Are Capgemini's consultancy prices on a slippery slope?

In its results yesterday Capgemini announced that it is cutting its consulting rates by 2.2% and local processional services rates by 0.5%.

Is this a dangerous thing to do? Is it just a reaction to increased competition or an attempt to squeeze more revenues out of customer?

Robert Morgan, director at sourcing consultancy Burnt-Oak Partners says reducing consultancy prices could cause problems for Capgemini. “It is always a slippery slope and the prices can never be changed back. Also existing clients will return to try and negotiate a better price.”

Capgemini took over Ernst & Young Consulting in 2000 to give it consulting expertise. Many other IT companies are doing the same thing.

For example in 1995 EDS acquired A.T. Kearny and IBM bought PwC Consulting in 2002. Atos and CSC are others that have acquired consultancies.

Then you have suppliers that are doing it themselves. Cognizant for example wants its business consultancy operation in Europe to emulate the growth rates of its IT services business. See this article I wrote about it.

An example of Cognizant’s approach to consulting is a project known as The Future of Work, which is advising businesses on transforming their operations to meet new demands and harness social and technological changes. These include the fact that over a third of staff and customers of many businesses today are “Millennials” – people born in the 1980s. Other factors are globalisation, virtualisation, the cloud and social media.

In 2010 Wipro told me in May last year that it was investing in resources to help customers transform their businesses and that it was targeting senior staff at the big consultancies.

I met up with BG Srinivas of Infosys yesterday. He is global head of financial services and head up Europe at the Indian service provider. He told me one of the areas the company is trying to grow is in consultancy. “We can sell consultancy into our existing customers.” The company bought a management consultancy recently, known as Lodestone, that specialises in SAP.

Robert Morgan said buying consultancies is really dangerous for IT companies unless they are culturally matched. He believes it is better to grow the businesses organically.

Mark Lewis, who heads up the outsourcing practice at law firm Berwin Leighton Painsner says IT outsourcers and consultancies are difficult to integrate. “There is incompatible DNA if you look at the acquisitions by outsourcing companies of the Big Four consultancies, e.g. Capgemini/EY Consulting, IBM/PwC and what happened to the consulting businesses afterwards.”

Tell me what you think?

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