Strategy for Strategic Consulting

Strategy for Strategic Consulting

Digital strategy can impact the entire business operations of the client, and hence a broader strategic (global) analysis of an established client becomes necessary. To provide for this front end, Razorfish is slowly developing the expertise and building its credibility through hiring, sitting on industry panels, and developing processes to fit the new environment. Bringing in industry specialists is always the good move, but it takes referenced clients to help you (who often recommend you to others) really move ahead, as well as an impressive procedure that delivers quick results. Razorfish still has a ways to go before it becomes the natural trusted advisor to CEOs and corporate boards. However, Razorfish claims to having already beaten out the likes of Andersen on a number of occasions.

The other aspect Razorfish brings to the table is its multidisciplinary approach and 'fresh thinking'. In this day of fast changing business environments that rapidly are becoming interlaced with cross-industry technologies, there is a requirement for cross-fertilization of ideas, and hence a user may look at Razorfish to get new perspectives in the digital realm. One example given by Razorfish health industry specialist Mike Parker is the use of wireless digital technology in healthcare: a dentist for example may view a digital reproduction of an X-ray while simultaneously caring for the patient, using a mobile device conveniently located for viewing - the lack of wires being a great aid against clutter. The broader implications of this technology can of course be seen in other areas of Healthcare, health care service providers (doctors, hospitals etc.), heath care delivery instrumentation industries, manufacturers, VARs, etc. to which vertical industry specialists can provide insight.

However, proper processes and management tools need to be developed, proven, and used in a number of engagements if Razorfish is to be a serious contender. Their slow approach is reasonable given that they need to create these tools as well as internal knowledge dissemination structures. Further, as a transcontinental company, Razorfish has equivalent leaders on both sides of the Atlantic who must coordinate their efforts.

There is also a fairly broad line between proper digital business strategic analysis and getting to know a client's business in order to create a website, something the user should be aware of. Razorfish is aware of this issue, and as such it is establishing internal business development programs for its technical and managerial staff.

Thus Razorfish's early successes have and will continue to hamper its ambitions at least in the U.S. market: those successes were founded on their ability to do neat websites, and website building - once done - that could be taken over by less expensive and less sexy outsource organizations or internal MIS departments. Another issue is the persona of the acquired companies. Clients of these companies now have a partner with more to offer than previously, as in the case if I-Cube customers. Hence the need to provide an all round set of services - or at least give the appearance of doing so - is paramount if Razorfish wants to move ahead. In Europe it may have more success through its acquisitions, but in essence, Razorfish has a branding problem of its own. Thus the first and fourth components of the EES - discussed below - are currently out of Razorfish's reach. However, we predict that Razorfish should be able to lay claim to the strategy piece within the next year to eighteen months.

In another direction, Razorfish has a major desire not to be so dependent on a few clients, but the reality is that it will continue to derive a significant portion of its revenues from a limited number of larger clients (probability 90%). However, as the company's revenues grow, the anticipated dependence on single clients accounting for more than 10% of revenue should decline. In 1998 one client accounted for about 25% of the company's revenue. With a revenue growth of over 400% from 1998 to 1999 (due largely from acquisitions), and the size of major contracts almost doubling, at least more new clients are being added. USWEB, another DBSP, reports its contract sizes have about doubled on average, confirming the market is tending toward larger sized contracts requiring more services. However, part of the revenue growth, - approximately 15-20%, was due to a 30% increase in billing rates to some major clients in January 1999. This adds some weight to the likelihood that Razorfish is having some difficulty in leveraging itself into larger contract sizes, though the acquisitions blurs this analysis as does its recent international acquisitions .

Acquisition as a revenue generator is working well for Razorfish. The dramatic revenue jumps (Figure 1) in 1998 and 1999 were largely the result of acquiring I-Cube and Spray respectively, as well as through market growth (an estimate shows about half the year-to-year increase). The larger acquisitions were accounted for mostly through stock option exchanges and some cash. Razorfish's earlier smaller acquisitions in 1998 were cash deals. Another troubling trend is the rising cost of personnel shown in Figure 2. In January 1998, Razorfish raised its rates by 30% to at least one major client, though the apparent modest rise in relative manpower costs is masked by acquisitions and expansions. Figure 1 indicates the impact on the bottom line of Razorfish's acquisitions.

One area where Razorfish can have a major strategic development impact and follow-up long term partnering is with new dot-com companies well funded by Venture Capitalists (VC's). These companies often start with a good business idea, often by someone well versed in the industry. Someone, for example, familiar with the automotive parts industry realizes that this is a perfect industry for an online auto parts mart. This happened in the case of partsdriver.com for which Razorfish built the website and the backend integration. However, translating the idea into a working website means that the strategic concepts must be worked out as the business model is translated into the digital medium. Razorfish's expertise shined in this example, though it is a more confined problem than a complex pre-existing brick and mortar company changing or adding spots to its current organization.

We should also take note of the fact that Razorfish's culture is well suited to dot-com's - it being one itself. The cultural match and relationships forged from the 'raising of children' should never be overlooked in this business. In this sense, a DBSP like Razorfish could spawn a network of businesses that will grow as more business is driven to the net.

User's should be aware that typical projects can last 3-9 months. Razorfish's preference is for projects in the $750,000+ mark or above - the mid-market where most players believe the bulk of e-business building exists.

Without doubt Razorfish's strengths are in design, architecture, and technology. All clients we spoke to gave them very high marks for these functions.

Development Skills: Among Razorfish's skill sets is a strong capability in UNIX, C, C++, COBOL, and VB. As well they have moved to JAVA and are going to combine and grow their skill sets. Further, Razorfish has built at least one unique tool - an automatic translator from COBOL into SAP's language ABAP, a fact that won them a translation contract with SAP. Likely as not, proprietary tools built from internal expertise can provide Razorfish with added advantages.

The company does not have many technology partners, and this can be viewed as a strength on the one hand, and a weakness on the other. On the strength side it means it is not beholding to any technology. On the downside, it means that it may not have the relationships with product vendors to truly leverage their knowledge. Among the company's packaged solutions expertise are Siebel - where it needs more people - Vignette, and Ariba which is increasingly used to interface with installed systems.

Design: The design side has without doubt won them many contracts. However, it is like an actor who plays a role: once identified with the role, the true character of the actor is never recognized. From the website perspective, design and implementation are now even stronger - the Customer Experience quality assurance has been enhanced with the acquisition of TSDesign in Boston.

Internal Organization and Infrastructure: Another strength is its internal organization development and infrastructure. Razorfish seems ahead of many in terms of its integrated approach to office management. This is critical as companies expand overseas. Given the nature of the Internet, the shortage of manpower and high cost of development in the U.S. (and even parts of Europe), the ability to go offshore and still manage, track, and retain a skill set will play an ever increasing role in the success of a company.

Skills gained from early acquisition and learning to integrate other companies without killing the acquired organism (the Big 5 do so well at killing their creative babies) is something that is more and more needed. However, as Razorfish evolves into a larger organization, it may find this harder to achieve.

Broadband and Wireless Focus: The early move into broadband and wireless is a great move by Razorfish. This market is likely to explode since infrastructures, deregulation, and the enormous mergers and acquisitions in the telecommunications industry are setting the stage for real emergence. On top of this, new technologies are arriving. Within the next five years we expect the rise of the system on a chip - giving the computing power of a desktop today to communications devices like the cell phone and PDA (probability 85%). At present, it cannot be anticipated what this revolution will do, but hand-helds are likely to become the major driver behind the next generation of business applications.

The wireless facility and early associations with the likes of NOKIA and ERICSSON in Europe will provide backbone for Razorfish when this emergence occurs. Meanwhile, there is plenty of work to do in the area, even if it is to hook coke machines up with the cell phone so you can dial a coke if you don't have the change!
Razorfish is like most vendors in this space - trying to achieve the holy grail of providing each client with an end-to-end solution (EES). EES is essentially composed of four functions:

1. Digital business consulting in which a business plan is translated into digital business strategy; this can include marketing and branding.

2. Architecture and Design wherein the digital business plan is turned into a technological architecture: this can include website design and structure, as well as the technological building blocks needed to execute the solution.

3. System building and integration with back end systems.

4. Extending the business relationship into a true partnership where the client and the vendor continually re-invent the business and expand / improve the digital capabilities of the client.

Of these, Razorfish certainly provides (2) and (3), and has yet to prove itself in the first and fourth for all classes of client, as argued earlier. Razorfish has an uphill battle for recognition and needs to move away from an image just as a creative player. It needs to be perceived as a more stolid consultant capable of entering the boardrooms of Brick and Mortar establishments - at least in North America.

As indicated earlier, the ability of the company to make itself known in a few vertical industries is also impacted by the vision of the company as a creative website designer and builder, not the true digital strategist. In order for it to be seriously taken as a player in the vertical industries on which it has an eye, Razorfish will have to look for players that are already present and respected. However, it is difficult to see who and what: the large industries it wants to enter are governed by the Big 5 consulting houses or large media consultants, none of which Razorfish can acquire (oops, but maybe the other way round?).

Maintenance of quality is a key issue. As the company expands it must continue to strive to hire the best, educate and distribute knowledge according to need. This is a major internal challenge. It must strive to upgrade its current MOM system into a true project management / knowledge-sharing tool, otherwise its geographically distributed talent may not be able to (at least as cheaply) exchange their knowledge pools efficiently. Acquisitions also have to be absorbed and merged into the corporate culture. Luckily, Razorfish's culture is similar to many new companies, but as it grows, so will the culture change. PeopleSoft seems to have retained its culture: maybe Razorfish should look around for examples so it can make sure it can do the same.

Razorfish's employee retention rate is reasonable for the industry. Currently it has about 15%-18% turnover rate. Employee retention in the U.S. is hard - particularly in silicon alley/valley locations - and hiring has to be directed at similar-culture organizations such as Cambridge Technology Partners. SAPIENT is not as similar in terms of culture to Razorfish, and hence Razorfish's headhunters do not generally target its employees.

According to Razorfish, many consultants come from the Big Five looking for more exciting work and larger pieces of monetary return from smaller dot-com organizations. However, this also makes them the target for headhunters as well as a breeding ground for new entrepreneurs intent on establishing companies of their own. Dot-coms are breeding grounds for other dot-coms, and perhaps Razorfish may need to look at how it retains its relationships with the babies it helps create. The paucity of available skilled labor in the US also means what it has here in terms of labor costs is expensive. Going offshore for cheaper labor is possible; however Razorfish will have to deal with the inevitable cultural and language barriers.

Another problem it may find relates to its attempt to provide strategic consulting and get in earlier in the consulting game. It may find that the competition resulting from Big X (where X is to be defined as the world changes) organization initiatives will make it harder to compete for more established B&M companies. However, nothing stops these companies from trying out Razorfish, if only to corroborate or add value to the solutions from more traditional strategy partners.

Internationalization is a challenge to everyone. As a commerce web designer and builder, building in the customer relationships for multiple cultures and languages will be a major opportunity. A diversity of internal cultures and language skills is an advantage for any vendor, as well as an internal challenge in getting that diversity to work and play efficiently together.