Managed services News
Accenture CEO: ‘Companies Will Need To Reinvent How They Operate With AI At The Core’
Joseph F. Kovar
‘Our clients are at different starting points. All are interested in AI, and particularly generative AI. But most recognize the work ahead of them to get their data, people and processes ready for AI. To reinvent requires a strong modern digital core,’ says Accenture CEO Julie Sweet.
Artificial intelligence, especially generative AI, has become a huge new opportunity for Accenture thanks to customers’ demand for new ways to transform their business and to the investments that Accenture has made.
That’s according to Accenture CEO Julie Sweet, who Thursday in her prepared remarks to financial analysts during the company’s third fiscal quarter 2023 financial conference call said businesses remain focused on total enterprise reinvention as they execute compressed transformations to achieve lower costs, stronger growth, more agility and greater resilience.
“Our strategy is to be at the center of our clients’ business and help them continuously reinvent themselves to reach new levels of performance and to set themselves apart as leaders in their industries,” Sweet said. “And our clients are at different starting points. All are interested in AI, and particularly generative AI. But most recognize the work ahead of them to get their data, people and processes ready for AI. To reinvent requires a strong modern digital core. And as they embark on this journey, clients are looking to us for unmatched global scale, deep industry and functional knowledge, [and] breadth of services from strategy and consulting to technology to managed services.”
No previous technology wave has captured the intention of leaders and the general public as fast as generative AI, Sweet said.
“We are now embarking on the age of AI, and companies will need to reinvent how they operate with AI at the core,” she said. “And it is also early. Think of it as the cloud over a decade ago. Foundation models and products based on them are still maturing, with many products announced but fewer at the general availability stage and ready for wide deployment. And with our position as the largest partner with most of the major technology companies, we are at the center of helping our clients navigate their choices in the evolving landscape.”
Accenture, ranked No. 1 on the 2023 CRN Solution Provider 500, has been investing in AI for years, and sees generative AI as a key piece of the digital core and a big catalyst for even bigger and bolder total enterprise reinvention going forward, Sweet said.
“In fact, in a survey of global executives that we completed just last week, 97 percent of executives said [ generative] AI will be transformative to their company and industry and 67 percent of organizations that are planning to increase their level of spending in technology are prioritizing investments in data and AI,” she said.
Accenture’s approach to AI will be similar to its approach to cloud, where it invested to take an early lead and position for future opportunities, Sweet said.
“Last week, we announced a $3 billion investment in AI, a big step to accelerate our clients’ reinvention journey, which includes us doubling our data and AI workforce from 40,000 to 80,000 strong, including the expansion of our center for advanced AI that today has over 1,600 generative AI experts. … And across this all, we are leading with responsible AI to be the most trusted source in helping our clients mitigate the risks as they drive value,” she said.
Sweet gave several examples of the over 100 generative AI projects Accenture has sold over the past four months, including a project to help Mitsui Sumitomo Insurance improve customer service by using generative AI and simplify operations for accident response; a project to help a global broadcast company explore how generative AI can help drive audience engagement and growth through deeper and more personalized customer experiences; and with chemical industry giant LyondellBasell to increase its enterprise data and analytics capabilities and help unlock new value.
“Companies are coming to us for help with the strategy and the business case to understand how and where to apply AI, and [generative] AI specifically, to get their digital core in shape, to help assess which ecosystem partners and models to use, to rewire their processes to be AI-driven, to upgrade and reskill their talent with new ways of working, and to navigate the risks and challenges responsibly,” she said. “In short, we believe clients need our full range of services, and we are well positioned to be the leading trusted AI partner for the enterprise as they move from exploration to experimentation to reinvention.”
When asked by an analyst during the question-and-answer part of the conference call about how generative AI will impact Accenture’s managed services going forward, Sweet replied that a good way to look at it is to use SaaS as an analogy.
“You remember when we talked about when SaaS came what would be the opportunities,” she said. “And there was a lot of worry about how SaaS would interrupt IT services. And obviously, it’s been just a huge opportunity.”
Generative AI presents Accenture with a big opportunity to help clients as well as the company itself, Sweet said.
“In the context of managed services every year, we have to find at least a 10 percent [increase in] productivity,” she said. “So we talk a lot about our platform, things like myWizard and that. That’s all AI-enabled. Just in year-to-date in operations, not using [gnerative] AI, we have automated 13,000 jobs, and then we’ve reskilled those people and redeployed them. Our business model requires us to get at least 10 percent productivity [increases] year in and year out. As we’re getting to the maturity of automation and AI before generative AI, we see generative AI as our ability to continue to give at least that 10 percent productivity [increase] year in and year out.”
Generative AI will also lead to more automation in software development around Accenture’s systems integration and its big transformations around platforms, Sweet said.
However, Sweet cautioned, generative AI is still in its early stage as a technology, and Accenture is doing a lot of experimentation with it now.
“It’s really good for things like documentation, but for complex integrations being able to use them for highly architectured systems, which is what our large enterprises do, [generative] AI isn’t there yet,” she said. “So it’s going to take some time. We also don’t yet know the cost. A lot of clients are looking at for us to help them with the business case because most of the studies, including our own, are all about potential uses of it.”
That said, Accenture sees a lot of potential for generative AI to impact its services capabilities, Sweet said.
“We’re very excited that we can get new kinds of productivity, particularly on things like consulting and systems integration, but it’s early days yet,” she said. “And we are leaning in because we think it’s a big opportunity for us to differentiate. And that’s why we are investing $3 billion over the next three years because we think this is like another cloud-first moment where we were out early, we invested at scale.”
Solid Revenue, Strong Profitability
Sweet said during her prepared remarks that despite overall uncertainties, Accenture delivered solid revenue and sales with very strong profitability and very strong free cash flow even as the company continued to significantly invest in its business.
Revenue was impacted by lower-than-expected small deal sales, especially in strategy and consulting and systems integration, and lower-than-expected results in the communications, media and high-tech industry group for the quarter, she said.
Accenture is on track with business optimization actions to lower costs in fiscal 2024 and beyond, Sweet said. To help with that optimization, the company this quarter made five strategic acquisitions. These included the acquisitions of U.S.-based Nextira, U.K.-based Objectivity, Norway-based Einr for its cloud, data and AI capabilities, Brazil-based Green Domus for sustainability and Australia-based Bourne Digital for modern ERP services, she said.
Year to date, Accenture has invested $1.3 billion in acquisitions, primarily attributed to 20 transactions.
Training has been an important investment for Accenture, Sweet said.
“We continue to invest in learning for our people with 9 million training hours in the quarter, representing an average of 13 hours per person, giving them the skills to grow as our clients’ needs evolve,” she said. “We’re incredibly pleased that we were recognized as a top 10 place to work in seven countries: Argentina, Brazil, Chile, India, Mexico, the Philippines and the U. S. Collectively, these countries represent nearly 70 percent of people.”
Breaking Down The Numbers
For its third fiscal quarter 2023, which ended May 31, Accenture reported revenue of $16.56 billion, up about 2.5 percent over the $16.16 billion the company reported for its third fiscal quarter 2022.
That beat analyst expectations by $80 million, according to Seeking Alpha.
The company reported North American revenue of $7.72 billion, up slightly from $7.61 billion; European revenue of $5.62 billion, up from $5.35 billion; and growth market revenue of $3.23 billion, up slightly from $3.19 billion.
Consulting revenue for the quarter reached $8.69 billion, down from $9.03 billion, while managed services revenue grew 10 percent to reach $7.87 billion compared with last year’s $7.13 billion.
By industry, Accenture reported financial services revenue of $3.14 billion, up 2 percent; health and public service revenue of $3.23 billion, up 12 percent; product revenue of $4.97 billion, up 3 percent; and resources revenue of $2.31 billion, up 8 percent. However, revenue from the communications, media, and technology segment fell 11 percent to $2.88 billion.
For the quarter, Accenture reported GAAP net income of $2.05 billion, or $3.15 per share. On a non-GAAP basis, Accenture reported net income of $2.07 billion, or $3.19 per share. That beat analyst non-GAAP expectations by 19 cents per share, according to Seeking Alpha.