Will Texas Cure What Ails A.T. Kearney?

The consulting arm of EDS will move to the Dallas suburbs to coordinate more closely with its parent. Will it add pep to its performance?

A.T. Kearney, the consulting arm of technology-services giant Electronic Data Systems, is about to get a lot closer to its parent. On Feb. 13, new CEO Dietmar Ostermann said Kearney, ranked as the nation's 13th-largest management-consulting firm in 1999, will move its corporate headquarters from Chicago to the EDS campus in Plano, Tex., outside Dallas within the next few months. About 10 senior executives, including the German-born Ostermann, will make the move by early summer, while several hundred administrative employees and consultants will remain at the company's current Windy City home.

Since EDS bought Kearney in 1995 for $600 million in cash and stock, the two companies have struggled to maintain Kearney's independence while more closely aligning their sales efforts. Some analysts blame the difficulties of that integration for lackluster results of late. Last year, Kearney's revenues grew a mediocre 5%, vs. 8% the year before. Weak results in the U.S. offset double-digit gains in other parts of the world, such as Japan, South America, and Germany. Tom Rodenhauser, president of Consulting Information Services in Keene, N.H., figures the top 10 consulting firms grew about 14% last year and 22% the year before.


  With many clients fleeing such startup e-consultancies as Viant and Razorfish for the big firms, "it's a bit surprising not to see Kearney doing better," says Rodenhauser. Adds a former Kearney officer: "I'm not sure they know what they are."

Despite the move to Plano, Ostermann insists 75-year-old Kearney, well-known for its operations consulting, will keep its separate name and identity. With its focus on big, 10-year technology-outsourcing deals, EDS is substantially different from Kearney, with its three-month, problem-solving deals, he notes. Yet despite the slow revenue growth, Ostermann insists the integration is on track and working well. EDS credits Kearney with helping it land contracts worth some $2.5 billion last year, in addition to the $1.1 billion in new contract signings Kearney snared for itself. And thanks in part to Kearney's sales help, EDS's E.solutions consulting unit grew 42% last year and expects to grow at least 25% in 2001, says John McCain, president of the unit.

The outspoken Ostermann, named to the top Kearney spot in November, calls the melding of EDS and Kearney "a masterpiece of how this is done correctly." He contrasts the combo to the integration last year of rivals Cap Gemini and Ernst & Young. As a result of the disruption caused by his rivals coming together, Ostermann claims, Kearney has hired 80 consultants from E&Y in the past 12 months.


  The EDS/Kearney combination, and its ability to offer strategy and implementation, ultimately will leave rivals such as McKinsey and Boston Consulting Group in the dust, Ostermann boldly predicts. "These guys are not prepared for the changes in the marketplace," he says. Terry Ozan, a group managing director at Cap Gemini Ernst & Young, says he doesn't know how many E&Y people Kearney has hired. But he calls it "absolutely false" that the merger has been less than stellar, pointing to 10.2% growth for the combined firm last year.

Even while the rest of the industry braces for a slowdown, Ostermann insists Kearney is ready to rev up its growth. Attrition has returned to normal levels after soaring turnover early last year during the dot-com craze. Many Kearney consultants rushed off to make their fortunes in now-dying dot-coms. At the height of the boom, turnover was nearly double the normal 15%, Ostermann notes.

While others say Kearney was slow to gear up for e-commerce work, Ostermann boasts that 40% of revenues now come from such business, and he predicts the percentage will go higher yet in 2001. In particular, he expects companies to accelerate spending to redesign supply chains and product development with the help of the Net, playing to Kearney's strengths. "We are ready to roll," Ostermann says. Now if only Kearney's growth rate would prove it.

By Wendy Zellner in Dallas

Edited by Douglas Harbrecht

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