March 12, 2001 10:45 AM PST

MarchFirst enters the terrible twos

For Bill Matassoni, MarchFirst lost its appeal once the troubled Web consultancy began to lose its focus, especially on its own people.

"I missed the focus on quality, the focus on people," said the former MarchFirst executive. "Classic strategy consulting is still an apprenticeship profession. There was no time for apprenticeship in an e-strategy firm. It was always race, race, race."

Once a consulting firm stops investing in its own people, then quality becomes a problem, he added. "Consultants sell people, skills, knowledge and experience," said Matassoni, who spent 20 some years in the industry and is now a vice president with Boston Consulting Group. "E-strategists had the knowledge but lacked the experience and the people."

As it marks the end of a difficult first year, MarchFirst now finds itself lacking several key people: The company on Monday announced the resignations of Chief Executive Robert Bernard, Chief Operating Officer Thomas Metz and Executive Vice President Joseph Bong.

The executive departures are the latest bump in the road for the sputtering company, which has already hit a number of potholes including bleak financial results, several rounds of layoffs, a sagging stock price and cost-cutting initiatives.

Just last month, MarchFirst posted a wider-than-expected loss in its fourth quarter and lowered its sales estimates for the first quarter of fiscal 2001. Since November 2000, it has laid off roughly 2,100 employees as it has battled to reach profitability.

But its efforts have consistently failed to gain traction.

"MarchFirst is off the respirator now and is basically on the table for organ donations," said Tom Rodenhauser, an industry analyst who heads Consulting Information Services. "Who, in their right mind, would join this firm (now) to lead it" out of its current troubles, he asked.

Rodenhauser, who called the executive departures "the best of a bad situation," said that the move is indicative of the tumult the company has recently been in and that he believes a new leader will have a tough job ahead.

"On a difficulty scale, it's a 10," he said. "It's one thing to turn around a business to take it back to where it was, but when the landscape has changed this drastically, there is no going back."

Struggle born of merger
MarchFirst's troubles date back a year to its founding in the merger between traditional systems integrator Whittman-Hart and Internet consultancy USWeb/CKS.

Though the two companies dove into the integration process, making an impression on Wall Street and attempting to convince analysts that MarchFirst could succeed, hurdles began to rise.

"It?s very easy to underestimate how difficult it is to integrate the different cultures," said Matassoni, who got folded into USWeb in mid-1999 after it bought strategy-consulting firm Mitchell Madison Group. "The rush to announce the success of the integration was both naive and arrogant."

Industry pundits, who shrugged off the union when it was first announced in December 1999, are still shaking their heads.

"Whittman-Hart made a poor choice," said Rodenhauser. "It wasn?t a merger of equals."

In a recent statement, the company said it has sharpened its focus to target three strategic goals: improved profitability, positive cash flow and disciplined growth. It also has said it plans to save approximately $100 million annually, beginning this year as a result of some of its recent cost-cutting measures, including the job cuts.

Whittman-Hart's move to merge with the former high-flying Net consultant was indicative of the times more than a year ago when larger, slow-moving traditional consulting firms wanted to quickly shift their focus to the Web. But now the once highly reputable Whittman-Hart, whose brand name disappeared once the combined company launched last spring, is finding itself struggling with what it gave birth to.

USWeb at the time was competing in a class of companies that were all doing well in the burgeoning Internet consulting market, alongside rivals Scient, Razorfish, iXL Enterprises and others, prompting many traditional consulting firms to sit up and take notice, including Chicago-based Whittman-Hart.

The deal appeared great on paper, and the time appeared ripe for Whittman-Hart to make its New Economy move.

"Whittman-Hart bought into the hype," said Joshua Greenbaum, an analyst who heads Enterprise Applications Consulting. "The idea that your valuation could go up a factor of 10 is pretty seductive to even the most sober mind. That was clearly what (Whittman-Hart) had to be thinking.

"It's a little scary when someone like Whittman-Hart couldn't have seen their way out of this mess or at least predicted it, but then again, the mentality was vastly different a year ago," he added.

Several analysts agreed that traditional consultancies had been seduced by the Internet, especially when a slew of publicly traded Internet consulting companies had been soaring with high valuations and enjoying great success. A number of companies, including Accenture (formerly Andersen Consulting), EDS and others were busy bulking up their e-commerce practices or partnering with others that had a definite Web focus.

Eyes bigger than its stomach?
Still, analysts, who have closely followed the relationship, believe it was more than just gloomy market conditions that helped drag then-Whittman-Hart from its respectable seat. Some analysts say Whittman-Hart could have chosen a safer and more successful route by remaining solo. Others believe the veteran consultancy simply bit off more than it could chew.

Matassoni agrees on the difficulty of marrying three very different cultures: technology expertise, strategy and branding.

Whittman-Hart brought significant technology expertise to the new entity, Mitchell Madison brought the strategy specialists, and USWeb had earned a solid reputation in branding and design.

"To marry strategy to this new thing called e-strategy had been much harder than people had realized," Matassoni added. "Classic strategy is about analysis and imagination, whereas e-strategy is fairly mechanical. Helping clients build a Web site as fast as you can and validate their business models is not the same thing as (helping clients) think through strategy."

Added Rodenhauser: "USWeb was an amalgamation of different (previous) acquisitions. Whittman-Hart buying USWeb wasn't two distinct entities coming together to form MarchFirst, it was Whittman-Hart joining this amalgamation of pieces. It just didn't make sense."

The fact that USWeb had swallowed up some 40 smaller companies in its history remained a big concern among several industry observers even after MarchFirst's official launch last spring. Analysts have also added that the two couldn?t have been more different. While Whittman-Hart's expertise lay in back-office work, such as billing and accounting, for midsize companies, USWeb focused on pioneering the sector for Web front-office work, Internet development and design, along with providing application hosting services.

"Dealing with a number of mergers is tiring, especially in consulting when your energy should be focused on the clients," Matassoni said.

In the wake of Monday's executive departures, MarchFirst's board has appointed Steve Pollema, who has been serving as executive vice president of global operations, as president and has formed a three-member executive committee to assist MarchFirst through the management transition.

The company said it has hired recruitment firm Korn/Ferry International to help the board find a new CEO.

Two of the three members of the executive committee are David Stanton and Neil Garfinkel, partners in venture capital firm Francisco Partners, which is a major investor in MarchFirst. The third member is Barry Moore, vice chairman of Kurt Salmon & Associates.

The company recently received a $12 million interest-free loan from existing investor Microsoft and a $150 million from Francisco Partners.

 

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