Andersen's future with Ernst & Young

Striving to remain intact after the collapse of Enron, Arthur Andersen's Australian operation has been rescued by fellow Big Five consultancy Ernst & Young, but IT decision-makes are out in the cold over how the deal will impact them.

The companies signed a memorandum of understanding last week to integrate Arthur Andersen Australia into Ernst & Young.

The combined company, which will trade as Ernst & Young, will be Australia's second largest professional services organisation next to accounting powerhouse PricewaterhouseCoopers.

In Australia, the merged operation will have around 4000 employees and revenues of $700 million. Neither firm, however, would comment on the number of IT consulting staff the merged company would have here. A local Ernst & Young spokesperson said the firm "would not go over or above official media statements" about the deal before it was made final in mid-May.

While a beleaguered Andersens has reportedly lost around 50 clients, including Federal Express and Sara Lee, since January 1 -- following the news of one of the global firm's branches alleged destruction of documents of energy trader Enron -- Arthur Andersen Australia chief executive Gary Hounsell said: "Our clients and people have been extremely loyal to our firm in recent weeks and we thank them for that.

"Through this integration with Ernst & Young we can now move forward as part of a larger organisation."

Aseem Prakash, chief executive of Interactive Knowledge Online, speculated that most local Andersen employees' jobs would probably remain safe during a transition. "There is some [certainty] for Andersen now there's a buyer for it," he said, adding: "One of the key things firms consider in deals of this scope and nature are to [protect] current employees' jobs."

Neither Andersen Australia or Ernst & Young Australia were able to comment on the impact the deal will have on staff from both organisations.

Meanwhile, Prakash said clients should question the combined entity on whether there would be any disruption to current IT consulting work; whether the new IT consulting team had the expertise and relationship management clout they were seeking; if the entity had good clients on the books, and how the combined firm would address the issue of duplication in its IT consulting practice in terms of business processes and methodologies, and expertise.

As the professional services market gets more competitive, the upshot will be aggressive pricing, other industry analysts predict.

Todd Ellerman, president of US-based Systix Consulting, said companies will get much better service from smaller services providers that used to serve only the middle market.

Ellerman pulled no punches about what he thinks were many instances of poor service from the Big Five's consulting divisions.

"It's an opportunity for mid-market companies like us to service these larger accounts. But we are cleaning up behind the Big Five anyway. We are just saving the step of having to clean up the bleeding first," he said.

Andersen Australia follows two other national Andersen operations -- New Zealand and Russia -- to join Ernst & Young.

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