Accenture Industry Analyst Conference 2019: During a two-day event in early May, Accenture (NYSE: ACN) hosted close to two dozen analysts at its recently opened flagship Innovation Hub, which is strategically located in Salesforce Tower in San Francisco. As part of the event’s “Leading the epic disruption” theme, key topics, including Accenture’s investments in “the Next New,” its partner ecosystem and its talent, were widely discussed, solidifying TBR’s view of Accenture as a market leading vendor but also raising questions about what is next for the company and what kind of disruption Accenture is facing and anticipating.
TBR perspective
Building on the trust and relationships Accenture has built with IT buyers for over two decades has helped the firm become a household name for IT services, but expanding relationships into the C-Suite has been an ongoing challenge. During the conference, Accenture executives often mentioned that many of the company’s digital transformation (DT)-related opportunities stemmed from conversations with the CEO, and as the conference progressed, Accenture Strategy increasingly became a central talking point in presentations and client use-case discussions.
We believe as Accenture continues to operate in a matrixed format, led by its vertical industry experts, the company’s integrated scale and ability to offer locally sourced services through its network of Innovation Hubs and Studios will help it win business against many disrupted rivals. The company certainly has some 500,000 questions to answer for itself and its stakeholders about its future, but in the meantime investments in “the new” will remain central to Accenture’s innovation-led go-to-market strategy as the company transitions from a human capital-focused to a technology-enabled organization.
Even in a hybrid IT services world, it is all about talent — and Accenture knows it
While discussions around talent often come after companies showcase their latest shiny objects in terms of software solutions, as well as their client testimonials, in the case of Accenture, developing a right-skilled and right-sized bench is at the core of what the company is all about. Talent is not a new investment priority for Accenture, whose Global Delivery Network (GDN) has proved to be a differentiator for over two decades now, especially against Big Four and consultancy rivals that still struggle with developing cohesive global strategies and integrated scale.
The company’s constant refinement of what and how skills need to be developed highlights Accenture’s efforts to secure a market-making position in both legacy and new domains. Investing approximately $1 billion annually on training, re-investing 60% on every dollar saved from using automation in service delivery into reskilling, and developing self-learning, analytics-enabled job platforms such as Accenture Future Talent Platform and Job Buddy are some examples of how Accenture elevates the need for upskilling and reskilling talent.
TBR recognizes Accenture is not perfect when it comes to managing multidisciplinary, multigeneration talent, and the company, like many of its IT services peers, is facing attrition challenges. In 1Q19 Accenture’s attrition rate climbed 200 basis points year-to-year to 15%, but remained below the industry average of 16.6%, indicating the company’s brand and employee career plans are helping Accenture retain staff at a higher rate than rivals. While Accenture does not seem to be concerned with rising attrition levels, TBR monitors the trend closely as newly acquired design talent may leave amid a culture clash with the legacy outsourcing, run-the-business personnel, potentially challenging performance in evolving in “the new” areas.
As Accenture’s headcount approaches 500,000, questions about the company’s resource management and employee efficiency metrics are emerging, especially as the advent of cloud and the adoption of “as a Service” model vendors such as Accenture were supposed to drive sustainable nonlinear revenue growth. As TBR’s 4Q18 Global Delivery Benchmark outlines, this goal is still a mirage for IT services vendors including Accenture. TBR does not expect Accenture’s headcount to reach 1,000,000 in the next three to five years, but also, departing from labor arbitrage opportunities will be even harder, especially as the firm embarks on new frontiers such as engineering R&D services, blockchain and quantum where initially the human component will still be critical to develop, teach and manage the applications layer.
The question remains, though: What will Accenture’s organization look like in the next five years? Will it become a single-person company with exclusive access to 500,000 highly skilled, certified freelancers? Will automation really gain traction, impacting the composition of Accenture’s employee pyramid and forcing Accenture to eliminate redundancies? These are questions without an immediately clear answer, but the current environment in terms of talent management and availability leads us to believe Accenture’s future will likely encompass a combination of some, if not all, scenarios.
No single vendor can do it on its own, not even Accenture
While maintaining a workforce bench that can operate in hybrid IT environments remains key to Accenture’s long-term success, managing relationships with core technology partners also adds another building block to the company’s foundation. As seen with talent-based conversations, discussions around Accenture’s ecosystem were part of almost every single presentation during the two-day conference. While Accenture maintains relationships with over 200 technology partners, SAP (NYSE: SAP), Oracle (NYSE: ORCL), Microsoft (Nasdaq: MSFT), Salesforce (NYSE: CRM) and Workday (Nasdaq: WDAY) are the top five platforms that truly move the needle for the company, helping it generate approximately 40% of services revenue. From codeveloping solutions to engaging in joint go-to-market and sales efforts, Accenture recognizes the need to prioritize solutions with specific partners to operate in a more agile way, as the company rapidly departs from being truly technology agnostic.
TBR does not necessarily think this is a bad move considering that the majority of Accenture’s clients operate in one or more of these technology environments, which alleviates the pain points around migrating applications workloads from on-premises only to hybrid IT environments. Additionally, according to TBR’s digital transformation insights research, the majority of DT buyers are in the “extension” phase, which entails buyers adding disruptive technology that allows for significant improvements to an existing ecosystem. While Accenture, like many of its consultancy peers, often approaches client discussions with business outcomes in mind, maintaining functional expertise around a particular technology usually tips the scale in Accenture’s favor, considering that the IT buyer still maintains an active role in the DT services purchasing cycle.
The two-day conference was held at Accenture’s Innovation Hub, located in the Salesforce Tower in San Francisco. Accenture’s relationship with Salesforce, one of the top five platforms contributing to Accenture’s sales, has evolved over the years, especially as Accenture has made eight Salesforce-centric acquisitions, enabled by the Accenture Salesforce Business Group, to reach its current status. The two partners are well intertwined, evidenced by the fact that Accenture is the only partner that works on product and service cocreation with Salesforce as well as the global scale and commitment to training Accenture resources on Salesforce technologies including over 16,500 Salesforce-skilled professionals, 17 global hubs and over 55,000 training hours last year, among other attributes.
TBR does not discount the importance of SAP, Oracle, Microsoft, Workday or any other partners — the first three of which were highlighted heavily during the conference through myConcerto for SAP and Oracle and Accenture Microsoft Business Group as well as through client use cases — but we think the opportunity around Salesforce is somewhat unique considering it is born-on-the-cloud technology delivered in an “as a Service” model, toward which Accenture is moving its legacy and new business.
‘The Next New’ cannot be achieved without mastering the old
While investments in its talent and partner ecosystem may seem to be a continuation of Accenture’s long-term success story, the company did not miss the opportunity to highlight its success in emerging areas including cloud, security and digital, as well as new frontiers such as blockchain and quantum. From client use cases through demos of the company’s proprietary and codeveloped solutions, Accenture showcased its capabilities to drive innovation while drawing heavily upon its experience in application services and managing clients’ operations.
The Accenture Innovation Architecture, which has begun to ride a second wave of opportunities, especially as clients transition from the proof-of-concept stage to the large-scale implementation of their DT initiatives, sits in the center of the company’s strategy in “the new.”
Accenture Ventures, which tracks over 385,000 startups, 30 of which Accenture has invested in across 40 countries, provides access to the talent and IP needed to compete for opportunities in emerging technology areas such as AI and quantum. TBR does not believe startups will truly have a direct impact on Accenture’s financial performance, and one may see these investments as more of a PR move than an effort to deliver tangible outcomes, as Accenture could create a blind spot for itself by not investing in these entities and thereby allowing competitors to do so.
Accenture Digital, which has in many respects become the crown jewel of Accenture’s businesses, was heavily highlighted across all its parts, including Accenture Interactive, Applied Intelligence and Industry X.0. Following the acquisition of Droga5, Accenture Interactive’s story fully centered on the agency’s focus on designing Experiences. While Accenture Interactive is somewhat mature, especially as it relies heavily on Accenture’s legacy application services capabilities to capture share in the mobile and commerce customer experience (CX) markets, Accenture’s investments in creative in the past 18 to 24 months, mainly through acquisitions, have positioned the company to better compete for business from the holding companies. Additionally, Accenture Interactive Operations, which organizationally sits within Accenture Operations, draws on Accenture’s years of experience providing BPO services for clients’ HR, finance, procurement, supply chain and now marketing operations, is a perfect example of how matrixed and well-oiled Accenture’s organization is in terms of process.
Accenture Applied Intelligence, which in many respects cuts across other parts of Accenture, just as analytics, automation and AI do, also plays a central role in Accenture Interactive’s performance and capabilities as the need for developing automated, tailored services requires quality data that can lead to business outcomes at scale. Just like the rest of Accenture, the Accenture Applied Intelligence practice did not grow linearly, but corporate leadership is optimistic as automating the data supply chain will diminish the need for additional data scientists, helping to drive sustainable profitable growth. The third pillar of Accenture Digital, Industry X.0, while the least mature compared to the other two, expands Accenture’s addressable market in areas such as engineering R&D services, IoT, and hardware engineering. Recent acquisitions such as Pillar Technology, Mindtribe and designaffairs, as well as partnerships with Dassault Systemes and Siemens, provide a conduit to Accenture’s efforts and ability to trial, launch and scale a product.
Engineering R&D and hardware services, while utilizing a lot of Accenture’s knowledge of embedded software and/or software engineering support, is somewhat of a new area for the company, and Accenture could face competition from more established vendors. For India-centric rival HCL Technologies (HCLT), for example, engineering R&D services is one of the company’s core service lines and generates about 25% of HCLT’s revenues at about a $2 billion annual run rate.
After attending the Accenture Technology Symposium in February 2019, we wrote that Accenture recognizes legacy systems cannot support innovation at scale. Accenture’s approach to digital decoupling connects clients’ use of legacy mainframe architecture to the world of adopting microservices and containers through evaluating and re-architecting legacy and new systems. As Accenture Technology embarks on opportunities across intelligent software engineering services, AI and automation, transforming processes at scale can be challenging due to hurdles such as change management and data silos. As enterprises demand a more agile and targeted scope for their process transformation, microservices emerge as the go-to architecture for Accenture to deploy as it moves between legacy and new systems, with change data capturing and pub-sub (publish-subscribe) synchronizing key steps.
Accenture also used the conference to highlight its work and investments in what the company calls “the Next New” including blockchain, extended reality and quantum. TBR sees the most immediate use case and tangible results stemming from blockchain, considering the applicability of the technology in many areas, from optimizing business applications through the token economy. As the blockchain leader of one of Accenture’s rivals put it, “We’re just getting rid of paper.” With over 30 of Accenture Innovation Centers and Labs focused on blockchain and over 150 clients engaged globally on blockchain, Accenture seeks to establish a foothold in an emerging technology market that can drive long-tail managed services opportunities, falling in Accenture’s sweet spot. Accenture, however, is not alone in the race for blockchain supremacy, and the company knows it. Big Four rivals appear to be the most challenging contenders, as their heritage in governance, risk and compliance provides them with access to frameworks that can be replicated through the lenses of blockchain technology. In a recent special report, TBR wrote that EY asserts the efficacy of public blockchains to revolutionize business by drawing parallels to the internet evolution that revolutionized social interaction.
Accenture’s play through the software angle in quantum computing mimics the company’s application services heritage and positions it to drive advisory through connectivity and managed services opportunities. Accenture patented a multistate quantum optimization engine and pursued minority investment in 1QBit. (See TBR’s Digital Transformation Insights Report: Emerging Technology focused on quantum for more details on Accenture’s and other software, hardware and services vendors’ investments and positions in quantum.)
Of course, the success of all these investments and “the Next New” technologies would not exist without Accenture Security. While the practice maintains global leadership and P&L, it permeates across every discussion Accenture carries with existing and new clients. Largely focused on lowering the cost of security while increasing capabilities, Accenture Security provides end-to-end offerings enhanced through automation and backed by the partner ecosystem. Just like in other emerging domains, Accenture Security faces increased competition across the spectrum of pure security vendors, one with infrastructure capabilities and consultancies leveraging C-Suite relationships to perform risk assessment through support services. Accenture Security’s focus on managed services while leveraging its global network of security operation centers in both offshore and nearshore locations provides the scale necessary to support global clients, while acquired assets such as those from the iDefense acquisition help Accenture Security elevate the intelligence Accenture Security provides at the chief information security officer level and above.
In conclusion
Riding the wave of the current boom macroeconomic cycle, amplified by Accenture’s appetite for innovation, has paid off. We expect the trend to continue as the company gains traction within its Diamond client base using its investments in non-IT capabilities, while leveraging alliance partnerships such as that with Microsoft will support Accenture’s efforts to enter new frontiers such as the upper midmarket.
