MCN Direct Newswire

Vol. 3 No. 21, 1 June 2004

This issue is sponsored by:

Plumtree Software, The UK Consulting Industry 2003/4 and Wonderweb

This issue news

1. Consultancy set for prosperous 2004
2. IBM hits target with Defra deal
3. Diagonal takes a tumble
4. Accenture leader takes e-government job
5. Detica soars on strength of security business
6. Further information - feedback/pass on to a colleague/remove from mailing list

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1. CONSULTANCY SET FOR PROSPEROUS 2004

UK management and IT consultancies made a good start to the year, underpinning the suggestion that sustained growth has returned to the sector.

According to the Management Consultancies Association (MCA), 80% of member firms reported higher revenues in the first quarter of 2004, up from 37% in the previous quarter and showing fees growing across a wider range of consultancies.

Total revenue in the three months reached £1.5 billion, up 5.3% on the previous quarter, excluding new members. Management consultancy fees rose 6% on an underlying basis to £646 million, on a par with IT consulting up 7.6% at £300 million. Outsourcing-related consultancy rose 2.2% to £530 million.

MCA members also noted an increase in new business and recruitment in the quarter though fees remained low while costs continued to increase.

Commenting on this dilemma, incoming MCA president and Hedra chairman Lynton Barker said: "Trends indicate that we are entering a period of gradual, but nonetheless sustained, recovery. Following a period of cost cutting and investment deferment, clients are still exerting pressure on fees. This should ease as business confidence returns, but the focus must be on the value that consultants can create for their clients rather than the associated costs."

Looking forward, MCA firms are expecting an increase in the value of management consultancy, IT consulting and outsourcing work in the current quarter, with the financial services and public sector markets offering the best prospects.

2. IBM HITS TARGET WITH DEFRA DEAL

IBM has beaten Capgemini to a major Department for Environment, Food and Rural Affairs (Defra) contract worth between £850 million and £1.4 billion.

Selection as the department's preferred IT services supplier will be a cause for celebration at IBM after a long period in which it failed to secure any major public sector deals, particularly those awarded under the £6 billion NHS IT improvement programme.

Defra and IBM will work together to finalise the contract before the new service arrangements are put in place later this year. IBM is expected to manage, support and improve Defra's desktop infrastructure and business systems, as well as develop new business systems and provide a source of technology and business process innovation.

Under the terms of the contract, which will run for seven to 10 years with an optional extension for a further seven years, 330 Defra IT staff will transfer to IBM. Defra said that the decision to contract IBM resulted from a "very competitive process with both the shortlisted companies demonstrating strong commitment and enthusiasm".

The competition between IBM and Capgemini is not over yet, however, as IBM recently joined the Atlas consortium and Capgemini is part of the Radii consortium bidding for the £4 billion Ministry of Defence Future programme (MCN Direct 3-19).

* PA Consulting has been selected by the Home Office to work as its development partner on the UK's controversial identity card scheme (MCN Direct 3-1). PA won the contract in a competitive tender based on value for money and will work on the design, feasibility testing, business case and procurement elements of the programme.

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3. DIAGONAL TAKES A TUMBLE

SAP specialist consultancy Diagonal is on the ropes again, warning that its progress this year will be "insufficient to meet market expectations" and reporting the loss of CEO Colin Burnside.

Burnside, a founder of the firm and CEO since July 2003, steered Diagonal through turbulent times last summer, after an attempt by two board members to buy out the company's secure networks business was aborted. He is leaving on health grounds and his role will be covered by Malcolm Gloak who has been moved from non-executive chairman to executive chairman until a new CEO is found.

Diagonal's financial warning suggests its first-half results will exceed those of the second half of 2003 and that recovery will continue but not at a pace to meet market expectations.

In a trading update, the consultancy stated: "Although Diagonal's markets have seen some improvement, not all sectors and geographies have experienced these better trading conditions. The board is confident in its strategy for developing the group's businesses, but recognises that some further reduction in costs may become necessary."

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4. ACCENTURE LEADER TAKES E-GOVERNMENT JOB

Ian Watmore, UK managing director of Accenture, has been appointed Britain's head of e-government - confounding rumours that NHS IT supremo Richard Granger was about to step into the job.

Watmore will take up the post in September and will be accountable to Minister for the Cabinet Office Douglas Alexander.

Watmore and the e-government unit will replace and enlarge on the work of e-envoy Andrew Pindar and the Office of the e-Envoy - taking responsibility for IT and communications strategy within government, as well as monitoring major government IT projects, advising on investment decisions and working with departments to deliver efficiency savings and improve delivery of public services.

Prime Minister Tony Blair commented: "Ian Watmore will be playing a pivotal role ensuring that IT supports the business transformation of government itself so that we can provide better, more efficient public services."

But while Watmore's job looks like that of a CIO in a large organisation, it leans towards the advisory rather than the executive, a factor that Granger has criticised, saying the role lacked the power to prevent a repeat of previous failed government IT projects.

Watmore is an old hand in the IT industry having joined Accenture in 1980, before being elected UK managing director in 2000. Accenture has yet to name his successor.

5. DETICA SOARS ON STRENGTH OF SECURITY BUSINESS

Detica Group has turned in stellar results for the year to 31 March after a significant gain in its national security division and gradual improvement in its commercial business.

Total pre-tax profit for the year rose 24% to £9.2 million, on revenue up 37% at £53.3 million. Government business generated 62% of total revenue, with Detica's national security products and services unit contributing £27.9 million.

As well as success in the UK, the national security unit hit a nerve in the US, where Detica plans to open an office in Washington DC later this year.

The company's commercial business - founded on customer relationship management but now offering a broader scope of enterprise information management - returned to growth in the second half of the year, assisted by the August 2003 acquisition of systems integrator Rubus.

The financial services sector was the biggest contributor to total commercial revenue rising 16% to £20.3 million.

Headcount rose from 325 to 492 over the year, in part pushed up by the opening of a Cheltenham office supporting growing work demands from GCHQ.

Detica chief executive Tom Black said: "The year to March 2004 was another very strong one for Detica. The overall group strategy remains unchanged. We will continue to grow, both organically and through selective acquisitions, and will maintain our position in the higher end of the IT consultancy value chain with a focus on information intelligence. The outlook for our business remains positive and we remain confident about our ability to perform well again in the coming year."

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