What's Dragging Down A.T. Kearney?

It was a dramatic moment for the New York-based members of A.T. Kearney Inc.'s financial-institutions industry group. Reeling from a slowdown in business and the cutting back of some key contracts, the consultants sat down on a Friday in October, 1998, to talk about their problems. Finally, one young associate cut through all of the consultant-speak and said what many had been thinking: Kearney lacked a clear vision of where it wanted to go and what it wanted to be. The room buzzed. "It was the first time someone spoke up and voiced publicly their concern that we didn't really have a strategy," says Ted J. Gooden, a fellow associate, since laid off.

The words clearly struck a nerve. After an industry-leading growth spurt following its acquisition by Electronic Data Systems Corp. almost four years ago for $600 million in cash and stock, the venerable management-consulting firm seems to be stumbling. Its revenue growth rate fell from 30% in 1996 to 16% last year, while rivals such as Andersen Consulting have held steady. In March, it laid off close to 200 consultants, about 5% of its total, and delayed the start dates for some of its new MBAs--a highly unusual move at a time when most consulting firms are hiring like crazy. And in an industry in which retention is a critical issue even in good times, many of those remaining are reevaluating options. "This is not the firm I joined four years ago," says one consultant in the New York office.