Consultants in Crisis?

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http://www.computerworld.com/storyba/0,4125,NAV47_STO67921,00.html

Consultants In Crisis


Normally, the sky's the limit when it comes to consulting opportunities in
a bad labor market. Not this year. Merely surviving will be a challenge,
and many will find themselves earning less or doing other things.

By LESLIE JAYE GOFF
(February 04, 2002)
According to conventional wisdom, IT consultants should have a stellar
year, due to the downward-spiraling economy. But looking out over the next
12 months, 2002 is shaping up to be a highly unconventional year.
Traditionally, independent consultants and consulting agencies are in high
demand during economic downturns. After periods of massive layoffs,
companies reluctant to add full-time staffers to their payrolls have turned
to contract employees to fill the gaps on IT projects.

But despite economic conditions that have been good for IT consultants in
the past, many consultants and agencies say they fear a drastic downturn in
their business this year.

"Business is deadly slow, slower than I've ever seen it," says Beverly
Nadelson, vice president of All Star Consulting Inc. in San Francisco.
"Generally, around this time of year, our clients are calling about their
upcoming projects. But I'm hearing none of the usual noise about anything
new, and that's not a good sign."

The fortunate consultants had gigs that saw them through the end of 2001,
but as they started to look for first-quarter work in December and January,
many came up dry. While some independent consultants and agencies say they
cautiously hope to generate at least as much revenue as they did last year,
none of them expect the blockbuster growth they took for granted in the
late 1990s.

For many, the slowdown started last year in response to continuing dot-com
closures, the slumping stock market and corporate cutbacks. While a
July-to-August slowdown is business as usual for most consultants, some say
the economic instability that followed the events of Sept. 11 quashed the
usual fall rebound.

Greg Hollings, president of Visionary Computer Consulting Inc. in Lakewood,
Colo., says that the terrorist attacks on the U.S. decimated his prospects.
He expects his business to be down by 30% this year.

"I was just totally floored by how much of an effect [Sept. 11] had on my
business," says Hollings, a Java applications developer who spent much of
2000 and 2001 working with dot-coms and telecommunications firms. With the
high-tech industry downturn, "it was already getting quieter, but it seemed
that was just the last nail in the coffin," he says. "A lot of clients just
shut their doors and stopped talking. It has been flat since then."

Even consultants who are getting inquiries from potential clients express
concern about client companies' ability to pay for IT consulting services.
"There's just no money," Nadelson says.

David Randolph, an independent consultant in Plano, Texas, says he's
getting the usual number of calls from prospective clients that he
typically gets at the beginning of a new calendar year. But he has also
seen clients' budgets dry up. His company, Prairie Trail Software Inc.,
generated more volume in 2001 than in 2000, but its revenue was down
because many clients couldn't pay their bills.

"Many of the checks we received bounced," explains Randolph. "I'd love to
say we've worked out payment plans with them, but we keep checking with
their banks, and they still don't have the money."

Good Times Ahead?

Despite a rough first quarter, many in the IT consulting community remain
steadfastly optimistic about a second- or third-quarter upswing in both the
economy and their prospects.

Independent consultants acknowledge that the days of juggling three or four
simultaneous projects at high rates are behind them for now. But they say
they expect that pent-up demand for mission-critical projects will finally
loosen clients' purse strings and that the market forces that have
traditionally favored consultants will come back into play.

"Any company that wants to gain a competitive advantage and has the
wherewithal to do so will use consultants," says Randy Hayman, president
and co-owner of IT services firm PureIce Inc. in Eagan, Minn. "They won't
want to take the payroll risk of adding full-time employees until they see
some certainty in their future. And that's why I continue to be upbeat on
2002."

Consultants and agencies say they expect companies to go forward with
technology initiatives that generate new business, such as customer loyalty
programs and other customer relationship management applications. Another
key area of consulting activity should be systems that streamline business
processes and cut costs, such as supply chain management systems, they say.

The health care industry's mandate to comply with the Health Insurance
Portability and Accountability Act of 1996 may also create consulting
opportunities, consultants and agencies say. With those initiatives already
consuming IT staff resources, health care providers may turn to consultants
for other projects.

The key to getting a foot in the door on these types of projects this year,
consultants and agencies explain, will be promoting your business expertise
and customer service ethic rather than specific technical skills. "You need
to change your frame of mind," says Randolph. "Show customers that you'll
do everything you can to resolve a business problem for them."

Consultants can also no longer rely on receiving the high rates they've
commanded during the past few years, particularly in the traditionally
higher-paying markets. In the San Francisco Bay area, for example, the
rates clients are willing to pay have gone down by 20% to 25%, says Nadelson.

"Rates are completely client-driven, so you have to figure out what a
client wants to pay and go from there," she explains. "We have one project
manager who was getting $100 an hour, and now the most that a client will
pay for project management is $60 an hour. The rates are going down to
where they were five to seven years ago."

Although the outlook is uncertain, seasoned consultants are riding out the
downturn with an eye on the long haul. They're taking the requisite steps
to generate new business networking with colleagues, repositioning their
marketing messages and evaluating new specialties to pursue but they also
say that they're giving the market ample time to recover before they hit
the panic button.

Christine Hokans, president of CMH Systems Inc. in Belmont, Calif., counts
herself among the lucky consultants who had a steady project through the
end of last year. She says she's giving herself three months to line up her
next gig. At that point, Hokans plans to evaluate looking for a staff
position, although she's loath to consider it.

In the meantime, Hokans says she's using her free time to seek IT volunteer
opportunities and attend user group and professional association meetings
for face-to-face networking. She's also eliminating extraneous expenditures.

"My husband and I eat out a lot, and we made a New Year's resolution that
we'll cook all but one night a week," Hokans says. "So I've got all my
cookbooks out. And no more Starbucks every day."

Instead of panicking, Hokans and other consultants say they're trying to
view their newfound freedom as the silver lining of the economic slowdown.
They say they're spending more time with their families, purging the stacks
of papers and magazines that clutter their offices, getting back to the gym
and pursuing other activities that they haven't had the spare time to enjoy.

"One of reasons I got into consulting was to have more control over my
personal life, and I've had a lot of personal time in the last quarter,"
Hollings says. "I'm thoroughly enjoying that. I'm an irrepressible
optimist, or I never would have become a consultant to begin with."
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