consultants come in to build everything new, we can free up existing in-house resources with the business knowledge to build the new applications. If the new applications supplant the legacy environment, our contract is complete."
Banks and telecommunications are among the business sectors discovering the flexibility and simplicity of Java as a programming language, says Jeffrey Nickerson, a partner in the e-business practice for PricewaterhouseCoopers in New York City. In general, midsize companies remain Microsoft clients, he says, but recent standards have created a platform on which applications can be integrated at the level of the application server instead of farther down the IT chain. Says Nickerson, "Java is gaining traction as companies that are developing e-commerce tools move toward a Java architecture."
Java's component architecture allows applications to be developed much faster than with the monolithic programming environments available from Microsoft, giving user companies a time-to-market advantage as much as nine months ahead of their competitors.
In addition to new technologies, partnerships and mergers are another fact of life in the new economy. Immediately after Ernst & Young opened up its Applications Services venture, competitor Cap Gemini swooped in and bought all of E&Y's consulting operations for $11 billion in cash and stock.
The combined entity, which plans to preserve the Ernst & Young name for up to four years, represents one of the world's largest IT consultancies and gives Cap Gemini, based in France, a stronger presence in Germany and the United states. The deal was spurred in part by pressure from U.S. government regulators that want accounting firms to separate their audit businesses from their consulting work to avoid potential conflicts of interest.
While Shoger would not discuss particular industries where the Java demand is strongest, the merger with Cap Gemini brings together two companies with many clients in media, telecommunications, manufacturing and finance. Cap Gemini's consulting clients include DHL, Nokia and Procter & Gamble; among Ernst & Young's are Coca-Cola, AT&T and Boeing.
Last year, 85 percent of Cap Gemini's business was in Europe and 13 percent in the United states. The ratio is reversed for Ernst & Young, which recorded 65 percent of its business in North America and 29 percent in Europe. As use of Java proliferates, the union of the two consultancies will vault Ernst & Young ahead of rivals such as Andersen Consulting, says Martin Zook, an analyst who follows the IT consulting industry for Kennedy Information LLC of Fitzwilliam, N.H.
According to Zook, 23 percent of the revenue Cap Gemini brings to the table comes from outsourced applications. Both Cap Gemini and Zook cite issues of global reach and increasing specialization as major reasons for the merger. "At Ernst & Young, they recognize the need to work in Internet time," Zook says. "The Net economy requires small operating units that can respond quickly, and they're doing that. They're cutting up an aircraft carrier into PT boats and creating smaller, nimbler groups."
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