A New Spin On Outsourcing

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Looking ahead, Accenture's biggest challenge actually stems from its success over the last few years. While the company has managed to grow its business in the past decade at close to 20 percent annually, analysts say it's going to be hard-pressed to keep growth and margin levels on par with Wall Street expectations.

It's a challenge that Accenture's management is well aware of,regardless of Wall Street. "We are very committed to growing faster than the competitive set in our industry segment," James says. "Nothing good happens unless you are growing."

But a key difference between Accenture and some of the other members of that competitive set, including IBM Global Services and EDS, is that the company still derives the bulk of its revenue from high-margin, high-touch services, such as consulting and integration, while the latter have built sizeable recurring revenue streams from low-margin services that are easier to grow quickly.

"We're approaching a $12 million business, so the challenge is ensuring that we can master global scale and the growth of being a large company while still be agile and responsive, close to the market," Forehand says.

That's why Accenture's outsourcing business, which some analysts estimate to be approximately $2 billion a year, will ultimately play a major role in shaping the Accenture of tomorrow. To put that into perspective, Accenture expects its high-margin consulting business to grow by just 1 percent in the first quarter of 2002, while its business transformation outsourcing is expected to increase by 32 percent.

And with companies like Gartner Dataquest predicting that the North American IT outsourcing market will hit almost $160 billion by 2005, outsourcing becomes an obvious choice for a company the size of Accenture eyeing new opportunities.

But becoming a global leader in outsourcing that can compete for multibillion-dollar contracts won't be easy. Executives from some of Accenture's largest competitors, including EDS, have told VARBusiness that Accenture doesn't have the scale or range of services in outsourcing to compete for the largest global projects. Forehand, of course, wants to prove them wrong. So, he's attacking several fronts.

At the low end, Accenture's outsourcing business comprises such things as outsourced data centers, managed hosting and services designed to reduce operational costs. Then there's the business-applications layer, where Accenture delivers application-management services around software packages, such as Oracle, PeopleSoft and SAP, to address specific business issues. After that comes the business-process layer, including e-procurement and HR outsourcing services.

But the pinnacle of Accenture's outsourcing strategy is its "business-transformation outsourcing," which includes collaborative relationships that fundamentally change the way clients' businesses operate. The idea is that Accenture works as a strategic partner with a client, sharing risks and gains to help them turn business roadblocks into competitive weapons. Performance is measured by gains in share price, market position and return-on-capital.

"Through the outsourcing vehicle, you are able to ensure the benefits that were designed can actually be achieved," says Martin Cole, managing partner for Accenture Solutions Operations. "So you have this speed and control over the delivery."

One example is the work Accenture is doing with England-based grocery retailer Sainsbury's, supporting the client's overall IT operations through outsourcing, while also streamlining its supply chain, Web presence and overall technology infrastructure. Another is the London Stock Exchange, which has been working with Accenture for the past several years to replatform its technology from old mainframe computing to client-server and Net-centric architectures.

Forehand believes this focus on business-transformation outsourcing will ultimately separate Accenture from other companies that offer a mix of consulting, integration and outsourcing services.

"We don't want to back away from being seen as someone who brings the best consulting, innovation and ideas to clients, but our clients are telling us they have a lot of smart people with good ideas, too. They just need execution," Forehand says. "We are uniquely positioned to fit into this intersection of business and technology capability to drive shareholder value for clients."

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