Gartner: Enron will cause shakeout in consulting

IT services work worth more than a billion dollars could be up for grabs if the scandal surrounding Arthur Andersen's handling in the US of Enron Corporation's finances leads to the breakup of fully integrated consulting firms.

It has been questioned for many years whether it is appropriate for an accounting firm to sell so-called "non-audit" services to clients it actually audits.

Frances Karamouzis, an analyst at Gartner, said companies like Andersen, Deloitte & Touche Tohmatsu and PricewaterhouseCoopers will have to break up their auditing and business consultancy practices to remove potential conflicts of interests.

"I think what enterprises are scared of is a perceived sense of impropriety even if nothing's going on," she said.

Gartner expects the US Securities and Exchange Commission to make the splitting of such unified consulting houses a priority, perhaps going so far as to regulate against firms providing business consulting services to the clients for which they perform audits.

The report noted that Ernst & Young's sale two years ago of its consulting practice to Cap Gemini and last year's spin-off of KPMG's consulting practice were partially in response to SEC pressure on this issue.

Karamouzis added that IT consulting already stirs plenty of controversy over failed implementations without adding further tension over that consultant's review of the company's finances.

Karamouzis expects "over a billion dollars to be redistributed -- and that's conservative". Pure consulting firms are expected to pick up some of that business, but Karamouzis also believes that services aggregators will emerge.

Those aggregators might sell something like Deloitte auditing and KPMG IT consulting as part of a preconstructed package.

Karamouzis also thinks technology companies might look to buy consulting firms.

Hewlett-Packard aborted an attempt to buy PricewaterhouseCoopers consulting in November 2000, but Karamouzis noted that IBM has done well for itself with its Global Services consulting division, and others may look to follow.

"Microsoft's making a play for the enterprise market. It might want a consulting firm to help it achieve that," she said.

She added that SAP and Oracle predict far more licence sales in the future than their current in-house services divisions can support.

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