As part of its much-hyped internet push, Cisco Systems Inc yesterday handed over $1bn to invest in accountancy and consultancy firm, KPMG. The New York based company, one of the Big Five systems integrators, will use the money to hire an extra 4,000 internet engineers who will work exclusively on Cisco accounts from six new sites.
The agreement will see Cisco supply the hardware while KPMG provides the support, services and software around a raft of IP- based business functions such as procurement and sales tracking. The majority of the 4,000 new engineers will be hired within the next 18 months and KPMG said that it will also build six new ‘Internet innovation centers’ using money from the investment. The aim is for Cisco’s 6,000 strong sales force to refer business to KPMG as part of the networking vendor’s attempts to win share in the booming e-commerce market dominated by the likes of IBM.
The KPMG-Cisco pact extends a six-year relationship between the two companies that saw KPMG manage the transferal of Cisco’s own infrastructure to internet-based technology. For the San Jose networking vendor, the alliance is a way to ramp up the number of Cisco-trained engineers without having to set up a dedicated consulting division of its own; something which Cisco says it neither has the resources, nor the inclination to do. While Cisco engineers can help customers install and integrate Cisco kit, the company doesn’t offer systems integration on a grand scale, which is what KPMG does for a living. Cisco hopes the move will help it to win over more of the bigger service providers, which are used to dealing with the Big Five and don’t tend to partner with single vendors.
Internet services are becoming an increasingly important area for the likes of the Big Five, but they are finding steep competition from the traditional telecoms equipment providers like Lucent and Nortel which have their own integration and services divisions, a spokesperson for Cisco said. This is why they are looking to partner with Cisco, he added. The deal is an exclusive one for KPMG for the next five years, but not for the networking vendor. Customers can expect similar investments from Cisco in the other large consulting firms in the near future, the spokesperson said.
The announcement came on the same day that KPMG reaffirmed its August 1998 commitment to pursue an initial public offering for part of the consulting business. A KPMG spokesperson said that up to 30% of the business could be offered through this means. Although Cisco’s equity stake will amount to less than 20%, this could mean that about one half of the shares of the newly incorporated company – KPMG Consulting – would be out of the hands of KMPG and in the control of the networking giant.
This is why it’s not certain the systems integrator will get permission from the Securities and Exchange Commission to go ahead with the deal. It’s highly possible that the SEC might scupper the plans altogether, deeming them to be in violation of its auditor independence rules. While KPMG doesn’t audit Cisco accounts, the thinking could be that it’s bound to audit some of Cisco’s partners, if not now then definitely at some point in the future, and that would compromise the company’s impartiality.
The same argument means that KPMG also faces resistance from the SEC over its planned IPO. This has now been referred to the SEC’s Independence Standards Board (ISB) from which a decision is expected by spring 2000. However, a KPMG spokesperson was confident that the problem would be overcome by the date stated. á
