If technology workers are gold, then why are some of them being treated like scrap metal at big consulting firms?

In recent months, KPMG Consulting Inc., Ernst & Young LLP and PricewaterhouseCoopers LLP have announced collective layoffs exceeding 1,700 people. Analysts and ex-employees say the true numbers run higher. At Andersen Consulting LLP, industry experts and former employees say a round of layoffs is taking aim at consultants. Andersen denies it. The downsizing comes even as the consulting firms try to keep coveted technology workers from jumping ship for Internet start-ups offering lucrative stock options.

Andersen Consulting this month announced plans to invest $200 million in electronic commerce-related ventures on behalf of its employees. The firm also plans to make the process of becoming a partner easier. At the same time, KPMG, Ernst & Young and PricewaterhouseCoopers are feverishly courting new consultants.

So why the hiring while firing? The big consultants are trying to reinvent themselves — as quickly as possible, analysts say. The consulting units, which are set to be spun off from their parent accounting firms this year, are shedding deadwood in a bid to be seen as e-commerce plays before their stock market debuts.

Finding The Fit“We’re hiring people who are totally Internet-integration skilled,” said Elizabeth Brooks, KPMG Consulting spokeswoman. The firm in February laid off 350 people because they “weren’t able to find a fit” in the new KPMG, she said.

The Big Five consulting firms have long been known for their old-economy style. That approach involves tackling projects through drawn-out campaigns using armies of consultants.

Those foot soldiers could install a large software system, re-engineer a business process or provide advice on changing management. And they could bill for thousands of hours while doing it.

In the past few years a new-economy model has emerged in the consulting industry. It uses smaller, nimbler groups of consultants with skills focused on the Internet and e-commerce.

These crack teams might design a client’s Web site, set up an e-commerce engine or create a digital brand. They get in, do the job and get out, often for a flat fee.

That kind of consulting is where the money is, analysts say. There’s more demand for it. Clients pay more for it. Firms that do it receive generous valuations on Wall Street.

So the Big Five are eager to adopt new-economy ways. That inevitably involves shedding traditional consulting areas such as enterprise-software and process re-engineering.

“If it wasn’t Web-related, KPMG Consulting wanted nothing to do with it,”said a former senior consultant at KPMG who left the firm in February. He says partner meetings he attended were dominated by talk of taking the firm public and achieving the valuation of start-up firms like Razorfish Inc. and Scient Corp.

New Economy Issues
Those companies are a fraction of KPMG’s size, in revenue and head count. But because they’re totally dedicated to Internet consulting, they enjoy multibillion dollar market valuations. If the still-private Big Five can shift their focus to the new economy, the theory goes, they will be able to stage blockbuster public offerings the likes of which the market hasn’t seen. But first they have a lot of baggage to jettison. Huge numbers of their consultants still are dedicated to traditional consulting lines. Can those people be retrained? Sometimes, the firms say. “A person who has particular skills and experience that look like a square — you’re not going to be able to turn that person into a diamond shape,” said Cathy Benko, leader of Deloitte Consulting’s e-business practice.

Her firm hasn’t announced any layoffs. Instead it’s subjecting its work force to a massive retooling — or, as the firm calls it, e-tooling — program, where employees will learn Internet skills like Web design and Java programming.

But no miracles are expected. “We’re not expecting the guy who coded (enterprise software maker) SAP tables for the last three years to be the guy who’s going to be the creative component of an online commerce site,” Benko added. Other firms are even less optimistic. “It’s a fundamental question you face: retraining vs. firing and hiring people,” said Larry Parnell, director of public relations at Ernst & Young. The firm is laying off at least 400 consultants.

The pace of change in the market often has a large effect on the choice. “Right now the e-business stuff is moving so quickly that these firms haven’ t been able to turn the enterprise software people into Web people,” said Tom Rodenhauser, president of Consulting Information Services, which follows the management consulting industry. He says it can take 18 months to fully retrain a consultant to work on Internet projects. Because of that, it may be a lot cheaper to lay that employee off and hire a Web-savvy worker who often is right out of college and at a lower salary level.