Amid a sea of portfolio offerings, Accenture’s TS&A practice helps the company translate tech into business outcomes

Accenture’s TS&A practice provides path into re-architecting clients’ DT programs 

Accenture’s value proposition continues to revolve around the company’s ability to deliver services through integrated scale, addressing clients’ pain points across the various stages of the advise-build-run life cycle. In mid-December TBR had a chance to hear from the leaders of Accenture’s Technology Strategy and Advisory (TS&A) practice, which, in TBR’s view, has been one of the industry’s best-kept secrets as it provides a bridge between the various parts of Accenture’s organization. Launched following the company’s pivot to the Next-Gen Growth model in March 2020, the TS&A practice is part of Accenture’s Strategy & Consulting business, which is focused on architecting and translating the value of technology to both tech and business clients.

TBR estimates Accenture’s IT consulting revenue, which we believe largely maps to the TS&A practice portfolio, grew 30% year-to-year to $4.7 billion in 2021. Backed by over 4,000 dedicated practitioners across seven capability groups — Cloud Acceleration and Innovation, Data-led Transformation, Enterprise Agility, Future Tech, Technology Value Realization, Trust and Security, and Tech Mergers and Acquisitions. Accenture Cloud First is a significant contributor in the TS&A’s performance.  

With tools such myNav, myDiagnostic and Transformation Office at its disposal, TS&A, in TBR’s view, has an opportunity to further accelerate its performance, provided the practice’s account management does not overlap with that of other parts of Accenture’s business, especially as the unit also targets Accenture’s traditional buyer personas, including the CIO and chief technology officer (CTO). Accenture sees CIOs and CTOs as the “new corporate rock stars,” which is a logical position considering Accenture’s established enterprise footprint and decades-long relationships with these personas.

TS&A strives to elevate the value of Accenture’s portfolio around its ability to include innovation while also supporting CIOs and CTOs in, as Accenture calls them, the “5Rs”: Resilience, Restructuring, Reinvention, Reskilling and Reduction. We see Accenture bringing innovation into these discussions in two ways: by embedding and relying on its network of luminaries, who can infuse cross-industry use cases to support engagements; and by utilizing its global network of innovation hubs.

With Accenture again investing in physical centers, including the recent openings of a smart-city-centric hub in Singapore; Innovation Center for Cloud in Indonesia; Advanced Technology Center in Thailand; Innovation Showcase at Expo 2020 in Dubai, United Arab Emirates; and Interactive Studio in Munich, Germany, we believe TS&A has a new set of opportunities to increase awareness of the practice across the company’s broader portfolio, especially as the practice seems to have been withstanding the industry trend of increased employee turnover, with flat attrition over the past year. (See TBR’s Innovation and Transformation Centers Market Landscape for additional details.)  

TBR views Deloitte Digital as the most direct competitor to TS&A; however, Deloitte’s member firm structure often challenges Deloitte Digital to execute on a cohesive strategy, creating an opening for TS&A. Relying on industry- and function-specific playbooks, which Accenture updates as often as every six months, also helps the company stay abreast of new trends and support clients through their transformation agendas. Additionally, the exclusive alignment of TS&A’s portfolio capabilities with partner offerings enhances the practice’s value proposition.

For example, TS&A aligns with Amazon Web Services, Google Cloud and Microsoft Azure for industry solutions; with Atlassian for enterprise agility; with Celonis, ServiceNow and Splunk for data-driven transformation (since we spoke with TS&A’s leadership, Accenture has expanded its relationships with Celonis and Splunk and recently launched the Accenture Splunk Business Group); and Apptio for technology value. This strategy could disrupt Accenture’s partner model if it scales up, especially as the company continues to tout vendor agnosticism. In the long term, though, we believe as services vendors retune their partner messaging and go-to-market efforts to meet enterprise buyers’ expectations, pivoting from being vendor agnostic to capability aligned will help separate winning vendors from laggards. Accenture is in its typical market-making position, and the TS&A practice could signal the company’s plans to make a market-leading change once again. ​ 

TBR covers Accenture’s financial and go-to-market strategies extensively throughout our Services, Digital, Cloud and Telecom research streams. Please see the author of this blog for further questions on Accenture’s TS&A practice.  

Accenture and CHROs connect people and work during COVID-19

In the early days of the nationwide shutdowns, members of the Accenture Chief Human Resource Officers (CHRO) Forum saw the storm brewing, compelling them to think creatively. With swift action and support from CEOs, HR leaders from Accenture, Lincoln Financial Group, ServiceNow and Verizon mobilized their efforts and capabilities and developed a solution that facilitates continued employment. Accenture stood up People + Work Connect, an analytics-enabled platform, with the goal of helping enterprises sustain business continuity by allowing human resources to move to meet demand.

What it is and what it is not

TBR had a chance to discuss the nuances of the People + Work Connect platform with two of the architects behind it, Accenture Talent & Organization/Human Potential Lead Eva Sage-Gavin and Work & Workforce Lead Nicholas Whittall, to understand their motivations for and expectations of the platform.

With Accenture acting as the technology provider, rather than the mediator between organizations’ supply and demand workforce needs, the company’s role is largely centered on assembling and managing the collation and design, and building and running the platform. A team from Accenture Liquid Studio built a business-to-business, fit-for-purpose platform to help companies match available workers to open jobs based on select criteria including location, experience and number of openings. The platform is currently available for free, and Accenture leaders have said the company “won’t ever charge.”

While TBR recognizes the noble approach Accenture and its partners have taken to develop, manage and offer the platform free of charge, in the long run we believe the company is gaining value from the effort (discussed below). With design principles including “progress over perfection,” Accenture developed the platform in 14 days from pilot to launch, reaching its goal of a “Minimally Loveable Product,” rather than an all-encompassing solution. TBR sees Accenture’s approach here as another example of COVID-19 accelerating change across IT environments and, more broadly, business policies and practices.

At the same time, both Sage-Gavin and Whittall reinforced that the platform’s simplicity and scale appealed to businesses looking for immediate solutions to massive problems. We see the simplicity of the data request — Accenture stayed away from using personally identifiable information when developing the platform — as critical to the platform’s uptake and success, such as when two call center companies — one laying off workers and one looking for experienced call center staff — can use the platform to ensure a minimal number of jobs are lost in particular locations. Additionally, features such as a depository for ideas, questions and advice, called a “Knowledge Exchange” on the platform, can provide insights into best practices on benefits and evolving HR practices.

We see such insights impacting not only the HR role but also the broader organization. As COVID-19 abates, revised HR policies and the lessons learned through using the platform to address challenges during the pandemic will likely influence future staffing and IT needs, thus affecting organizations’ planning and financial cycles. As Accenture maintains an arm’s length distance from how companies handle the recruiting and onboarding processes once the match is made, the company is able to provide data concierge services, identifying which data is most important to future refinements of existing ERP systems and HR platforms.

Accenture and COVID-19: Challenges ahead

COVID-19 will pressure Accenture’s short-term performance but could accelerate adoption of automation as the company maintains pricing agility

While a global health pandemic is not something vendors typically prepare for as part of their business continuity plans, for many, including Accenture, the COVID-19 outbreak will certainly test the resiliency of their business models. As a company that came out strong after the financial crisis in 2008 and 2009 with total revenues more than doubled — from $20.9 billion in 2009 to $43.9 billion in 2019 — Accenture has certainly proved that it can navigate the influx dynamics of financially disrupted markets while taking advantage of the advent of emerging technologies.

At large, the shift toward working from home due to COVID-19 will certainly constrain Accenture’s high-touch consulting model, pressuring advisory-centric sales. However, we also see pockets of opportunities, particularly around change management services, where the company can support clients that have not previously adopted work-from-home policies. We see the larger opportunity around integration and management of digital workplace solutions enabled by technology platforms such as ServiceNow and Microsoft Teams. Managing internal knowledge sharing and shifting on-site frameworks to remote will likely be the biggest hurdle as Accenture strives to ensure standardized service delivery. While the company’s Future Systems framework provides a strong foundation to innovate at scale through adopting KPIs centered on outcomes rather than tactical financials, Accenture Interactive’s unit has an opportunity to demonstrate its core value proposition — being creative — as it determines how to best engage with clients during the COVID-19 outbreak.

While we expect Outsourcing, led by Accenture Operations and Accenture Technology, to provide a strong backbone for Accenture’s financial performance, we also anticipate the company’s high reliance on offshore hubs such as India and the Philippines will challenge its global delivery capabilities during the COVID-19 outbreak due to underdeveloped infrastructure, lack of iNet availability and the need for employees to work from home. During the company’s FY2Q20 earnings call, Accenture CEO Julie Sweet said, We have already enabled a very significant percentage of our people to work from home, approximately 60% of our people in our centers in India and the Philippines. … In the Philippines, we’re probably about where we expect to be. In India, we’re still adding.” TBR estimates that over 44% of Accenture’s workforce is housed in India and the Philippines, raising questions about the company’s ability to leverage these two hubs at maximum capacity and the need for distributing workloads to other sites, where working remotely at 100% capacity is more feasible. 

While Accenture’s deep relationship with many of its clients will help the company address these challenges, demonstrating pricing agility will be a must, likely providing an opportunity for greater use of automation for service delivery.

Note: The above text will be included as a scenario in TBR’s 1Q20 Accenture report, publishing April 9. For additional insights, please see this recent special report on Accenture Technology.

‘Every company is a technology company’ is new mantra for post-digital world

TBR perspective

“Every company is a technology company.” That combined description and imperative from Accenture Group Chief Executive—Technology and CTO Paul Daugherty made clear how the company sees its clients now and entering the post-digital future. All companies will need the technological savvy and innovative culture of digital natives while pivoting from pilots to execution. In simple terms, digital is everywhere, so every company must be able to execute digitally, including developing a digital core, optimizing operations and investing in new technology-driven offerings. For Accenture, maturation as a technology company has resulted in an increase in technology-centric headcount, paired with an emphasis on platforms and tools (see below analysis on myNav, myWizard and myConcerto). A new recently announced growth model has shifted former Accenture Technology leader for North America, Annette Rippert, to be the new Group Chief Executive leading the combined Strategy and Consulting services, further cementing Accenture’s role in moving its clients toward a future where “every company is a technology company.” Building on the technology mantra, Accenture can now bring leadership deeply rooted in emerging technologies applied at scale to its strategy, supply chain & operations and talent & organization consulting clients. Based on Rippert’s long-standing emphasis on Accenture’s relationships with technology partners, clients can expect ecosystems and alliances will factor substantially into the company’s strategic advice as the post-digital future nears. 

Following Daugherty’s presentation, Accenture CIO Penelope Prett emphasized the role cloud continues to play in Accenture’s own digital journey, even describing cloud as “mandatory to capitalize on innovation.” Prett noted that roughly 95% of Accenture’s applications reside in the cloud, with adoption of some legacy architectures still a challenge. Among the lessons Accenture has drawn from its own experience are the need to consider the pace of business change and the need to account and plan for interoperability and long-term simplifications. Echoing Daugherty, this imperative to move to cloud at scale and to innovate plays well into Accenture’s overall go-to-market strategy around technology enablement.

Overall, Accenture’s belief that “Every company is a technology company” raises questions about how the company will engage with its clients going forward. Accenture has excelled at developing talent with specializations and exceptional, often industry-specific skills. As the company shifts toward assembling teams with diverse talents and skills and takes those teams to scale, how prepared is Accenture’s middle management leadership? What resources have they dedicated to training the military equivalent of majors and lieutenant colonels? Prett spoke of teams assembling within hours, rather than weeks, which provides a tremendous boost to productivity, provided leadership can keep up.  

In addition, Accenture’s evolving approach to industries will come under pressure from two forces. Clients, according to Accenture and its peers, increasingly look beyond their own industries for best practices, recognizing that emerging technology solutions typically start with horizontal capabilities applied within an industry and business context. Internally, Accenture must continue to share broad, industry-agnostic best practices across the entire company, even as it develops a common language, separate from industry. Secondly, ecosystem partners such as Google (Nasdaq: GOOGL) and Amazon Web Services (Nasdaq: AMZN) are not organized by industry, which may make it easier for Accenture to align with those hyperscalers. Though more traditional partners, such as SAP (NYSE: SAP), pushing an industry-led approach, through initiatives such as Model Company, may challenge Accenture’s ability to manage competing ecosystem pressures.

The Accenture Technology Symposium brought together over 200 Accenture (NYSE: ACN) clients, along with industry leaders and practitioners. Similar to last year’s event, Accenture discussed and showcased disrupting technologies in areas including cloud, blockchain, AI, automation and security while using client case studies and testimonials to highlight Accenture’s innovation-led approach to solving business problems.  

AI, Accenture and Amazon: HITS acquisitions update 2020

Accenture’s steady appetite, Amazon’s potential new offering and Google’s uncertain moves

Accenture’s acquisition of Clarity Insights follows the company’s INTIENT purchase and rounds out a typically active acquisition year for one of the leaders in TBR’s HITS benchmark. Clarity Insights brings Accenture AI and machine learning capabilities, 350 healthcare data scientists, and healthcare industry clients. As noted in our most recent full report on Accenture’s HITS business, “Accenture targeted the AI opportunity in life sciences in mid-2019, launching its INTIENT platform for collecting, storing, monitoring and analyzing data from life sciences clients’ business environments. The platform leverages Accenture Applied Intelligence to provide AI and analytics services, improving efficiency and data management.” Beyond extending Accenture’s capabilities, the Clarity Insights acquisition reinforces Accenture’s strategy around AI and life sciences that the INTIENT purchase supported. The report adds, “TBR believes Accenture must foster industry-specific partnerships to extend the capabilities of INTIENT and drive traction for the platform in the industry.” TBR will closely track how Accenture’s partnerships evolve and how the company drives new revenue based on these acquisitions.

Echoing Accenture’s focus on AI, Amazon acquired Health Navigator, a platform designed to foster more expeditious collaboration between healthcare providers and patients, in part through natural language processing and enhanced analytics. Amazon reportedly purchased the company amid efforts to build out Amazon Care, its in-house healthcare services, which it launched in September 2019. On the surface, Amazon’s healthcare-related acquisitions and moves denote neither an immediate threat to traditional HITS vendors nor a clear signal Amazon intends to become a different kind of player in the HITS space. Analyzing Amazon only on the surface would be foolishly shortsighted. Once the company irons out the challenges within Amazon Care, including fully integrating Health Navigator, TBR expects the company will craft a new offering for Amazon clients, potentially starting first with healthcare joint venture partners JPMorgan (NYSE: JPM) and Berkshire Hathaway (NYSE: BRK.A; NYSE: BRK.B). At 1.2 million employees for those three companies combined, Amazon would have a sizable test bed for enhancing current capabilities and developing new offerings. If Amazon can demonstrate an ability to provide top-notch healthcare services for its own employees and a few select partners, every household will wonder if the first step in getting healthcare should start with, “Alexa …”     

In acquiring Fitbit, Alphabet (Google) alarmed some data privacy and industry analysts concerned that the search engine and advertising giant bought the wearables company to gain access to massive amounts of personal, and specifically healthcare-related, data. Both companies’ executives declared data protections would be unchanged and the underlying reasons for the acquisition centered on Fitbit’s expertise and intellectual property around wearable devices and health-tracking applications, platforms and user experience. In TBR’s view, acquiring Fitbit conforms with Google’s overall expansion strategy and specifically boosts the company’s potential role in the overall HITS space. Enhancing Fitbit’s platform with Google’s AI capabilities could further minimize perennial HITS challenges, such as around data privacy and population health, but only if Google can manage the delicate tasks of leveraging user data without violating privacy, crafting and enhancing algorithms that improve the user experience, and maintaining the streamlined seamless flexibility of Fitbit even as the data flows into the highly regulated healthcare ecosystem.  

Accenture’s 3 I’s of the future: Integrated, innovative, impactful

Accenture’s Jan. 13 announcement of plans to change its growth model from Operating Groups aligned to profit & loss (P&L) to a geo-centric alignment as of March 1 sent a clear message to the IT services market. Many peers look to Accenture as the go-to business and account management model, and this change, guided by recently appointed CEO Julie Sweet, aligns with the meaning behind the company’s name, “Accent on the Future,” to set the course for the ever evolving company’s operating model. As Accenture continues to go to market by industry and expand its global industry programs, doubling down on executing through integrated scale will further strengthen its market-making position. As Accenture describes it, “These changes are designed to help extend market leadership, drive significant value for all stakeholders and continue to deliver market-leading growth.”

TBR Perspective

Accenture’s changes have yet to take effect, but they are certainly raising the eyebrows of many of the company’s rival executives, especially as some would say, “Don’t fix what isn’t broken.” Ultimately, we do not believe much will change for Accenture, especially as it pertains to the company’s account management approach. It will certainly create a healthy dose of internal competition between the different regions. It will also likely result in a certain level of turnover, which rivals could take advantage of. But, the increased investments in industry development programs will continue to provide Accenture with the necessary expertise to speak to line-of-business buyers, as Accenture Innovative Architecture continues to stitch together all parties involved, comforting stakeholders that business continues as usual.

Doubling down on developing security-wrapped functional technology expertise, executed through Accenture Technology, will provide the backbone for long-tail “as a Service” opportunities both in the software and infrastructure layer as Accenture Operations, which will be led by 24-year Accenture veteran Manish Sharma, will stay strong providing managed services across business processes. Before the announcement, TBR estimated that Accenture would reach $50 billion in annual sales by 2021, up from $43 billion in 2019. We are keeping the estimate unchanged as Accenture is increasing the amount and scope of work it performs for its 200 Diamond Clients. The company has also become a household brand, shielding IT buyers in front of their boards adopting the “no one gets fired for hiring Accenture” mentality. Only time will tell how well Accenture does after all these changes, but the company certainly has time on its side for now.

What changes?

For over a decade Accenture has been operating and reporting its financials under five Operating Groups, which accounted for over 40 industry verticals. While we expect the company to continue to provide most revenue information (e.g., industry verticals, “in the new” revenues) as it has been historically, beginning in FY3Q20 Accenture will reorient its primary operating segments toward reporting by Markets (e.g., geos), including North America, Europe and Growth Markets. The three markets are not new ground for the company, as it has been reporting these geo revenue splits for several years. However, within the new growth model they will serve as the beacons for Accenture’s future, enabling the company greater agility. The change will come from the way the P&L will roll up. This shift closely resembles the way the Big Four run their businesses, but Accenture remains a global management company with a single P&L rather than a union of country-aligned member firms. As a result, the consistency in deployment of Accenture’s shared services model supersedes those of Big Four firms that often struggle with who will pick up the bill when cross-country resources are utilized. Accenture also realigned its five businesses, Strategy, Consulting, Digital, Operations and Technology, into four services with the key changes including merging Strategy and Consulting and elevating Accenture Interactive (contact TBR for further discussion of Accenture Digital) as a key service similar to Accenture Operations, Accenture Technology and Accenture Strategy and Consulting.

Combining Strategy and Consulting under one umbrella is not that surprising to TBR considering enterprise sentiment toward the traditional consulting model. As a CTO of a multinational healthcare brand said in a recent interview with TBR: “[Consultancies] need to decide who they want to be. I mean, you’re going to be someone who fights the war. Are you going to be someone who sells arms to people that fight the war, or are you going to be someone who just gives advice? Many of these companies want to be too many things. You can’t be everything to everyone.”

Sustained growth provides Accenture with the flexibility to enact internal and operational changes

In this week’s Accenture report, Senior Analyst Boz Hristov notes, “Accenture’s robust account management capabilities and diversified footprint supported continued profitable growth in FY1Q20 (CY4Q19), leading to increased market share. TBR does not expect major changes to the course of the company’s go-to-market strategy following the announced changes on Jan. 13 to its growth model, as client demand for globally supported, locally sourced services align well with Accenture’s integrated scale. TBR will provide further analysis of these changes during 1Q20.”

Additional assessments from our analyst teams

“As reported in the IT Services Vendor Benchmark, trailing 12-month IT services revenue growth decelerated year-to-year in 3Q19 as competitive pressures in traditional and emerging IT service areas, such as digital, cloud and cybersecurity, combined with unfavorable market dynamics tied to rising macroeconomic uncertainties and pockets of tight spending, slowed vendors’ revenue performance during the quarter. Average profitability for benchmarked vendors contracted year-to-year in 3Q19, and five of the top 10 operating margin leaders experienced the negative trend. Some of the vendors are finding it hard to balance addressing revenue pressures with investing in portfolio expansion, talent development and service delivery improvement such as through automation.” — Elitsa Bakalova, Senior Analyst

“In 4Q19 Wipro announced the opening of multiple centers globally. Specifically, Wipro opened a next-generation engineering and innovation center in Virginia that will focus on domain-centric use cases and add 200 jobs to its workforce of 500 in the area. Further, Wipro launched a NextGen Cyber Defense Center in Australia with plans to hire 100 cybersecurity personnel. TBR believes the new centers are aimed at diversifying Wipro’s APAC revenue base by driving traction with Australian government agencies for services like cyber resiliency and digital protection, supported by Wipro’s plans to open additional centers in Australia.” — Patrick M. Heffernan, Principal Analyst

On Wednesday Analyst Stephanie Long and Principal Analyst Geoff Woollacott will host a live webinar on the 2020 outlook of the data center market, including how data center vendors are investing in various emerging technologies to augment their portfolios and maintain relevance as legacy portfolios become commoditized. Register today for an opportunity to participate in this exclusive Q&A!

Mixed results expected in the U.S. federal sector for IT services vendors

Earnings season for federally focused IT vendors begins the week of Oct. 21. Senior Analyst John Caucis has been tracking Northrop Grumman Technology Services (TS), General Dynamics Information Technology (GDIT) and Raytheon Intelligence, Information and Services (IIS) ahead of their 3Q19 fiscal earnings release. 

Raytheon IIS is expected to be the top performer among the first group of companies to tender their financial performance, owing to new contract signings in the lucrative cyber and space sectors and expanding project volumes on existing programs in these segments. Growth is likely to moderate in 3Q19, though this is expected with the ramp down of the Warfighter Field Operations Customer Support (FOCUS) program. Some of the lost Warfighter FOCUS revenue will be offset by a recent rise in domestic bookings that is converting to revenue on IIS’ top line while IIS continues expanding its overseas footprint.

Northrop Grumman TS’ recent sales slide is expected to continue in 3Q19, though we also expect the pace of TS’ contraction to continue moderating as the impact of large engagement losses wanes and bookings with sustainment, logistics and modernization programs strengthen.

The CSRA acquisition is no longer inorganically lifting GDIT’s revenue, and recent business divestitures (GDIT’s call center and 911 businesses) are expected to further erode GDIT’s revenue base. The expiration of a handful of large engagements in 3Q19, combined with the expiration of those in early 2019, will exacerbate the impact of the aforementioned issues on GDIT’s performance. Cross-sales with the Aerospace and Mission Systems segments of General Dynamics are helping offset these headwinds, as are the large-scale awards GDIT is increasingly booking, but a complete return to top-line growth is not expected until 2020.

Additional assessments publishing this week from our analyst teams

Driving innovation across its North America client base via a senior leadership team strengthened by its new Digital Transformation Office and establishing an Application and Technology Services practice will enable Atos to ramp up activities with clients around improving business operations and results through next-generation solutions. The next step for Atos is to successfully cross-sell its solutions by explaining the company’s capabilities to internal sales and delivery teams and to existing clients, as well as to effectively deliver services to grow revenues and improve profitability in North America. Elitsa Bakalova, Senior Analyst

With Atos’ 3Q19 earnings release TBR expects cloud will remain a vibrant segment for Atos, and revenue growth in the segment will continue to outpace the company’s total revenue growth. Atos’ cloud business will be positively affected by increased activities with clients, such as around transforming legacy applications and infrastructures to cloud, orchestrating hybrid cloud, ensuring cloud security through services and IP-based solutions, and providing cloud-enabled IoT solutions. Collaborating with clients’ IT and business stakeholders during cloud transformations and adding industry expertise will improve Atos’ ability to drive business outcomes for clients through cloud. — Bakalova

TBR expects six consecutive quarters of bookings growth and cross-selling opportunities to clients that came from recent acquisitions such as Leidos Cyber will sustain Capgemini’s growth momentum in 3Q19. Enhancing client relationships and industry expertise, such as through the acquisition of KONEXUS Consulting and the proposed acquisition of Altran, and approaching clients’ CxOs will improve Capgemini’s ability to access budget stakeholders and sustain revenue growth. — Bakalova

With a robust legacy client base and deep relationships with key technology partners, Accenture’s cloud business will continue to flourish. Accenture is doubling down on Google Cloud, adding another node to its multicloud management strategy. Additionally, Accenture Security continues to provide the trust needed to win new buyers and fuel cloud opportunities. Boz Hristov, Senior Analyst

Though Verizon will continue to trail T-Mobile in postpaid phone net additions for the foreseeable future, Verizon remains able to capitalize on its reputation as a premium wireless service provider to attract customers willing to pay a higher price point for the operator’s network coverage and premium unlimited data plans. Additionally, aggressive cost-cutting and digital transformation initiatives are helping improve profitability. Steve Vachon, Analyst

HCL Technologies’ (HCLT) acquisition activity and efforts to strengthen in-demand portfolio offerings generated double-digit growth in 2Q19. We expect HCLT will leverage its partner network to gain access to an expanded client base and lead with its expertise in Engineering and R&D Services to support its ability to differentiate and compete against peers as well as maintain growth momentum in 3Q19. Kelly Lesiczka, Analyst

Growing traditional revenues in IT services remains a challenge

TBR’s quarterly IT Services Vendor Benchmark published last week, with the following comment from lead Senior Analyst Elitsa Bakalova: “Vendors are scaling transformational portfolios; however, lingering growth challenges in traditional service areas challenge revenue performance. Trailing 12-month IT services revenue growth, at 1.9% year-to-year in U.S. dollars, was down 140 basis points sequentially in 2Q19 and 670 basis points against the year-ago compare. While vendors are not making major downward revisions in revenue growth targets for 2019, revenue growth for the benchmarked vendors has been decelerating due to growth challenges in commoditized traditional service areas; increasing competitive pressures, especially around advisory, implementation and management of next-generation solutions, such as transformational engagements around digital and cloud; and potential macroeconomic uncertainty.”

Additional commentary

“This week TBR publishes its 3Q19 IBM Initial Response, focused on IBM’s corporate and Systems Hardware performance. As the first formal report since the announcement of IBM’s z15 in September, this report will dive into some of the implications of this new launch across the broader portfolio while continuing to provide analysis on IBM’s quantum computing investments and developments. Implications of the Red Hat buy will be highlighted in this report as well, but deeper analysis on this topic can be found in TBR’s IBM Cloud Initial Response. Be on the lookout for TBR’s 3Q19 IBM full report, which publishes on Nov. 6, for a more in-depth look at these topics.” — Stephanie Long, Analyst

“IBM is using its advisory, digital design and technology expertise to win and execute holistic transformational projects and drive management consulting revenue growth in 2019. Value-led and IBM-asset-powered solutions; collaborative innovation, such as in the IBM Garage facilities; and specialized consulting expertise and talent, such as in Global Business Services’ Digital Strategy & iX, Cognitive Process Transformation and Cloud Application Innovation segments, enable IBM Services to position as a digital reinvention partner for clients’ cognitive enterprise journeys.” — Bakalova

“As Julie Sweet takes over the helm, Accenture will continue to capitalize on its momentum, targeting Diamond clients by deploying industrialized, AI-enabled solutions. In FY20 we expect investment in ‘the new’ to help the company expand wallet share within existing businesses as well as position for new logo opportunities, inching total sales from ‘the new’ closer to 100%.” — Boz Hristov, Senior Analyst

Additionally, join TBR’s Professional Services team Oct. 16 for a webinar and Q&A on India-centric vendors, including how they compare to leading IT services vendors and which IT services vendors have the most to lose due to sustained success among those that are India-centric.

Interested in learning more about IT services, cloud, data center and IoT?  Contact TBR today!

Executive change at Accenture portends changes for the market leader

With Julie Sweet appointed the next CEO of Accenture and David Rowland named the executive chairman of the board, the company doubles down on its proven go-to-market strategy and delivery frameworks. However, as Accenture strengthens its core as a technology organization and Accenture Technology plays a pivotal role in North America’s performance (Sweet was previously CEO of Accenture North America), TBR Senior Analyst Boz Hristov says a couple of questions remain:

  • Will Sweet bring a clear vision and execution strategy for the company’s IP, in particular around monetizing it?
  • Should Accenture consider spinning off its Accenture Software business as a separate entity and launch a mature startup-like software organization?

We do not expect major changes in Accenture’s strategy and/or performance in the short term; however, as with any new CEO, one should always expect some degree of change. Only time will tell if that change will be minimal or involve a 180. As TBR recently noted, Accenture delivered record-breaking quarterly revenue, with growth increasing 3.8% year-to-year in USD (8.4% in local currency) to $11.1 billion in FY3Q19, as the company’s aggressive investments in “the new” are paying off, as the segment now contributes over 60% of total sales and expanding at double digits in constant currency. While many of the new opportunities for Accenture stem from investing in innovative offerings (e.g., Industry X.0) and building out relationships with new buyers, demand for application services in connection with adopting intelligent ERP systems, enabled by key partners such as SAP, Oracle, Microsoft, Salesforce and Workday, drove double-digit revenue growth in local currency, with the segment generating 40% of sales.

Additional assessments publishing this week from our analyst teams

Ericsson has made significant progress in its latest restructuring initiative, leading to higher margins and a more focused go-to-market strategy. The company has also lately been helped by the ongoing deployment of 5G and 5G-ready networks in the U.S. and, to a lesser extent, South Korea. U.S. spend on 5G will accelerate as operators aim to gain a competitive advantage, and Ericsson is positioned to capitalize. In our 2Q19 Ericsson Initial Response, we will examine Ericsson’s continued restructuring progress and monitor its status as a leading 5G RAN supplier. — Michael Soper, Senior Analyst

TBR will publish its 2Q19 Oracle Cloud report on Thursday, discussing where Oracle sits in its quest for cloud dominance, the status of autonomous database adoption and the expected impact of Oracle’s alliance with co-AWS-rival, Microsoft Azure. — Meaghan McGrath, Senior Analyst

Application software vendors continue to realize healthy growth of subscription revenues, accompanied by accelerating declines in licensing, as reported in the upcoming Applications Software Vendor Benchmark. Application vendors aggressively pursue cross-selling of subscription solutions to generate scale and protect operating margins as the cloud sales mix increases. This is particularly true for multiline vendors with substantial legacy license bases, though these vendors are well positioned to upsell existing customers to cloud alternatives by emphasizing the value of deploying managed, unified suites between the front and back office. — Meaghan McGrath

SAP will release its 2Q19 earnings on Thursday, uncovering the near-term impact of its highly transparent restructuring effort. TBR will discuss this, as well as portfolio developments related to C/4HANA and Qualtrics application releases, in our SAP Cloud Initial Response, which will publish on Friday. — Meaghan McGrath

IBM’s acquisition of Red Hat officially closed on July 9 and will impact the trajectory of the business for the remainder of 2019 and beyond. TBR’s Initial Response report will touch on this and other developments at IBM in 2Q19, including within the company’s Systems Hardware business. — Stephanie Long, Analyst

IBM Services continues with its portfolio realignment initiatives to deliver higher-value and higher-margin services that integrate technology and industry expertise and enable clients’ digital reinventions. While IBM Services’ activities around advising, building, moving and managing next-generation technology solutions are increasing, it will take time before the shifting business mix returns sustainable revenue growth. — Elitsa Bakalova, Senior Analyst

On Friday TBR’s 2Q19 IBM Cloud Initial Response is publishing, detailing the company’s last full quarter without Red Hat. Recent and ongoing portfolio investments, particularly at the platform layer, are expected to help boost IBM’s cloud revenue in the second quarter. — Cassandra Mooshian, Senior Analyst

TBR’s 1Q19 Hosted Private Cloud Benchmark discusses how vendors with hybrid PaaS and IaaS portfolios that span vendor and customer data centers are well positioned to capture additional hosted private cloud market share. IBM and Google continue to enhance their Kubernetes-based platforms to be increasingly infrastructure and environment agnostic while Amazon Web Services and Microsoft focus on hybrid cloud stacks, with emphasis on the IaaS layer. — Cassandra Mooshian