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DAILY BUSINESSREvIEw

Monday,June30, 1997

After the bosssoid no


KPMG vets took their ideasand almost 50 employeesto start a
nationalbusinesstechnologyconsultancy

By Peter Valdes Dapena REVIEWSTAFF

Whenthe threeKPMGPeat Marwickofficialswalkedinto the New York


officeof KPMG'schiefexecutiveon Jan.28, theyalreadyknewhowthe meeting
wouldend- withthe birthof a newnationalbusinesstechnology consultingfirm.
As far as they were concerned, therewas only one question:Wouldthe
newcompanybe underthe controlof KPMG?
For more than a year Ted Fernandez,an 18-yearKPMGveteran,had
lobbiedthe firm to spin off its StrategicServicesConsultingDivision,the unit
Fernandezheaded,into a separatepubliccompany. The spin-off,he says,
wouldenablethe unitto raisecapitalin the equitymarketson its own and grow
faster. In addition,he says,consulting is a differentbusinessfromaccounting, so
keepingthetwo lockedtogethermadelittlestrategicsense.
But the directorsof KPMGsaw it differentlyand wfrenCEO StephenG.
Butlertold the threeexecutives - Fernandez, UlyssesKnottsand AllanFrank-
that the spin-offwasn'thappening, they resignedon the spot,Fernandezsays.
In April,theyincorporated AnswerThink Consulting Group,basedin Miami.
Fernandezdescribesthe chairman'sresponseto the resignationas
"shock." Fernandez, 40, had startedhis careerwith the firm, risingto become
managingpartner of strategicservicesand a memberof the firm's U.S.
management committee, workingoutof Miami.
KPMG officials won't comment on the split. A month after the
resignations, KPMGsued the threeand DavidA. Dungan,formerlya national
partnerat KPMGand now head of the AnswerThink sectionthat adviseschief
financialofficers(or solutionleader,CFOlsolutions), who joined them after
resigningin February. KPMGclaimedthe ex-partnershad been solicitingits
employees and clientsandsuedfor an injunction pendingarbitration.
The suit was settledwith an agreementthat AnswerThink wouldnot hire
any moreKPMGemployees for a certainperiodof timeand cannotsolicitKPMG
clientsfor abouttwo years. Neithersidewillcommenton the settlement.
Sincethe Januarymeetingin NewYork,AnswerThink's partnershave
workedfastto establisha nationalconsulting firm. Theyfiredup two venture
After the bosssaidno (cont)
D,utY BustNnssRnwnw
Monday, June30, 1997

capitalpartnersto backthemwith$20 million Theyhavemadetwo acquisitions.


ln earlyJune,AnswerThink mergedwith Relational Technologies lnc., a 52-
personcomputerconsulting firm basedin Atlantaand Dallas. Laterthat month,
AnswerThinkbought ContinuouslmprovementCenter, a Montvale, N.J.,
companythatdoesperformance studiesfor financialorganizations.
AlreadyAnswerThink has officesin eightcitiesincludingAtlanta,Boston,
Chicago,Philadelphia and New York and 125 employees, 49 of themformerly
with KPMG.
Fernandez saysthe goalis to have300 employees by the endof thisyear
and $30 millionin revenues.Withinthreeyearshe predicts10 acquisitions, $500
millionin revenues, andexpectsto do an initial public offeringwithintwo years.
Revenuesfor a consultingcompanylike AnswerThinkare based on
billablehours,so the companywill haveto growfast to meetthat revenuemark,
saysEdmundMillerof MillerCapitalManagement Inc.in CoconutGrove,one of
the two venturecapitalists backingthe company.The otheris Golder,Thoma,
Cressey,RaunerInc.of Chicago.
Miller,who has known Fernandezsince they were freshmenat the
University of Floridain 1974,sayshe investedbecausehe thinksAnswerThink is
in a uniquepositionto be the only independent,publiclyowned company
operatingat the top levelsof technology consulting.
Frank,who had been a board memberand chief technologyofficerat
KPMG,is chief technologyofficerof AnswerThink, in chargeof creatingthe
computernetworksthatareto holdthe companytogether.Hisofficeis outsideof
Philadelphia.
Knottshad beenin chargeof executiveinformation systemspracticeand
sales and marketingat KPMG, and is now AnswerThink'sexecutivevice
president for salesand marketing.He worksin Atlanta.
Fernandez saysthe companythey'recreatingis the samehe wouldhave
builtat KPMG. "Theonlydifferenceis that I wouldhavestartedwith a lot more
resources there,"he says.
Its competitors, besidesKPMGare otherlargecomputerand accounting
firms that pursue technologyconsultingand companies,like Cambridge
TechnologyPartnersof Cambridge,Mass. A companyof Cambridge'ssize
mightbe hiredto handleportionsof the kind of corporationwide projectsthat
AnswerThink wouldspearhead, saysMiller,the venturecapitalist.
AnswerThink is now lookingto buy mid-sizedconsulting firmswith 100 to
150employees.Fernandez sayshe is talkingto onefirmwitha staffof 25O.
Theywill not divulgethe namesof any of their clients. Fernandezsays
theyare seekingout largecorporate technology users.
"Sincewe are usedto servingvery sophisticated, largeclients,we have
decidedto returnto thatas quicklyas possible," Fernandez says.
After the bosssaidno (cont)
Daily Business Review
Monday, June30, 1997

Whilethe companyis basedin Miami,all threepartnerssaythereis no


strategicsignificance in that. "Thisis wheremy friendsand myfamilyreside,"
saysFernandez.lt is alsothe homeof Netsol,a computernetworking
infrastruc{urecompanyin whichFernandez is a partner.Netsolwillbe
concentrating on LatinAmerica,whereAnswerThink may piggy-back ontosome
of Netsol'sjobs,he says.
The company's top executives all haveemployeesreportingto themfrom
officesin distantcities. The ideaof havingthe companyspreadout acrossthe
countryis partof AnswerThink's strategyfor reducingwhatthe founderssay is a
key problemin the consultingindustry:an averageemployeeturnoverrate of
about20 percentannually.Goodconsultants are in enoughdemandthat they
canjumpfromfirmto firmto makemoremoney,saysFernandez.
The computernetworkthat Frankexpectsto haveup and runningin the
nextthreemonthsis a key partof the moreflexibleatmosphere the partnerssay
theyhopewill helpthemretaintop talentby allowingstaffersto keeptheirhome
base whereverthey like. The network,which will reside partly on secure
channelscreatedthroughthe Internet,will allowAnswerThink's consultants to
collaborate seamlessly overdistance.
Flexibleschedulingis also part of Fernandez's plan to hold on to talent.
"A fourdayworkweekis a goalof ours,"he says.
Anotherarm of the company'semployeeretentionplan is equity-based
pay. Everyoneat AnswerThink is givenoptionson companyshares,wfrichcould
be redeemedaftera hoped-forinitialpublicstocksale in about18 months,the
partnerssay.
lf you havea tremendous demandfor people,"says Miller,"you haveto
handcuffthemto the company,andthe onlywayto do thatis withequity."
In their attemptto differentiate their companyfrom othersin the major
leagues of consulting,AnswerThink'svarious practiceswill be based on
functions,suchas financeor humanresources,ratherthan on industries, such
as retailingor banking,on the theorythat solutionsto problemscan be fitted
readilyfromone industryto another.

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