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WIKI ANALYSIS
Accenture (NYSE: ACN) is a management and technology consulting firm. In addition to consulting clients on a range of management, operational and technological issues, Accenture also provides its clients with outsourcing services. Accenture has operations in over 49 countries with170,000 employees.[1] Accenture has expanded its business to include a large number of employees in rapidly developing, low-cost nations. Accenture employs around 50,000 employees in India, China and the Philippines with plans to triple the number within next 3 years. These employees work for significantly less pay than the company's U.S. workforce, allowing Accenture to profitably provide low cost outsourcing services. However, in recent years, the firm has faced increasing competition from Indian firms specializing in systems integration and outsourcing. In addition to competing with Accenture for clients, these firms compete with Accenture for employees. As a result the salaries of skilled employees in India have risen rapidly over the last 5 years. In the face of increasing competition, Accenture will find it challenging to continue to grow its employee base in India.
Company Overview
Business & Financial Metrics[2]
In 2009, Accenture generated a net income of $1.59 billion on revenues of $23.17 billion. This represents a 6.0% decrease in net income and a 8.5% decrease in revenues from 2008, when the company earned $1.69 billion on $25.31 billion in revenues.
Business Segments[3]
Accenture offers its expertise to clients in 17 industries. These industries are divided into five five operating groups as outlined below.
- Communications & High Tech - Communications, Electronics & High Tech, Media & Entertainment, 20.8% of total revenue
- Financial Services - Banking, Capital Markets, Insurance, 18.7% of total revenue
- Products - Automotive, Consumer Goods & Services, Health & Life Sciences, Industrial Equipment, Retail, Transportation & Travel Services, 23.9% of total revenue
- Public Service - 12.9% of total revenue
- Resources - Chemicals, Energy, Natural Resources, Utilities, 16.7% of total revenue
Services
Accenture offers its clients three types of consulting services.
Management Consulting Accenture offers its clients tradition Management Consulting services similar to McKinsey & Co or The Boston Consulting Group. Through management consulting Accenture tries to improve the performance of clients through analysis of their business model and any business challenges they may face in the execution of the model. This is often referred to as strategic consulting. Accenture operates its management consulting division under six separate service lines: Customer Relationship Management, Finance & Performance Management, Talent and Organization Performance ,Strategy, Supply Chain Management, and Process & Innovation Performance.
Systems Integration and Technology Accenture offers its clients technology related services including system integration and technology consulting similar to International Business Machines (IBM). Accenture assists clients in incorporating new technologies in order to increase efficiency in their operations.
Outsourcing Accenture also provides its clients with extensive Business Outsourcing services. Through outsourcing Accenture aims to allow its clients to focus on their area of expertise by allowing outside firms to deal with non-essential areas of their operations.
Trends and Forces
Skilled Talent is Becoming Expensive
As a consulting firm Accenture's most important resource is its workforce. Given ACN's focus on technology, its success is especially dependent on its ability to hire and retain technically skilled individuals, such as engineers, researchers, programmers and accountants. Moreover, the company has emphasized the growth of its labor force in India. Over the past ten years as companies have moved to India, the demand for engineers have driven costs up. Continued salary inflation, will make Accenture's continued rapid expansion more difficult. It will also place pressure on the company's margins.
Offshore Competition Will Weaken Accenture's Margins
Accenture faces growing competition from Off-shore service providers whose revenues have grown upwards of 30% a year. Such companies offer similar services at extremely competitive prices. For example, the average cost per employee at Infosys Technologies (INFY) is $34,000 while Accenture has an average employee cost $110,000. While these numbers are skewed by Accenture's upper level management in the United States, they reflect the large advantage of Indian firms. These firms compete with Accenture mostly outsourcing and systems integration areas.
Large Exposure to Developing Markets: Potentially High Risk or Reward
Accenture is more exposed to developing markets than most of its large American competitors. One third of Accentures's workforce is located offshore while the percentage for International Business Machines (IBM) is 18%, Electronic Data Systems (EDS) is 12%, Computer Sciences (CSC) is 9%.[4] By placing a high proportion of its operations in developing countries, Accenture can be hit hard by the unpredictability of government regulations of the private sector.
Competition
Accenture faces a range of competitors across its three main services areas.
Management Consulting
In Management Consulting, Accenture competes with traditional strategic consulting groups like McKinsey & Co. and The Boston Consulting Group.
Systems Integration and Technology
In technology services, Accenture faces large competitors like International Business Machines (IBM), specifically its Global Services Business Unit. IBM leads Accenture by a large margin in terms of revenue, profitability, and scale. Other smaller competitors include Electronic Data Systems Corporation Electronic Data Systems (EDS) and Computer Sciences (CSC).
Outsourcing
Outsourcing has grown in importance for Accenture in recent years. While this is a quickly growing market, competition has become quite fierce, especially from Indian companies. Accenture's competitors include:
- Tata Consultancy Services Limited (TCS)
- Infosys Technologies (INFY)
- Wipro (WIT)
- Satyam Computer Services (SAY)
References
- ↑ Accenture 2007 10K, Item 1A , pg.33
- ↑ ACN 2009 10-K pg. F-5
- ↑ ACN 2009 10-K pg. 48
- ↑ Credit Suisse: Initiation, pg.22
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