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of Accenture Fiscal Year 2002 Business Results
Transformational Outsourcing, Government… Booming Businesses
Oct. 10 - Accenture Ltd., the first global IT services vendor to
report its business results in the October earnings season, reversed the
negative aura generated by two successive Electronic Data Systems (EDS)
bad news shocks (see EDS
Issues Earnings Warning Sep 18, Wall
Street Vultures, Sep 27). Accenture’s
fourth quarter and full fiscal year 2002 (ended Aug 31) revenues and
earnings both met Wall Street’s expectations. Which makes a “no
surprise” earnings release a relative boom in these days of gloom and
doom on Wall Street.
an unusually long early morning teleconference with analysts, Joe
Forehand, Accenture’s CEO, and Harry You, the CFO, sounded moderately
upbeat notes despite a difficult economic conditions.
While trying to sound cautious, they did it both for the
just-concluded fiscal year 2002 results, and when talking about the future
pleased with our ability to deliver solid results in a very difficult
economic environment,” Forehand said of the FY 2002 results.
off to a good start in the first quarter” (of the fiscal year 2003),
said You, adding that the September results exceeded the company’s plan
both at the top and the bottom lines.
So what is it that makes Accenture unique among its global IT services peers, like IBM and EDS, for example, which are both suffering from what they say sharp cutbacks in customer spending?
In two words, it’s heritage and culture. Accenture’s heritage is in general business consulting and integration, not IT. And its culture is a partnership-style operation, not a hierarchical corporate bureaucracy.
That was evident even in this morning’s teleconference. By contrast to any other company executives that we’ve listened to on such occasions over the years, the two Accenture leaders continually kept referring to the Wall Street analysts as “our public partners,” rather than just a bunch of amorphous, gray faces who write up reports filled with numbers that help institutional investors place their bets.
This should, of course, come as no surprise to our clients and the Annex Bulletin readers. Here’s what this writer predicted over five years ago, in a column titled “Medieval Fiefdoms to Win Over Centralized Empires?” The piece was originally published in a Washington Post IT magazine:
“IBM vs. Andersen Consulting (now Accenture) is a study in contrasts. IBM is a widely-held public company. Andersen is a closely-held private partnership (was). IBM is a classic corporate empire, ruled with an iron fist from a center - the "Louvre" (make that the "Versailles" now) - by a “Louis XIX of Armonk,” and an entourage of loyal princes and cardinals who make up Lou Gerstner's court.
Andersen is a collection of some 1,000 "medieval fiefdoms," loosely knit together by self interest rather than an elaborate management structure. Andersen's worldwide headquarters is whatever hotel the managing partner - the first among equals, happens to be in.
It is in the area of
profitability, however, that Andersen's decentralized fiefdom-like model
reigns supreme over that of any other competitor.”
Indeed, Accenture has consistently led all of its competitors in terms of profitability during the last five years, winning one gold medal after another in our annual IT Services Heptathlons (see IT Services Heptathlon 2002: IBM Loses Market Share, May 2002).
The year of gloom and doom (2002) for most competitors was no exception for Accenture. The company managed to improve its operating margin to 12.9% (up from 12.7% the year before), despite the difficult economic conditions. And Accenture managed to do it by growing its business and improving its productivity without having to resort to massive layoffs, such as its competitors have been doing.
In fact, the company executives said today they expect to add between 2,000 and 8,000 people during the current fiscal year to Accenture’s current work force of about 77,000.
Does Accenture have a “silver bullet,” and if so, what is it? Once again, we have to go back to the company’s heritage and culture. Yes, there is. And it’s pretty simple.
Consequently, while most of its large competitors have been lining up at the crowded and depleted IT trough, Accenture has been creating its opportunities by its partners’ proactive work elsewhere in their customers’ businesses. So “Business Process Outsourcing” (BPO) or “Transformational Outsourcing” (TO) are operative words for success at Accenture.
As a result, its outsourcing revenues surged by 33% in the latest fiscal year, led by Communications & High Tech (up 75%) and Government (up 70%) sectors. By contrast, Accenture’s consulting and systems integration businesses shrank by 7%, in line with the disappointing results of its more IT-dependent competitors.
Even more impressive was the increase in Accenture outsourcing deals pipeline, which shot up 69% since the previous quarter, amid the gloom and doom stories by its competitors.
For all of FY2002, Accenture also reported record new contract signings of $16 billion, $2.8 billion of which came in its just-concluded tough fourth quarter.
Finally, thanks to its focus on BPO, Accenture now has $265 million of customer assets on its balance sheet, rather than spending its own money on funding the IT infrastructure deals, as its competitors are doing.
Government business led the way in terms of growth among all other Accenture industry segments. Full fiscal year revenues were up 31% (up 19% in the latest quarter).
surprisingly so, given the competitors’ woes, the second strongest
Accenture industry segment was Communications & High Tech sector.
Although it declined 2% for the year, it grew 8% in the last
successive quarters during which the other major IT services players were
crying poor in this area.
Revenues from the Resources and Products segments increased 4% for the year, although they declined 14% and 9% respectively in the fourth quarter.
was by far Accenture’s best geographic segment. Revenues grew in double digits for the year (up 11% in U.S.
dollars, or 9% in local currencies), and were up 2% in the latest quarter.
With exception of Germany, where business dropped 17% in the last
quarter, all other countries reported solid (double digit) growth.
in Americas decreased 5% both for the full year and for the fourth
quarter, while the business in Asia/Pacific shrank 8% for the year, and
16% in the last three month-period.
the economically depressed Japan was a positive exception in an otherwise
gloomy Asian business climate. Accenture’s
revenues in the Country of the Rising Sun actually increased in the last
continued focus on the business of business, rather than on the IT of
business, will continue to be the key competitive differentiator in the
coming year. As You, the CFO,
pointed out, that is already showing some dividends in the first month of
the new fiscal year.
as important, however, will be a diversification of its customer set,
especially in the U.S. As
we’ve pointed out on numerous occasions in the past, the growth of the
American economy is from the bottom (small and medium companies), not the
top of the business pyramid.
Accenture seems to be leading in another area that we have been advocating
for years - value based pricing; structuring contracts so that the vendor
gets paid by a share of revenue and/or profits that its services help
in Accenture’s case, that seems to be happening the most in a most
unlikely area - its government business.
Government (unit) has had “an exceptional year,” said Forehand, the CEO.
“It achieved significant milestones in large value-based
would’ve thought that… that the most bureaucratic customers can also
be the most creative!? Guess
even that is possible if the client executives are also partners and act
as business owners.
remains to be seen if some of that PwCC partner culture rubs off on IBM, too.
Happy bargain hunting! Bob Djurdjevic
Happy bargain hunting!
For additional Annex Research reports on Accenture, click on...
Stock Up on Bad News (Jan. 2002)
Volume XVIII, No. 2002-20
Editor: Bob Djurdjevic
P.O. Box 97100, Phoenix, Arizona
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