Scient's Near-Death Experience

Welcome to the Next Economy

Spend enough time around Scient these days, and you will tire of the expression "the next economy." It appears in every employee communication, in every speech, on every T-shirt, seemingly in every other sentence out of people's mouths. Lochhead has presented his next-economy spiel at dozens of technology gatherings and at dozens of meetings of customers and employees. Typically, a grim reaper accompanies him on these gigs. "The new economy is dead!" Lochhead is likely to intone. "Long live the next economy!"

Even had there been no intellectual capital behind the sloganeering, it would have been a brilliant gambit. After all, the e-consulting space was being thrashed. Scient itself was in trouble. It had to defend the viability of its business. It needed an edge, a flashy headline that folks would remember. The truth is, in consulting, half the game is convincing potential clients that you know something that other people don't. And by last autumn, everyone else in the consulting universe had pretty much figured out the new reality. Even while Komlofske and Rheinfrank's interpretation was especially compelling, Scient's rivals were resetting their strategies -- and they were all charting similar courses. The company knew that its competition was going to get tougher.

Like Scient, most other Internet consultancies had lightened up on engagements with dotcom startups, and instead were furiously pursuing projects with big-enterprise clients. Sapient Corp., the largest consulting company in the field, derived just 9% of its revenue from startups in its third quarter 2000, down from 16% three months earlier. Meanwhile, its average engagement in 2000 was worth $7 million, up from $4 million a year earlier.

The consultants recognized, too, that their success depended on more than simply bolting a flashy Web site to an existing business. The technology itself was too quickly becoming a commodity to serve as a competitive weapon. Rather, consultants had to move upstream. The services that yielded high value -- and higher profits -- increasingly focused on helping clients set business strategy and, importantly, on integrating new technologies with existing systems and processes. "Clients are much more deliberate," says Paul Barth, chief technology officer at iXL. "They want to make sure that what they do on the Web works well with what they do in their call centers. They're much more informed now. They've thought about these issues, and they have a point of view."

And there was one more thing: In the past year, the big guys had joined the fray. Andersen Consulting, Deloitte Consulting, and other companies like them -- not to mention Booz Allen, EDS, and IBM -- were targeting precisely the same big projects at the same big clients that Scient and its e-brethren were.

Suddenly, consulting companies were building huge e-business practices and were hiring aggressively to staff engagements. McKinsey officials say that their company took on about 1,000 projects related to e-commerce in 2000, representing close to 40% of the company's overall activity. "It's very difficult now to think about a client's business strategy without looking at what its online strategy is," says Ron Farmer, a partner who coleads McKinsey's e-commerce practice. By year-end, the company expected to open 22 "accelerators" meant to foster new online businesses.

The result of all this: Pricing was coming under pressure. By the fall, rumors spread that some of the Big Five, and a few of the newer e-consultants that had been in distress, were discounting rates to win bids. Michael Sherrick, an analyst at Morgan Stanley Dean Witter & Co., says that he expects prices among Scient's peers to be, at best, flat over the next year.

So here's the upshot: Scient must reinvent itself. It has developed a persuasive vision of what the future will bring. It has created a marketing schtick to translate that vision into something that clients can easily process. Now it must equip itself to compete in the world that it proposes. It must transform itself in the way that it promises to transform others. It must deliver the goods.

Soon Scient is expected to announce a new suite of consulting products intended to help its clients navigate the next economy. It still will offer tech-heavy services around digital-business design, drawing on its considerable dotcom-building experience. Behind those designs, though, Scient will build the infrastructure it takes to support rapid, flexible decision making. So-called "central guidance systems" will combine clients' existing systems and new online capabilities to incorporate e-business into everything a company does.