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Accenture: Reinventing the Interface Between Business and Technology

Accenture’s recent analyst event in New York was essentially a platform for it to showcase capabilities which it believes are key differentiators, both in terms of its attributes and also highlighting some areas of its portfolio which position it well for current and future profitable growth. The tone throughout was bullish re current and future performance - and recent performance supports this.

  • Last two quarters delivered improving CC y/y topline growth (7% and 8%, after a long spell of CC y/y growth of 3% to 4%)
  • An operating margin for FY 14 (ended August 31) of 14.3%
  • Guidance for FY 2015 is of topline growth of between 7% and 9%, and we should expect incremental margin growth.
  • This is a level of performance that outshines all competitors, with the exception, of course, of some of the largest Indian oriented IT services majors

Just some of the key attributes that Accenture reminded us of:

  1. The breadth of its offerings portfolio, from business consulting through to managed operations, with scale in each of these areas
  2. The intersection of business and technology in all of its offerings
  3. A strong focus on business value across all areas of its portfolio
  4. The global scale of its delivery network
  5. Industry domain expertise
  6. The strength of its alliances and partnerships
  7. Its ability to acquire and stitch together acquired capabilities to develop broader value-based offerings
  8. Its ability to be ahead of the curve in identifying how new and emerging technologies can be leveraged to service its enterprise clients

Some other major vendors possess some or even many of these attributes: Accenture is arguably the only service provider who possesses all eight.

But this is not news! Accenture’s future growth is particularly dependent on the last three attributes listed above.

Technology vision/being ahead of the curve

In the last two years, Accenture has significantly reinvented its portfolio. In FY 2014, it

  • Restructured its organization to align with new market opportunities into four new groups: Strategy, Digital, Technology (applications) and “Operations” (IT infrastructure and BPO)
  • Invested $740m in acquisitions (2.5% of revenue).The company emphasizes acquisitions are done to accelerate organic revenue growth through the addition of new capabilities and offerings

Having made a number of investments in the last few years in acquiring capabilities in the digital space (notably Fjord and Acuity Group), Accenture is now reaping the benefits in Accenture Digital. Launched as a new standalone unit in January, combining the Accenture Interactive, Accenture Analytics and Accenture Mobility units), Accenture Digital is now a $5bn business (17% of the company’s overall revenue), and, states Accenture, enjoying double digit growth. How to succeed in the digital economy is a theme clearly resonating with clients, and Accenture has quickly grown a broad set of offerings to support client’s digital transformation initiatives. Accenture has quickly established a leadership position in an area where many other vendors are only now building or acquiring capability.

"At no stage does Accenture look to follow the competition” (CEO Pierre Nanterme)

Accenture has also been investing in acquiring capabilities, inter alia:

  • In support of its Oracle Engineered Systems strategic initiative (Enkitec, also PureApps)
  • Around the industrial internet (Prion Group, PCO Innovation) also building partnerships (GE, Siemens)
  • To expand its upstream production management solutions and services portfolio (Hytracc Consulting). Upstream oil & gas is an area of focus within the one Operating Group (Resources that is currently soft in terms of growth). It has also developed an SAP-based solution for the oil & gas sector

M&A activity should resort to normal levels of 15-20% of FCF. While most transactions will be small specialist, we would not be surprised to see Accenture go against its normal practice to make a larger acquisition.

“We let others invent, but we innovate” Prith Banerjee, head Accenture Technology R&D

Accenture has a new head of its R&D Labs (ex HP), who has introduced two new initiatives

  • Strategic Innovation Initiatives (SSIs), small teams of people from Accenture Labs working internally within Accenture also with external vendors and clients. One of the SSIs is Industrial Internet: expect to see more acquisition and partnership activity coming from Accenture in this areas
  • Open Innovation: looking at next gen disruptive innovations coming out of tech start-ups Accenture is talking to a number of VC funds on a very regular basis (we are talking monthly/bi-monthly) to identify companies that are developing IP that might be of specific interest to certain clients. This is not quite a seed-funding program (similar to what Infosys and Wipro have recently announced), rather a very interesting approach to identifying tech start-ups that they can introduce to clients.

Investment in Accenture Cloud Platform (ACP)

18 months ago, Accenture announced a $400m investment over 3 years in ACP, and we saw a demo of where ACP is now. ACP offers provisioning to AWS (following a very recent enterprise agreement with Amazon), Azure and NTTData Services, with a billing engine, analytics, and cost reporting. Accenture says it has learned a lot in the last two years: this year, for example, it introduced a discovery feature, to find out what clients have actually bought, also one that enables clients’ own blueprinting. Phase 3 will see new legacy migration capabilities also extending the ecosystem of key partners.

New Opportunities Around Existing ERP

So what about Accenture’s more “traditional” ERP business, which represents around 20% of their overall revenue, and where the market for large scale on-premise implementations is soft? Accenture referred to it calls “high velocity ERP”, essentially moving clients’ ERP platforms from being systems of record to systems of engagement where the ERP remains the backbone of a digital enterprise. This approach, to making an ERP platform quicker to work around, includes building digital wrap tools around the backbone and putting ERP in-memory using technologies like HANA to make it easier to apply analytics, also moving ERPs to the cloud to make scalability of storage easier. As is typical with Accenture, the approach is industry and value led.

Accenture also emphasize that the impact of SaaS on traditional ERP work is manageable with its SaaS projects continuing to get closer in value to traditional SI projects (now only ~15% less), and SaaS activity also potentially including maintenance.

Accenture Operations

Just as IBM is migrating its BPO business from its GTS division to GBS, Accenture is doing exactly the opposite, bundling together its BPO business (which has recently been one of the major growth engines) with its infrastructure services business into the “Operations” Group? Is this simply an expansion of empire for Mike Salvino - or something more strategic? One assumes the latter! The event did not provide an opportunity to delve behind the strategic thinking here, beyond a broad focus in BPaaS; for example, Accenture has already moved Procurian to as an aaS offering. We will be following this with interest.

Accenture stated that 86% of its people in its BPO practice are now aligned by industry: the focus on industry and delivering business outcomes was a recurring theme.

There has been some pruning of the BPO portfolio to what Accenture calls “flywheels" (e.g. F&A, procurement, marketing, mortgage processing). Accenture is looking to take these flywheels to its strategic accounts (it now has 141 Diamond clients) in sole sourced enggements. Accenture has always sought to develop sole source opportunities rom within its existing client base - we detected an even more intense focus on this.

Accenture Strategy: Continues to be a Key Differentiator   

Of course vendors look to mine their existing accounts, but Accenture is at an advantage here because of its consulting capabilities and access to the C suite. And here it has global scale (8k people). Its ability to work with the client at the business/technology interface is clearly a differentiator in an environment when businesses are facing disruption because of changes in technology.

*******************

Just as it supports its clients to prepare for, or adapt to, changing market conditions, Accenture has had to do the same for itself in the last few years (four years ago, it had two years of negative growth). The reinvention of its portfolio has been done smoothly and relatively quickly (certainly compared with some other vendors). And Accenture is not standing still…expect to see different types of partnerships as it builds capability to support clients across different industries benefit from new opportunities around the IOT.  

Comments to this post:

  • Very interesting reading, particularly the 8 key attributes you remind. Where do you see Tech Mahindra's positioning in these attributes?

    Oct 17, 2014, by Sudarshan Chakrapani

  • great question, Sudarshan, but a bit like comparing apples and pears. I don't imagine Tech Mahindra and Accenture often come p against each other in competitive opportunities. I missed the recent Tech Mahindra event in London and also haven't had much interaction with your company recently nor come across clients talking about you - so not best placed to comment...

    Oct 22, 2014, by

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