Consultants in crisis

According to conventional wisdom, IT consultants should have a stellar year, due to the downward-spiralling 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 per cent 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, Tex., 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 cheques 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 favoured 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 per cent to 25 per cent, 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 US$100 an hour, and now the most that a client will pay for project management is US$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 new-found 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.”

Leslie Jaye Goff is a freelance writer in New York. Contact her