The most recent articles from Management Consultancy

PwC turns to consultancy growth

Nicholas Neveling — 2005-09-20T00:00:00.000Z

Nicholas Neveling, Management Consultancy, Tuesday 20 September 2005 at 00:00:00

PricewaterhouseCoopers predicts growth in its consulting revenues

PricewaterhouseCoopers, the UK’s largest accounting firm, is eyeing consulting work as a key growth area over the next two years.

Last week the Big Four firm delivered a £200m increase in turnover, which reached £1.78bn. However, it warned that half of this growth was a one-off spike as a result of work on regulation – principally driven by international financial reporting standards and Sarbanes-Oxley compliance.

PwC expects just £50m of this extra turnover to provide a steady income stream. But PwC chairman Kieran Poynter suggested that consulting work was one of the areas the firm was developing to sustain growth as the IFRS and Sarbox bonanza tailed off.

Performance consulting income at PwC rose by 28% during the 2005 financial year, and the firm has recruited eight new partners from consulting backgrounds to support an anticipated expansion of consulting work.

‘We do not anticipate that performance consulting will grow to the same scale as our other businesses, but we aim to grow it into a good-sized business over the next two years,’ said Poynter.

Further indication of the value of consulting to PwC was the 8% growth delivered by its tax arm, which climbed from £478m in 2004 to £514m.

‘Tax includes an element of HR consulting on rewards and share option schemes, which are both tax-related,’ said Poynter.

News in brief

Kevin Reed — 2001-09-24T13:09:43.000Z

Kevin Reed, Management Consultancy, Monday 24 September 2001 at 13:09:43

When asked to put this year into perspective, half or more CEOs of the nation's fastest growing companies said their business and industry sector is being driven by cost containment and strategies for coping with the business slowdown. Yet some see their business and sector as being driven by factors like e-business and globalisation - and the good news is that this latter group is expecting growth considerably above the norm. These are highlights from the latest PricewaterhouseCoopers Trendsetter Barometer.

Despite the downturn in the economy over the past year and the failure of dotcoms, university students are still optimistic. 65% say they aim to become millionaires, many of them (30%) hoping to achieve this goal by the age of 40, according to a poll of students conducted at the Ernst & Young International Intern Leadership Conference. But 43% of students also said that family and friends are a current priority as they manage their work and personal lives. Interestingly, at last year's (2000) annual conference - when the economic climate was more hopeful - 75% predicted they would become millionaires in their lifetime.

JD Edwards is to acquire YOUcentric, of Charlotte, North Carolina. YOUcentric is a privately-held provider of Java-based CRM software, including applications for sales force automation, campaign management, contact centre management, and partner relationship management.

The application of genetics to biopharmaceutical research and development holds enormous potential, but is a high-stakes game. A research report by The Boston Consulting Group details the potential: savings, in the best case, of more than $500m and up to two years in developing each new drug. But the report says that the application of genetics lags behind that of genomics technologies, and that there are many hurdles to overcome.

UN flies ICT development flag

Marc Brenner — 2001-09-24T13:08:24.000Z

Marc Brenner, Management Consultancy, Monday 24 September 2001 at 13:08:24

The Digital Opportunity Initiative - a collaboration between Accenture, the Markle Foundation and the United Nations Development Programme (UNDP) - has released a report demonstrating the critical role that information and communication technologies (ICT) can play in helping developing countries to enhance the lives of their citizens.

Creating a Development Dynamic lays out a strategy for developing nations to work with developed countries, and the private and non-profit sectors, to generate sustainable development and achieve a range of social goals in education, welfare and so on.

At the G8 summit in Genoa, leaders of the G8 nations focused on how to work with developing countries to meet vital human goals. The report draws on extensive case studies from a range of countries to demonstrate the critical role ICT can play in meeting these development needs. It recommends the adoption of a strategy that addresses the inter-related elements of infrastructure, human skill development, entrepreneurship, sound government policies and the development of local content and applications.

The report encourages the G8 leaders to continue their commitment in this area. Developing countries do not face an "either/or choice" between ICT and other development priorities like health and education, it says.

For example, since regaining its independence, Estonia has pursued a concerted strategy to produce a modern telecoms network, low connectivity costs, high rates of computer literacy and a highly educated and skilled workforce.

Similarly, South Africa's IT Strategy Project is harnessing the power of ICT to create new economic opportunities while meeting its commitment to social equity, political empowerment and improved government services.

MCA reports

Marc Brenner — 2001-09-24T13:07:16.000Z

Marc Brenner, Management Consultancy, Monday 24 September 2001 at 13:07:16

Members of the Management Consultancies Association have reported revenues of £1.11bn for the second quarter of 2001 compared with £1.09bn in the first quarter, a rise of 1.3%. These figures indicate that the MCA revenues are following closely the performance of the UK economy.

Income from Management Consultancy Services (MCS) has declined by 2.1% in the period while IT rose by 3.1% and outsourcing rose by 9.3%. E-business continues to be a major driver for consultancy work. Members predict that much new work will be in the public sector and overseas.

Bruce Petter, MCA's executive director, commented: "These figures reflect a rather less optimistic picture both of MCA member revenue growth and UK economic activity." He added that in the past MCA and MCS revenues and GDP have been closely linked.

Kalido joins forces with Accenture

Marc Brenner — 2001-09-24T13:06:04.000Z

Marc Brenner, Management Consultancy, Monday 24 September 2001 at 13:06:04

Accenture and software integrator Kalido have announced an alliance which aims to assist multinational companies integrate and manage their global business information. As part of the alliance, Accenture has taken an equity position in Kalido.

Kalido's information integration software aims to help organisations gain strategic insight into their worldwide business operations. Kalido addresses the problems typically associated with integrating information locked in dispersed transaction systems, without the risks normally associated with large-scale integration projects.

Executives at all levels struggle to make sense of the enormous and disparate amounts of data housed in different systems within their organisations. The Kalido and Accenture alliance will allow corporations to better resolve this problem by increasing capability to analyse data in tandem with changes in business and without additional development.

Infrastructure giants to rule

Kevin Reed — 2001-09-24T13:04:21.000Z

Kevin Reed, Management Consultancy, Monday 24 September 2001 at 13:04:21

Smaller vendors will lose out as the European infrastructure services market evolves, according to IDC. The research shows market growth from $54bn to $92bn by 2005, with vendors under increasing pressure to perform as competition grows. Firms will rely on larger suppliers to fulfil the next generation of support.

IDC research manager Lionel Lamy said: "Only the dinosaurs will survive - although the market dynamics will call for aggressive, flexible companies, the major players will still dominate the market because the infrastructure is too vital for corporations to gamble on."

Infrastructure is being viewed as vital for a networked economy, following countless dotcom disasters. The market will require more network consulting and integration services, software and support management services. Hardware support will take a smaller market share by 2005.

Graduate jobs shelved

Kevin Reed — 2001-09-24T13:03:23.000Z

Kevin Reed, Management Consultancy, Monday 24 September 2001 at 13:03:23

PwC has withdrawn job offers from 78 of the 180 graduates due to join its trainee scheme, offering £7,000 in compensation. This follows news that Accenture told 400 UK graduates due to start with the company next month that there are no jobs for them. The new "employees" will be paid their £6,000 "signing-on" bonus and receive half pay until the new year. All health cover and life insurance commitments will also be honoured.

One graduate told Management Consultancy: "We've been left in an incredibly difficult position as we're now having to go back to companies that we originally turned down in favour of Accenture. It's too late to apply for many of them." Accenture has also announced the loss of 1,500 jobs in the US.

The UK IT market meanwhile is finally feeling the pinch. Jitters are not restricted to the consultancy industry, however. According to a new survey by NewMonday and NOP, 40% of IT and telecoms staff are worried about losing their jobs. Recent job loss announcements from Toshiba, Fujitsu and Hitachi will have done little to steady the nerves of those working in the IT industry.

Firms rate m-commerce drivers

Marc Brenner — 2001-09-24T13:02:21.000Z

Marc Brenner, Management Consultancy, Monday 24 September 2001 at 13:02:21

In Europe m-commerce is primarily being driven by companies wishing to gain new channels to market and improve customer services, according to a new study just published by independent market analyst Datamonitor.

The European mCommerce Study 2001, which surveyed over 200 European companies, reveals that 54% perceive "new channels to market" and "customer services" as the main drivers for m-commerce. In Germany 60% of businesses view the use of mobile solutions within the company as more important drivers for m-commerce than customer services. Half of the companies interviewed in the UK and Spain consider "customer services" to be the main driver for m-commerce.

In Germany, though, "increasing the reactivity of the company", "streamlining business processes" and "improving employee communication" are each rated as the most important driver by around 20% of companies. In contrast, just 3% interviewed consider "customer services" the main driver. "The message here is not that German companies consider customer services unimportant but that they consider m-commerce's ability to improve their business as the driving force behind its take-up," said Datamonitor technology analyst Markus Siivola.

Feature - Skills Crisis - How far do you have to go to find the right person?

Eleanor Turton-Hill is a freelance journalist — 2001-09-24T12:51:02.000Z

Eleanor Turton-Hill is a freelance journalist, Management Consultancy, Monday 24 September 2001 at 12:51:02

Even in the current economic downturn there is constantly new evidence of an IT skills crisis, albeit one that only applies in certain areas.

The skills shortage is a recurring theme in IT. The problem was first identified over 30 years ago when the embryonic computer industry realised it had no teachers to educate its customers in how to use its products. And with each technological advancement, a skills shortage has always followed close behind.

Even in the current downturn there is constantly new evidence of a skills crisis. A recent report from the e-skills National Training Organisation revealed that the computer industry will need to attract up to one million more skilled IT professionals within the next five years. The main message from the NTO's research is that the industry must look beyond traditional recruitment sources and methods if it is to fill the growing skills gap.

Similar reports have appeared regularly in the press over the past 12 months from research organisations such as The European Information Technology Observatory, The International Labour Organisation, and the Recruitment and Employment Confederation. Each survey differs in detail, but all agree on one thing: the IT industry must start to acknowledge these skills shortages and begin putting new HR strategies in place if we are to avoid a major crisis. A recent report from the EITO claims that the UK will need 620,000 more IT professionals by 2003. A lack of such skilled individuals, it says, will hold back the economy and the growth of e-business.

The conundrum

Other trends reveal contradictory signs. The most recent Report on Jobs from the REC shows a falling demand for permanent IT staff. While the permanent IT sector had a number two ranking last year, this year it was in joint last place. The general economic downturn has left contractors in an uneasy position too. In fact a number of surveys have shown that the market for permanent IT staff is being flooded with contractors as all hope of an upturn in the economy is lost. Jonathon Bourne, head of vertical markets at Elan Computing, says: "On the contract side there's a massive slowdown, especially in investment banking, so consequently we're not struggling to find anyone from the generic skills sets."

There is also a plentiful supply of newly qualified graduates struggling to find work in a highly competitive job market, he says. "But we do have trouble finding people who have four years or more experience in VB, Java and C++," he adds. Among such job-hunting professionals, the idea of a skills shortage is hard to believe particularly when many have been made redundant from telecoms, electronics, or investment banking.

The truth

So what is the truth behind the supposed skills shortage? One explanation is that there are shortages in particular skill areas. The latest REC report reveals a shortage of web designers, CAD designers, and software development people particularly in Java and Ingres. Other recent reports have shown a huge shortage of SAP skills, networking skills and C++ skills. It is possible that these specific shortages persist while the rest of the industry remains unaffected.

Other explanations point at differences in geography. According to John Butterfield, director of Best International, there has been a huge number of IT jobs in Scotland, but because people are not always willing to relocate, the market is capable of maintaining simultaneous gluts and shortages. In Butterfield's view, however, the skills shortage is a permanent characteristic of the IT industry: "There will always be a skills shortage in the UK because there are just not enough people being trained. The skills shortage is driven by changing technology. If there was just one computer system and one language there would never be a shortage."

The causes

According to the e-skills NTO, the growing shortage of IT professionals could be eased by addressing the poor image of IT. The research on image undertaken by MORI showed that among young people, particularly women, the IT profession is perceived as highly technical, boring and suitable only for whizzkids who have no interests outside of work and possess no interpersonal skills. This negative impression dramatically reduces the number and variety of people considering IT as a career, with a massive 74% of new entrants being male, under 35 years old and from the South East.

"One of the things we discovered in our research is that the image which defines a job in IT is set very early on, ie in the early teens. And at that point computers are dominated by boys," says Terry Watts, chief operating officer of the e-skills NTO. "We need to re-educate young people about what IT is. One of the important things is to show them that a computer is a tool you can use to do useful things. Then they can start to learn about all the different types of jobs in the IT industry."

As a result of its findings, the e-skills NTO has now launched a campaign to broaden IT recruitment into non-traditional groups including school leavers, women and people considering a career change. An impressive band of heavyweight IT employers including IBM, Logica, Microsoft, EDS, Intel and Ericsson have signed up to an e-skills Employers Charter committing them to working with the NTO to fight the skills shortage.

Another government-sponsored project is SFIA, the Skills Framework for the Information Age which sets out job definitions to be used by employers and recruiters when advertising vacancies. The idea is to more clearly identify the skills required for particular positions like system administrator or software developer. The set of definitions was developed by major IT employers including BT, Orange, EDS and IBM, partly to be used as the basis for research into the state of IT skills in the UK and partly to be used as a set of credentials to authenticate technical competence. Originally a UK project, SFIA will be promoted internationally as a set of standards for best practice.

The training strategy

Just how much impact such government-led projects will have on the skills crisis is questionable. An initiative launched in July shows a more practical approach to the problem. The scheme, labelled Ambition IT, aims to find unemployed people technical roles which pay between #15,000 and #20,000 a year. A real acknowledgement of the skills shortage, the scheme will receive more than #50m over three years and will run in five pilot areas: London, Liverpool, South Yorkshire, Manchester and Edinburgh. Major firms will be involved in designing the content of the training courses so that skills can be tailored to the needs of employers.

More positive developments have also emerged in the HR policies of large corporations over the past year. A report from research firm IDC reveals that the economic slowdown is boosting activity in IT training. It postulates that as global economic growth slows, and the need to redefine business models continues, so training is identified as a critical part of the business and organisations become more willing to invest in their workforce.

Firms involved in leading edge technology such as mobile commerce have invested heavily in training. E-consultancy Agency.com set up its own training academies after struggling to find mobile specialists.

"We realised we were going to get a lot of wireless Internet projects and because the technology was in an embryonic state at the time, we realised there was no training available," says David Eastman, European vice president of m-business. Now the company has training academies in Amsterdam, New York, London and Dallas. Eastman admits that when the training academies were set up, the company was very concerned about staff retention. "But ultimately it's the risk you have to take. We've found that if you give training and keep people's skills up to date, you are more likely to attract and keep the right sort of people," he says.

Recruitment agencies are also offering training as part of their service. "We offer a free training package to contractors called Smartforce which can be accessed over the web," says Elan's Bourne. "There are over 1,500 courses online in just about every area of IT. The service is free and it offers a real incentive for contractors to retrain."

Re-training is a big issue in the fast-moving IT industry and we are now beginning to see collaborative developments between industry and educational institutions. Industry validated Masters degrees like those offered at Sheffield Hallam University include technical training in SAS, SAP, Oracle and e-business.

"These courses are aimed at people who have been in the industry for a few years and want to develop their careers," says Sue Morton, head of postgraduate studies at Sheffield Hallam. She says some postgraduate students are sponsored by their employers, but most are self-funding. "We find that selling companies the notion of sponsoring people up front is very difficult, not least because they will lose that person for nine months," she adds. This year all MSc courses will be offered on a part time basis, opening up opportunities for employee training schemes.

Such collaborative training projects between the IT industry and education are undoubtedly a step in the right direction but the degree to which employers are willing to sponsor such initiatives is still questionable.

Daniel Elkins, head of marketing at recruitment ASP The Skills Market, believes that the IT industry requires a fundamental culture change if the skills shortage is to be properly addressed. "Retention is key at the moment and most firms realise that it's cheaper to train people than to replace them, but they still have a long long way to go," he says.

According to Elkins, the long-term solution to the skills crisis will require much more than a few technical courses. In his view most companies have not yet fully embraced their training needs and are inclined to look at training as an extra expense rather than as a fundamental path to building infrastructure. "The number one reason that people leave a company is that their careers are not being developed, and the learning they need to do now is not just in IT. They need business and people skills," he says.

The findings from the e-skills NTO certainly echo this view. Watts comments: "The thing I hear from employers all the time is that IT graduates are not appropriately skilled. Computer science courses do not necessarily produce the skills which the industry needs, and we're working with educators to try to change this."

Simon Heaton from the Graduate Recruitment Company believes that the landscape is changing as skill requirements become broader. "This year we've seen companies willing to take on graduates with non-IT degrees as long as they show an aptitude for technology," he said.

In Heaton's experience, a combination of business and IT qualifications in the form of a degree and MSc is also becoming a popular choice for employers, but budgets are tight and many firms insist that graduates have at least six months' experience. "Managers have to justify every person they hire, often not just to their immediate seniors, but to the board," he says.

The future

The contradictory trends in the current skills market lead to a confusing picture. While the downturn has led many firms to focus on developing their permanent staff, it has also led to widespread redundancies. Peter Cheese, senior partner at Accenture, says: "Retention is clearly a core issue but in times of recession firms are also looking at cost cutting. The challenge for firms is to understand where they have critical skills and where they have a glut, and to manage them effectively."

As far as future development is concerned, Cheese points to three major HR challenges. "Demographic shifts which will mean that less people will be available. Second, there's an attitudinal shift - a belief that it's a life of jobs rather than a job for life, so getting people to be loyal is hard. And third, there is an increasing diversity of skills required and an increasing pace of change."

And we may not be able to solve all the problems at home. "We are restricted by demographic factors, and one of the key routes to better HR management will lie in building alliances with organisations in other countries," he says.

Feature: Operating Systems - Linux makes a splash

Anthony Harrington is a freelance journalist — 2001-09-24T12:45:55.000Z

Anthony Harrington is a freelance journalist, Management Consultancy, Monday 24 September 2001 at 12:45:55

With its cross platform portability and free source code, Linux is free source code, Linux is flooding into the heart of the enterprise?and it will wash out any number of proprietary Unix installations and Windows implementations in the process.

If one knows how to read the signs, cataclysmic events rarely happen without warning. Anyone watching the enthusiasm for Linux being displayed by IT heavyweights like IBM, HP, Sun, Oracle and SAP could not fail to feel that their efforts to give it mainstream enterprise respectability have to have an impact. Add to this the enthusiasm of the Open Source movement and a zillion university students to whom Linux is as natural as breathing and you have a bandwagon that is definitely rolling.

Some want to squash Microsoft. Others love the idea of Open Source and hate proprietary code. Some see a huge commercial opportunity looming. The motive doesn't matter. What unites both the Linux and Open Source community and a substantial body of the top IT players, is a determination to make Linux mainstream - which means getting it into the enterprise. Not just into the edge of the enterprise, where it is today, but right into the heart of the data centre.

As the Linux flood washes in, it will, of course, also be washing out any number of proprietary Unix installations and Windows implementations, but that's the way things go.

Will Linux "rid the world" of Microsoft, as some Linux enthusiasts hope? Probably not. Even though Linux source code is free to all, while Microsoft's licensing strategy is viewed by some as a questionable tax on business, the investment corporates have in the Wintel (Windows/Intel) environment is too big to be killed easily.

What Linux is very likely to do in the eyes of even mainstream IBM and Hewlett Packard folk, is to unify the Unix community around itself over the course of the next few years. If that happens, the gravitational pull on independent software vendors (ISVs) is going to reach black hole proportions.

Already, as Mark Cathcart, corporate technology strategist at IBM's New York office points out, Linux runs on everything from TV set top boxes to Intel servers and IBM mainframes. For its part, IBM now runs Linux on its entire range of systems, from its Intel servers, through the Power PC platforms using IBM's Power PC chips (the RS6000 hardware, now renamed as the iSeries) and on up to its mainframe processors (now called the zSeries). Currently Linux runs on some 21 different chip sets and this cross platform portability is a good part of its strength, the other being the fact that it is Open Source - but more on that in a moment.

For an applications vendor, the idea of being able to write one version of an application and have it run on "everything" is hugely attractive. Per Tejs Knudsen, CEO of the enterprise applications systems house Maconomy, for example, which has just ported its entire applications range to Linux, points out that there is a huge overhead for his company in maintaining multiple versions of its source code for each target operating system. "It would be great to be able to write just one version," he says.

Of course, Knudsen does not expect Linux to become the only enterprise operating system any time soon. The port has been done simply because the timing now seems right, he says. Clients and potential clients are not so much buying Linux versions right now as checking to see that a version will be available if they decide to go down this route. Six months ago, the question didn't arise. He says: "We may not win any additional business right now by having a Linux offering, but at least we won't lose any business either!"

IBM's Cathcart, however, argues that Linux is already far more deeply seated in the enterprise than many people realise. It's running web servers, file and print servers and databases and as it continues to prove its durability and resilience in these areas, its claims on other areas will grow. "Enterprise Linux makes sense from a number of perspectives and it will become more and more important in the enterprise space. We are seeing significant interest in it and we are making very significant investments to deliver on that interest."

By way of an example, Cathcart points to a proposal IBM received recently from a large German financial organisation that wants to run a key Java-based Internet banking framework on Linux, using an IBM zSeries mainframe.

Questions over Linux's ability to scale are waved aside by Cathcart and others. It is a fact that Linux can't at present scale beyond four-way or at most eight-way SMP severs, but he points out that what one is talking about here is an eight-way server running a single image of the operating system.

There may be one or two applications somewhere in the world where one needs to run a machine with 256 processors, all running a single image of the operating system, but these are the rare exceptions, he notes. The problem with gigantic, multi-processor single image machines is that it becomes very tricky to carry out any kind of upgrade without taking the entire system off line. Most people who want vast computing power tend to run a large number of two-way processors, with each pair running a separate image of the operating system. Used like this, Linux can and does scale to supercomputer levels very well, and it is also very much easier to manage, since it can be taken down in chunks, while the machine as a whole stays up and running.

Mark Yates, strategic alliance manager at the German-based Linux distributor, SuSE, reckons that the consultancy side of Linux is growing in leaps and bounds. SuSE has its own consultancy service he says, and works closely with smaller consultancies. "Germany is probably the biggest enterprise Linux market in the world at the moment. Our consultants are in there advising on architectures and solutions. Deutsche Bank, Daimler Chrysler and many others are all there running SuSE Linux," he says.

Colin Tenwick, vice president of international operations at the US and European Linux distributor, Red Hat, is adamant that Linux represents a huge opportunity for the consultancy community. "Demands on IT are increasing, but budgets are shrinking. Linux has an unbeatable story to tell when it comes to price and performance, so the global slowdown is giving real traction to Linux in the enterprise," he says.

Red Hat recently bought PTI, a 220-person consultancy to build up its professional services capabilities. "We are now getting substantial demand to become involved in the architectural build out and project management of large scale enterprise Linux implementations. Moreover, since this is too big for one company to manage, we are now actively building up our partnering relationship with a network of consultancies, providing them with Red Hat certification programmes for their people," he says.

An old argument against Linux in the enterprise, that one still hears trotted out from time to time, is the objection that an Open Source product like Linux, which does not have a single, proprietary owner with deep pockets for R&D, is not going to be able to grow as well as a proprietary operating system such as Windows 2000. This argument flies in the face of so many facts that it is now a real mark of either its proponent's ignorance or malice.

As Linux enthusiasts point out, the operating system has matured far faster than any other OS on the planet. The not-so-small army of un-paid enthusiastic Linux developers have kept polishing and adding to the code. New and improved versions of the kernel keep being released at respectably rapid intervals and Linux has also benefitted substantially from mainstream IT players like Sun, IBM and HP, all of which have added important elements to the Linux code base.

One of the more dramatic signs of the rapprochement of mainstream IT players and the Open Source community was HP's decision, in December 2000, to recruit Bruce Perens, one of the key founders of the Open Source movement, as one of its top five executives, and to appoint him to be its Linux strategist and liaison specialist with the Open Source movement. In fact he has just finished writing HP's Open Source corporate policy.

Says Perens: "If anyone had told me back in 1996 when we'd just announced the Open Source movement, that I'd be setting HP's corporate policy on Open Source within five years, I'd have dismissed it as a flight of fancy." For Perens, the fact that there are more than 20 Linux distributors around the world ("including a number I've scarcely heard of") should not be viewed by corporates as a weakness.

"I read an article the other day in an IT journal saying Linux needed to consolidate to be taken seriously - it's nice that they're writing about Linux now in mainstream IT journals but that kind of comment shows that they still don't really get it," he says. Multiplicity is Linux's life blood, he argues, particularly since it is now fully complemented by a formalised standards body (to be found at www.freestandards.org). "Enterprises did not take Linux seriously until standards emerged. They were afraid it would break into a million pieces, like Unix. Now you can take a standard Linux application and run it across all kinds of platforms. Anything that helps Linux retain its diversity while allowing enterprises to address a single standardised operating platform is important," he says.

According to Perens, although the big consultancies are not yet visibly engaged in major Linux projects, enterprise Linux is off and running. Moreover, when the big consultancies do move into the Linux space, he says, they'll find they won't have to pause while they recruit Linux specialists - "what they'll find is that a good proportion of their software engineers are already running Linux at home," he says. In fact, Perens - and many others in the Open Source movement - point out that there is already a huge "underground" penetration of Linux into the enterprise space in companies where there is no management sanction for it.

"Technical folk are putting up Linux web servers, file and print servers all over the place. They love them because they just run forever. When management stumble across these, if they have any sense, they either walk away or else they do a little digging, find out how well the thing's been running, and then start integrating it into mainstream corporate IT policy," he notes.

Cover Story: Online Banking - High interest

Gary Flood is a freelance journalist — 2001-09-24T12:34:47.000Z

Gary Flood is a freelance journalist, Management Consultancy, Monday 24 September 2001 at 12:34:47

Customer details left open for all to see. Security glitches. System crashes due to inadequate load testing. Absurd overestimates of customer penetration, foolish lack of attention to providing integrated service.

The doings of some lamented and deservedly vanquished dotcom? Not at all. Rather the story of the amazing shortcomings of the first generation of online banking in the UK. Institutions that are supposed to be bywords for probity and thoroughness stood exposed by some reckless technology choices and poor awareness of customer interaction.

For a while there we seem to have lost the plot, with a love of technology for technology's sake combining fatally with the desire for putting up some kind, any kind, of web presence. As Anne Engel, a senior analytics consultant with software house Netgenesis, which sells a tool for interpreting customer behaviour patterns from web logs, aptly puts it: "An IP address is not a customer."

Talk to those involved with the first wave of Internet banking in the UK, and one clear message comes back. It often wasn't pretty.

"Everyone rushed into getting up some sort of service when the Internet came along, and some of the interfaces were relatively quick and dirty," says Peter Harrison, principal consultant with KPMG's Customer Management Group. "There was an assumption that desirable ABC1 type customers would only want to use the Internet, which promised to be a relatively low cost channel. In practice, it seems some of these consumers do, some don't; what's important is the sense of a choice of channel, that they can use the phone if they get stuck on the website, for instance."

Banks originally simply saw the Internet as another way to cut costs and close branches, adds Richard Lowrie, global banking strategist for IBM. The reality has sometimes come as a shock. "It's actually proven very expensive. Customers want to use all the channels they can. The customer has proven to be much more promiscuous than first thought, and the economic cost associated with creating all these new channels and brands will take a long time to recover," he says.

"The development of online banking wasn't handled as well as it could have been," adds Sue Roberts, sector head director of finance for consultancy Xansa (formerly FI Group). "Many of the early launches had impossible business cases, such as predicting massive revenues very early on or winning such big market share, such as 40%, that would get a huge market guaranteed."

If the business logic was sometimes a bit wobbly, so was some technology. "Painting a lot of pretty screens is not the same thing as creating an Internet bank," says David Webber, managing director of Lynx Financial Systems, which has worked with Smile and Halifax's IF.

As a result, "There has been some regrouping and rethinking about how the market should be approached," says Doug Enns, managing director, international operations with Sanchez Computer Associates, a provider of direct and online banking software. "Some over- and some under-estimated the demand."

It's a fair point that if the first generation didn't go totally swimmingly, who knew what to expect? At least some banks say things didn't go to plan, but are anxious to put the "first round" behind them. "Mistakes were made. There was a mad rush to be first," says Niall Carey, manager of e-commerce at Bank of Ireland's offshore (and now electronic) subsidiary Fsharp. "In retrospect if we were to do it all over again some things would be different. But we see those as minor, and basically a case of teething problems."

The last word on the first phase goes to Mike Fox, a management consultant in the markets division of CMG Admiral. "There was time pressure to be seen to be responding. But fundamental to any success is a proper underlying business model or idea," he says. "It doesn't matter if it's the Channel Tunnel or an Internet bank. It's still all about money in and money out."

With that irrefutable premise in mind, what is the state of play in the UK online banking market?

The biggest issue is one of figuring out how to make all this pay. If the Internet isn't going to be a way to help shut branches, what is it? It's another channel - and one that needs a greater or lesser amount of integration, depending on the original vision and technology choices, with the rest of the bank's presence.

"The pressure points are profitability and achieving it, customer relationship management and how to understand and serve the customer, and integration of the channels," says Sanchez's Enns. For instance, Fsharp's Carey is clear what he sees as the next steps for his institution, clearly along the lines Enns portrays. "We want to become more like a portal and offer more products, such as stock trading, as well as developing our non-Internet distribution channels - the IFA community is very important in this area, for example."

We're back to channels - a crucial concept, and blockage, for Internet banking's next giant leap forward. "What the customer wants is multi-channel," says Giga Information Group's Matha Bennett, a banking specialist and one of its vice presidents of research for Europe. "The trouble is the channel the customer wants at the moment may not be cheapest or the one the financial institution would prefer him to use. Banks will have some bitter pills to swallow as a result."

Integration isn't just lateral - across channel - but may be front to back too, suggests Nigel Woodward, manager financial services Europe Middle East and Africa for Sun Microsystems. "Having flung off the new, trendy brand e-operation, the linkage back and intelligent use of years of customer transaction history and behaviour records trends aren't being harnessed," he says.

"The challenge remains the building of a customer needs-based offering," says IBM's Lowrie. Hence the fetish among online bankers to raise the amount of financial products a customer owns, using the web as one mechanism, a process termed cross-selling. Most banks struggle with the cross-selling average - most are only at about 1.8 (products)," he notes.

Banks that have been able to leverage their existing core systems were able to launch quicker, says KPMG's Harrison, but some have run into challenges integrating these legacy platforms. "A lot of organisations are now looking to middleware as a way to better integrate these channels," he says.

Middleware may be an answer at a crassly technical level, but the problem may be more systemic, to do with how banks organise themselves internally. Hence the bugbear of the silo. Banks try to present one face to the world, but are organised around different channels run internally by different departments, with perhaps online run by marketing, mail or fax by the operational centre, and interactive TV and WAP by separate groups yet again.

Anyone trying to change this has to deal with the way bankers - or their staff - see their job. "They may not be that interested in what happens once it leaves their silo of responsibility; there's a feeling of lobbing it over the fence and it being someone else's problem," warns Julian Lovelock, business systems director for Aspace Solutions, a consultancy formed by ex-Big Five management consultants targeting tier two and three financial institutions. "In terms of internal organisation things still aren't structured around the customer, but around products and channels," he says.

The answer - apart from going back and re-architecting the entire infrastructure, something not perhaps to be recommended at this stage in the flight - seems to be CRM, a phrase heard as often as "silo" or "cross channel" from the online banking community.

But no-one is na've enough to think this is an easily won prize. "CRM is more than just painting the word 'customer' across the top of your channels," says John Randles, chief technical officer with Dublin-based component software house Eontec.

Charles Wendel, president of Financial Institutions Consulting, adds: "CRM: another buzzword, another black box expected to spit out all the answers - it's just another way to help banks avoid what they hate - strategy." And Giga's Bennett sniffs: "CRM - sprinkling of the magic dust? What's fundamental is having access to a single customer record."

Their comments convey a reassuring sense of realism. And while people are not simply buying a marketing term, neither are they ignoring the scope of the problem: building a useful picture of the customer. "If you haven't done the bank's own week-long course in how to set up a direct debit online, you can sometimes get in trouble," points out Aspace's Lovelock.

"Cross channel is more than integrating packages," warns Enns. "It's actually more of a business process re-engineering factor."

It will be interesting to see who's going to take up this challenge, however. It may well have to be an outsider.

For it seems the internal champions are somewhat laid low at the moment. "The hot-house Internet groups have been humbled, and some are in a scramble to defend their existence," claims Wendel. "Many of the big Internet groups have been cut down to size, and find they're now expected to work much more closely with the call centre, branch, or even paper-based processing functions," adds Lovelock.

In the race to sort these channel priorities out we may yet be in for some surprises, suggests IBM's Lowrie. "We may see some changes in channel prioritisation as financial organisations find out where their real strengths lie - Egg opening branches (in Boots) may be significant here," he says.

"There's a lot of scepticism from US bank executives about the Internet and online now," says New York based Wendel. "Many agree there's a basic set of functionality they probably need, but they're suspicious of too many bells and whistles and the suggestion of building out web portals. Online seems to be about simple transactions, and expectations are shifting from it being seen as a sales to a service and information channel."

The lesson of the Internet may as well turn out to be ditch trying to be too clever and narrow focus rather than increase it, after all. "All banks are bad at cross-selling. The good ones acknowledge it. But 90% of business comes from the core four products. Maybe they'll decide to just concentrate on those, and skinny down the product range," he suggests.

Yet banks at the corporate level know they need help. "People like what's in the silo because it suits them being in that pigeonhole. Smarter people will be looking at the links between those silos," says CMG Admiral's Fox.

In the face of such a host of issues, it's no wonder some banks are re-evaluating their online initiatives. Lloyds TSB, which has the most visited financial website in Europe according to Jupiter MMXI, beating Egg into second place, has decided not to offer its Evolve brand in the UK, though a Spanish consumer version is up and running.

"We decided not to launch Evolve in the UK because of customer acquisition cost. There are huge fixed costs in terms of systems development for any online bank, which is, after all, a niche market, even if it's an important and growing niche market," says Barbara Lauer, Evolve's European marketing director. Evolve UK is now a joint venture with Goldfish, she adds.

Another option is, at the starkest level, a complete withdrawal from the online market. Don't expect this, however; the banks couldn't lose that much face. "No closure. No-one had the appetite for that level of defeat," says Enns.

But they may want to wash their hands of as much trouble as possible. "Banks won't nuke their online presences. But they may outsource them," says Aspace's Lovelock.

Which brings us to the contribution management consultants can make. "Customers want their CRM and online strategies shaped - but through ways they can give value in order to get value from customers," as Simon Jenkins, partner in charge of banking and CRM for UK and Ireland with Accenture, points out.

The task in hand is not to proffer just another magic technology - CRM, WAP, online itself - but a way to effect fundamental change in order to maximise the potential of both changing customer expectations and new channels to market.

It won't be easy. "Banks are very, very bad at facing up to their structural problems and fixing them. Good consultants can do a very valuable job making them," says Wendel.

But that's what management consultancy is all about, when applied properly. "Management consultants can challenge current thinking. Some banks can't work out how to connect their business strategy with their technology solutions," says Steve Morris, head of sales for banking software and consulting firm Marlborough Stirling, which has worked with Egg and Northern Rock.

At the same time, outside advisers may not be flavour of the month now. "Bankers swing in terms of enthusiasm in a pendulum. Right now a lot of big consultancies have lost a lot of credibility with them," warns Wendel. And "too many customers have seen five figure cheque solutions that do 75% of the job," adds Lovelock.

Nonetheless, the second generation of online banking may represent one of the biggest market opportunities for management consultancies this decade, as financial services firms scramble their forces to deal with the challenge of building a flexible, customer-oriented face.

"Financial organisations are very complex. That complexity can either be an attribute or a real drag. Overall, it needs to be simplified. Consultants can help here, especially in terms of helping banks see the wood for the trees," adds IBM's Lowrie. "Big organisations like banks need help to change," says Xansa's Roberts.

And why change? Because the Internet has shown that at the very least competition can force you to do expensive things like mount online channel delivery - and at the most could produce competitors from left field that banks have no means to combat.

For all the scepticism about Egg, it's still a bank, owned by a respectable financial institution. It might not always be thus. For as Xansa's Roberts puts it: "You only have to think of the remark attributed to Bill Gates: 'We need banking. But do we need banks?'"

Bob Head, Smile

"I really loathe and detest banks. Bugger off if you think you've got a 'relationship' with me."

Not exactly what you might expect from the chief executive of an online bank. But Bob Head, colourful head of the Co-op's Smile, who was previously at Egg, is not your father's banker.

Still, he must be doing something right. According to web trackers Gomez, Smile was rated the top UK Internet bank in winter 2000 with an overall score of 7.36 out of 10, winning top marks for customer confidence and on-site resources.

"People like the convenience - we are open all hours - but more the privacy and control they can get from online, as well as the real time aspect," explains Head.

"CRM is the current fashion sweeping the boardroom. To me it looks like a big black hole. Customer delight is paramount but it can come in many ways, often cheap and cheerful ones. We get 40 to 50 complaints a month, but recently we had a bad case - we'd completely ballsed up with a Mr Smith.

We wrote to him and said we hadn't had that many other complaints that month because we'd managed to roll them all together and do everything wrong with just him. That's the kind of attitude that helps us get so many customers at places like Motley Fool bulletin boards saying they like our approach - we don't ram things down your throat."

Cashing in on growth

Online banking may still be in its infancy, say analysts, with great potential for securing valuable customers.

Forrester Research surveyed 28,000 European consumers in the second quarter, and found that between November 2000 and May 2001 the rate of growth in the online banking sector hit 45% - translating to 16% of the UK population now using this facility, a number set to grow to 35% (17m) by 2005. Over 45% of these customers are high income, and 39% are well educated.

However, the company also noted that 44% of the banking customer base still don't see any benefit from going online, "highlighting the poor marketing job done by the high street banks".

And, according to NetValue, there were 4.7m unique visitors to banking sites in June, which represents 33.8 % of all people online. The average banking site user spent 24 minutes on banking sites.

IF/Egg case studies

"It's best to use tried and tested," says George Scarlett, IT director of the Halifax's Intelligent Finance (IF) online bank. This note of pragmatism is part of IF's whole identity and corporate culture; the bank deliberately chose a non-trendy brand name as part of an effort to project reassurance and stability. "We're solid and dependable," he adds.

"IF didn't forget the traditional, boring practices of good project management and software design," adds one of Scarlett's technology suppliers, David Webber, MD of Lynix Financial Systems.

IF assembled five back end systems - current accounts, personal loans, savings, mortgages, and credit cards - to form its offering, linked by a new mid-tier integration system, says Scarlett.

Egg, on the other hand, prides itself on its distinctiveness. Stuart Hayhurst, group account director with marketing services firm Interfocus and a branding expert, praises its unusual identity: "In many ways it's a camp brand - the Graham Norton of online banking."

Egg may not like that comparison, but it can't hurt. It's just closed its best six months so far, which may or may not be allied to that "k-i-s-s-i-n-g" campaign, with 370,000 net new customers and a forecast to break even by year end, according to a spokeswoman. "We're encouraged by how we're doing on cross-selling," she adds.

Egg also quotes research carried out on its behalf by pollsters MORI which shows healthy growth in its potential market. Five million UK citizens, it says, have now arranged or serviced a financial product online - a growth of over a million in the last 12 months alone.