Accenture’s Consulting Rebound Could Help Integrators

If Accenture’s recent financial results prove an accurate barometer, integrators may be in for a shifting business climate.

Global management consulting, technology services and outsourcing giant Accenture released results Wednesday for its fiscal third quarter, which ended May 31. During a teleconference discussion of the company’s financials, executives pointed to a couple of interesting trends.

To summarize, Accenture’s consulting services business is rebounding, while the high growth of its outsourcing business may have crested for the time being.

Joe Forehand, chairman and CEO at Accenture, reported “a continued pickup of our consulting business” during the analyst call. This increase is reflected in both new business and new hiring. According to Forehand, the company expects to see a net increase in consulting hires in fiscal 2005—something that hasn’t happened in recent years.

Forehand characterized hiring as aggressive, noting that the company is recruiting from college campuses. Accenture was a dependable on-campus presence during the boom years of the 1990s.

Bill Green, Accenture’s chief operating officer for client services, said the company’s consulting business is seeing particular growth in the supply chain and customer services sectors, as well as merger and acquisition integration work.

He said complex integration deals also have started to make a comeback. Green described the activity as classic envision/architect/design/build work. Over the past several years, organizations haven’t spent much money on such projects, he added.

The financial community has noted consulting’s return. In a recent research note, Robert W. Baird & Co. said it expected Accenture’s consulting upswing to continue in coming quarters.

The uptick in consulting and complex deals is not just music to integrators’ ears. Resellers who have migrated their businesses upstream in recent years should be encouraged as well.

Accenture’s outsourcing business, meanwhile, is “likely to grow at a slower rate” than in previous quarters, noted Harry You, Accenture’s chief financial officer. Outsourcing revenue from the company’s telecommunications and high-tech business segment had been expanding at a rapid pace. That growth, You said, reflected where the industry stood in the business cycle “relative to the Internet bubble.”

Tech companies driven to cut costs have employed outsourcing as a way to boost efficiency. Accenture’s business with them grew accordingly. Accenture won outsourcing deals in a similar fashion during an earlier economic upheaval, as the leverage buyout craze of the 1980s spurred outsourcing as companies looked to take assets—such as data centers—off their balance sheets.

But while Accenture’s outsourcing operation may cool, company executives said the business will continue to deliver strong revenue growth. Industry watchers back up this premise, with both Gartner Group and International Data Corp. saying they expect outsourcing to outpace consulting services.

IDC reported in June that “spending on outsourcing of both business processes and IT will grow significantly faster than spending on project services such as consulting.”

Forthcoming financial reports from integrators such as BearingPoint should throw additional light on consulting and outsourcing trends.

Overall, Accenture has been nailing some large contracts as of late. During the third quarter, Accenture won two deals worth between $100 million and $200 million and four deals worth in excess of $50 million.

On June 1, the Department of Homeland Security announced its selection of Accenture to build the nation’s entry/exit system. The U.S. Visitor and Immigrant Status Indicator Technology program (U.S. VISIT), could be worth as much as $10 billion over a decade.

But while new deals arrive, other projects are subject to restructuring. The Wall Street Journal reported in June that cutback in AT&T’s consumer telephone operations would affect suppliers such as Accenture. You said Accenture and AT&T are working together to “redefine the scope” of some of the work Accenture performs for the telecom company’s consumer business.

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