Born Using Someone Else

By Baselinemag  |  Posted 2006-02-07 Print this article Print

The consultancy, touted as a Sarbanes-Oxley expert, failed to report earnings for 18 months and may be de-listed from the Big Board. One reason why: missteps implementing a financial software system.

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"BearingPoint came into being as a multibillion-dollar corporation going a thousand miles an hour, but it had no I.T. infrastructure in place," says Carlos Recalde, KPMG's former executive director of technology for the Americas region.

The use of KPMG's computer systems for everything from billing and time entry to human resources was to be an interim measure, according to Recalde, now managing director of Successful Technology, a New York-based consultancy.

By an agreement, which was to terminate in February 2005, BearingPoint would use KPMG's hardware, software and communications resources for all of its North American operations.

In return, BearingPoint agreed to pay a percentage-as much as 38%-of KPMG's overall information-technology budget based on factors such as head count. "We felt that going to KPMG at that time was the most cost-effective way to go," says former CIO Wilde. "If we had it to do over again, we'd probably do the same thing because we couldn't have gone 'big bang' anyway at the time."

Beginning in late 2001, the growth-minded Blazer launched a global acquisition strategy using debt and BearingPoint stock to pay for the purchases he and his senior managers had targeted. These included most of Arthur Andersen's consulting units in Europe and several KPMG International consulting operations in Australia and Europe. Though affiliated with KPMG, these units functioned independently, providing tax, legal and financial services.

BearingPoint purchased for $685 million the Australian, German, Austrian, Finnish and Swiss KPMG International units, but lost out to French information-technology service firm Atos Origin in bidding for the English unit. As a result, it had to start a consulting group in the U.K. afresh.

It also planned to acquire 17 Andersen Business Consulting units in Europe, South America and the Far East for almost $500 million, but Andersen's parent company, Arthur Andersen, was neck-deep in the Enron scandal, having been Enron's auditors. BearingPoint didn't want to risk taking on any legal liability in acquiring Andersen's consulting operations, and instead agreed to hire all of Andersen's employees at those 17 units in exchange for $63 million.

Taken together, the acquisitions doubled BearingPoint's workforce at a time when the company was eliminating U.S. employees-550 in 2003-as the result of the domestic economic recession.

The acquisitions gave BearingPoint the expanded footprint it was seeking outside the U.S., but they also created problems, some minor, some more substantive. "In some offices such as Hong Kong and Tokyo, for example, consultants from the newly acquired KPMG International and BearingPoint consultants worked shirt sleeve to shirt sleeve, and there was friction between them," Recalde says of the working relations between the two sets of former rivals.

In effect, BearingPoint had acquired more than three dozen independent consulting companies, each with its own disparate system and its own way of doing things. Consequently, there was little uniformity or consistency with the contracts that the new acquisitions produced. As a result, McGeary said in 2004 at a JP Morgan investment conference: "We have 9,000 [contracts] and they have different flavors and are in different countries."

"Andersen, as an example, was structured as a loose aggregation of offices without any global systems or common information-technology platform," says Chas White, BearingPoint's executive vice president and chief technology officer. White, who prior to the IPO had served as global CIO of KPMG International, opted to leverage what he terms a "greenfield opportunity" internationally.

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That meant BearingPoint intended to start from scratch with its non-U.S. technology capabilities, and bring everything into a core infrastructure as part of a centrist information system model that would eventually support its operations in the U.S. and around the world.

As one of the first steps in this approach, the company outsourced its global e-mail messaging functions, which it considered a key part of the KPMG deal. "We use a mantra, 'Maintain the brain, outsource the brawn,'" White explains. "We try to define what the best solution is for a professional service firm such as ourselves. We structure what we're looking for in statements of work and service-level agreements, and then go to the market and find someone who can manage those price points."

Previously, KPMG had transferred its messaging infrastructure to Hewlett-Packard in what proved to be a smooth and successful transition. White took the same tack with BearingPoint, beginning the process of building up the company's own I.T. infrastructure. "We went to Hewlett-Packard and established a data center in Colorado Springs, and that's where our network core was hosted and where we established messaging," he says.

"The Asian offices were among the first to go on the new infrastructure. At the end of the first 12 to 15 months, the aggregate of all the small entities we picked up was about 3,000 seats [out of more than 10,000], so it was pretty small, but we had set up that common center at HP. We had messaging, and a network core."

QUESTION: For year three of Sarbanes-Oxley, do you expect to spend more or less time on documenting your internal controls? Tell us at baseline@ziffdavis.com.

Story Guide
Main Story:
Compliance: How BearingPoint Lost Its Way

  • What Went Wrong?
  • Born Using Someone Else's Infrastructure.
  • I.T. Designed for Growth
  • Danger: Old Boys and SOX
  • Recovering From a Hasty I.T. Rollout.
  • Ironically, Accounting Was a Big Problem.
  • BearingPoint's End Game.

  • Player Roster: BearingPoint
  • BearingPoint's PeopleSoft Roadblock: Training-Resistant Consultants
  • Timeline: KPMG's Long Evolution into BearingPoint
  • Base Technologies: BearingPoint
  • Sage Software: A Friendlier Face Balancing the Books
  • Planner: Calculating Costs of Sarbanes-Oxley, v. 2.0

    QUESTION: For year three of Sarbanes-Oxley, do you expect to spend more or less time on documenting your internal controls? Tell us at baseline@ziffdavis.com.

    Next page: I.T. Designed for Growth

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