Gartner Addresses Enron’s IT Impact

New pressures on the IT enterprise

• By Chris McConnell
• 02/12/2002

While the reluctance of top Enron executives to talk is making headlines, Gartner Inc. last week commented on Enron's effect on high-tech firms. The analyst firm says fallout from the scandal may affect enterprises' dealings with integrators.

Specifically, Gartner believes firms that integrate auditing and consulting will be exposed to new pressures, if not regulations, in the aftermath of Enron's collapse and the attention paid to Arthur Andersen LLP's mix of auditing and IT services. Gartner says both consultancies and enterprises will take care to avoid linking accounting and IT contracts to reduce the appearance of impropriety.

Not surprisingly, enterprises are advised to contract IT and auditing services from different organizations. At the bare minimum, Gartner says companies should solicit competitive bids from integrators and auditors and create a paper trail to ward off speculation about improper relationships.

Finally, Gartner says enterprises can use the Enron debacle to their advantage when negotiating contracts with consultancies. Combined with the recession's flat revenues, Enron's wake has forced consultancies to become more accommodating to customers. Enterprises will thus be able to bargain for favorable pricing and risk allocation.

Aside from Andersen, Deloitte Touche Tohmatsu LLP and PricewaterhouseCoopers LLP will feel the most pressure to decouple auditing and consulting divisions. On the same day Gartner issued its report, Deloitte announced it would separate its IT and accounting divisions and watch contracts carefully for conflicts of interest.

Since its botched attempt to sell its PwC Consulting unit to Hewlett-Packard Co. in late 2000, PricewaterhouseCoopers has clarified its intent to shed its IT division. It now plans to spin the unit off as a public company this year, a strategy that seems especially sound in light of Enron.

Gartner also believes the diminished reputation of Andersen and the other consultancies may create an opportunity to IT-focused services organizations such as IBM Global Services and EDS. Because these organizations offer no auditing services, there are no potential conflicts of interest.