The rise of Accenture has, for years, been one of the major stories about the changing landscape of the consulting industry. And yet, the consensus about the major power players in the industry has remained unchanged. The Big 3 are so deeply entrenched that their initials are understood far and wide. MBB: McKinsey, Bain, and Boston Consulting Group (BCG). In recent years, some have started referring to the “Mt. Rushmore” of top consulting firms as MBBB, with the added B referring to rising star Booz Allen Hamilton (we don’t buy it). But Accenture is uniquely positioned to continue to gain market share as a technology-focused management consulting firm.
So, what do we make of the rise of Accenture? Is Accenture poised to someday surpass the ranks of the top consulting companies and emerge as the world’s premier consulting firm? Let’s take a closer look.
The Rise Of Accenture
Given Accenture’s technology focus, and every business’ reliance on technology only expected to grow, could Accenture become the world’s premier consulting firm?
Accenture has gone a long way to highlight its emphasis on the future and desire to grow aggressively. However, the company actually has a long history. It’s descended from the old accounting-and-advisory titan Arthur Andersen, famous for convincing GE to invest in the world’s first corporate computer, the UNIVAC 1, all the way back in the early 1950s. The firm that would become Accenture broke off from its parent company in 2000. The name Accenture is a portmanteau of the phrase, “Accent on the future.” Accenture has always been forward-looking.
Accenture: Positioned For The Future
This forward-looking approach helped Accenture build its reputation in the consulting field, which has historically been slow to catch up to technological upheaval. Accenture has made technology a formal cornerstone of its growth strategy from its inception. Several years ago, Accenture decided to expand its presence in the IT sector, which has been a major contributor to the company’s overall growth. More recently, Accenture has grouped its prioritized offerings under the catch-all category it refers to as “The New.” The New combines cloud, security, and digital services. Beyond these categories, Accenture offers clients specialized services in artificial intelligence (AI), online offerings, blockchain, robotics, and virtual reality.
Further, Accenture has shown a remarkable ability to partner with leading tech companies to deliver new products and services to clients, including Microsoft (MSFT), Alphabet (GOOGL), Apple (AAPL), Oracle (ORCL), and many others.
A successful strategy is about choosing where and how to compete. It requires that you design a business model that provides a competitive advantage in the markets in which you’ve chosen to compete. With this definition, it seems very possible that Accenture’s focus on technology could be positioning it very well to “win” in the consulting space. Though, it may not be well positioned with certain clients. Those who simply are not as focused on technology and have more fundamental participation, marketing, or operational issues. But increasingly, technology is a part of the solution for many business issues.
At first glance, Accenture’s numbers for the recently ended Q2 of FY20 look extremely encouraging. Q2 revenue was $11.1 billion, a 6.6% increase from the company’s $10.5 billion figure for Q2 FY19. GAAP net income rose 9.8% from $1.12 billion in Q2 FY19 to $1.23 billion in FY20. Earnings per share rose 10.4% from $1.73 to $1.91 for the same time period. All six of Accenture’s operating groups showed positive growth. Its biggest gains occurring in the health and public service sector, at 14% (no surprise with the coronavirus pandemic sweeping the world).
However, a broader perspective should temper some of this enthusiasm. The November-ending quarter of 2019 only showed lukewarm growth. While Accenture’s stock has well outperformed the S&P 500 over the past 5 years, the company has been unable to replicate its amazing 13.31% revenue growth between FY17 and FY18. Accenture’s revenue growth fell to 5.42% over the following year.
How Will the Coronavirus Impact the Rise of Accenture?
The big unanswered question in Accenture’s future – like everyone’s – is the unforeseeable impacts of the coronavirus/COVID-19 pandemic. CEO Julia Sweet projects optimism about Accenture’s ability to weather the storm. She cites the company’s strong fundamentals, as well as its head start in integrating day-to-day operations into a digital environment. “Mobilizing to address this situation has been seamless,” she says.
However, the effects of the coronavirus on the demand for Accenture’s products and services remains to be seen. This is likely to make the biggest difference in the continued rise of Accenture. It’s true that many companies will be forced to migrate operations more to the digital sphere. This would seem to give Accenture an advantage, as it is well poised to help companies with that transition. But with the concurrent liquidity crisis and economic slowdown, spending is likely to fall market-wide. Many analysts expect IT spending, in particular, to take a big hit in the coming months as cash-strapped companies are forced to recalibrate their spending. This would be bad news for Accenture.
Conclusion: Technology is Nice, But Strategy Wins
While Accenture’s growth rate in recent years has been impressive, much of that has occurred in the decade-long bull market following the recession that started in 2008. How the rise of Accenture is impacted by the impending recession remains to be seen. Companies are likely to significantly decrease discretionary spending. And in such uncertain times, spending big on a tech-focused firm like Accenture may seem like a luxury. The safer bet for many companies will be to hire the consulting services of more strategy-oriented consulting firms like Accenture’s biggest competitors.
When CEOs are facing company-changing strategic decisions, like whether to merge with a competitor, bet the company on a new business model, or invest heavily in a new geographic, product, or customer market, they want sound strategy advice. Accenture may be positioning itself interestingly as a unique hybrid of management and technology consulting partner. We would bet this will lead to financial success. But all of this does not mean it is all that close to challenging MBB for management and strategy consulting dominance. Technology is nice, perhaps much better than “nice,” but we think strategy wins.
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