Andersen Consulting carves out federal strategy

Officials of Andersen Consulting are well aware that their company is not what government executives think of when they picture the traditional federal systems integrator. In fact, Andersen Consulting officials would not be surprised if they had to explain to any potential customer, government clients included, that Andersen Consulting is not the same as Arthur Andersen, the accounting firm.

It is a message that Andersen Consulting is working hard to communicate as the organization goes through what appears to be the final stage of its definitive split from the worldwide tax and audit company that remains one of the Big Five - formerly the Big Eight - accounting firms.

In the past year Andersen Consulting, whose government division in Washington, D.C., is headed by Stephen Rohleder, has taken steps to define itself as an entity distinctly different from its partner, Arthur Andersen, including such subtleties as a new logo.

The bulk of the services Andersen Consulting provides are for re-engineering business processes, which account for about 50 percent of its income, and dealing with the impact of new technologies on employees, or "change management," which comprises 20 percent. Building networks and installing other technologies is about 25 percent of its business, and strategy is the remaining 5 percent, said David Hunter, worldwide managing partner for Andersen Consulting.

"We're seeing that change management component grow much faster than the technology component because government agencies have made huge investments in systems, and they have to re-educate workers," Hunter said.

The feud between Andersen Consulting and its partner boiled over last year when it sought to finally sever ties with Arthur Andersen. But the transformation is still painful for employees of Andersen Consulting, who sometimes erupt when people confuse them with the accounting firm, said Stan Lepeak, an analyst at Meta Group, Stamford, Conn.

"The situation is very confusing unless you get into it," Lepeak said. "The average [information technology] person out there who might use [Andersen Consulting's services] doesn't understand the difference."

Though the split is not yet formal, Andersen Consulting is not wasting any time publicizing its success in and plans for the federal government IT services market.

"We are not a household name in the federal world like CSC and Lockheed Martin," Rohleder said in a recent interview at the company's Washington office. "But we really are able to differentiate ourselves from the firms that are steeped in government contracting."

And when the U.S. government talks about applying commercial best practices, Rohleder could not be happier to oblige. Federal agencies take notice when Andersen Consulting describes its experience at large companies such as Caterpillar Inc., a large industrial customer that provides parallels for military customers, and its experience with more than 50 other governments, Rohleder said.

Since Rohleder arrived at Andersen Consulting's government operation in 1995, he and partners Christopher Brennan and Roger M. Dooley have grown the company's annual government contracts revenue from $33 million to an estimated $146 million this year. "Based on what we are seeing so far, we probably will exceed that by 10 to 20 percent," Rohleder said.

Andersen Consulting has such a large number of contracts with postal services worldwide that the business gives new meaning to the expression "going postal." The company's biggest U.S. government contract is with the U.S. Postal Service, where Andersen Consulting has helped fix Year 2000 problems and market USPS products and services by borrowing from best commercial practices.

The contract gave Andersen Consulting an opportunity to export a model first deployed at the Canada Post Corp. eight years ago, Hunter said. Exporting contract models is a practice the company has honed; Andersen Consulting now has contracts with 11 other postal services worldwide.

When Andersen Consulting began its relationship with USPS, it held IT contracts with as many as 30 vendors, Rohleder said.

The first order of business was to advise USPS to consolidate that business into seven segments and award one lead contract in each. Andersen Consulting won four of the seven.

Apart from USPS, Andersen Consulting has major government contracts with the Social Security Administration, the Air Force, the Justice Department, the Census Bureau, the Federal Energy Regulatory Commission and the Nuclear Regulatory Commission.

Although Arthur Andersen is the only top accounting firm to set up a separate structure for its IT consulting business, other Big 5 firms are considering similar divisions.

The move makes sense because there is a lot of money being spent on the services that the IT consulting companies provide, said Hank Steininger, a consultant with Grant Thornton LLP, an accounting firm that focuses on financial and accounting projects.

Steininger said he does not consider Andersen Consulting a competitor in the government market because it bids on deals that include hardware, software, telecommunications and services.

"We won't mess with that because it's a larger scale and requires broader-based management and technical skill," Steininger said. "You need money to finance these."

Andersen Consulting likely will grow in the federal systems integration market, especially after resolving its partnership dispute. Then it will be able to obtain outside financing to underwrite the cost of pursuing and executing large systems integration contracts, Steininger said.