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JULY 12, 2004
Accenture Hits The Daily Double First, a fat contract. Then strong numbers that point to a consulting recovery Seabiscuit. That's the name Accenture Ltd. (ACN ) employees gave to their bid to win a contract from the U.S. government to create a new border security system. Although Accenture is one of the world's top high-tech consulting firms, workers felt their odds were just as long as those of the racehorse that upset War Admiral to snare the Pimlico Special in 1938. After all, Accenture had never won a contract near the size of this $10 billion purse. It was up against outfits with closer ties to Uncle Sam. And some politicians were incensed that a company with a Bermuda headquarters, cutting its U. S. tax bill, would land such a plum. GAINING MOMENTUM But in May, Accenture came from behind and nabbed the prize. Accenture wowed government officials with a demo that included biometric devices that scanned fingerprints and wireless tags that tracked immigrants' whereabouts. James A. Williams, program director for the government contract, called US-VISIT, said the presentation proved Accenture had the vision, management skills, and technology expertise to get the job done. These days, Accenture is like a horse gaining momentum down the backstretch. On June 17, it announced results for the quarter ended May 31 that beat analysts' expectations. Sales climbed 21%, to $3.69 billion, while net income nearly doubled, to $263 million. For the fiscal year ending Aug. 31, Schwab Soundview Capital Markets (SCH ) expects Accenture's sales to climb 14%, to $15.3 billion, and net income to rise 46%, to $728 million. "We are excited imagining what we can achieve with the wind at our back," Chief Financial Officer Harry L. You told investors in a conference call. The tailwind bodes well for the whole consulting industry. Consulting has been shrinking since 2001. Kennedy Information Inc., of Peterborough, N.H., has predicted that the market would recover this year and grow 4%, to $125 billion, but there was scant evidence of a rebound until Accenture's results. In the May quarter, the company's consulting sales rose 13%, vs. a 10% decline a year earlier. Analysts say that rising demand should filter down to other strong players, including IBM (IBM ) and Computer Sciences Corp. (CSC ). "Things are definitely looking up," says Kennedy Vice-President Bradford Smith. Accenture also is benefiting from a major push into outsourcing. The company, No. 9 in BusinessWeek's latest Information Technology 100 ranking of tech's top performers, has staked out a leading position in the fast-growing market for so-called business process outsourcing. It's focusing on the two most promising segments, taking over human resource and financial functions for companies such as BP PLC (BP ). Outsourcing will only become more important as Accenture changes its leadership later this year. Co-chief Operating Officer William D. Green, who is expected to take over the reins from current Chief Executive Joe W. Forehand on Sept. 1, says that his goal is to boost outsourcing to 50% of revenues, from 32% last year. To get there, Accenture is investing $300 million in new hardware and facilities and hiring 30,000 new employees this fiscal year, bringing its total to 107,000. "It's a critical part of our strategy," said Green in an April interview. Still, the initiative is filled with land mines. Outsourcing is a much different business from consulting. While consulting projects are typically short term, outsourcing deals stretch out over many years and require higher up-front investments. Plus, outsourcing contracts are increasingly structured on a "gain-sharing" basis in which Accenture gets paid only when it meets specific goals, such as cost-saving targets. One misstep can pummel profits. "The biggest issue [for Accenture] is the move towards outsourcing," says Dennis A. McGuire, president of TPI, an outsourcing adviser in the Woodlands, Tex. "You are going from helping people solve problems to taking over problems." Beyond outsourcing, Accenture's biggest opportunity -- and risk -- is the US-VISIT contract. Several politicians remain determined to yank the deal because of Accenture's Bermuda incorporation. "It is outrageous and it is wrong to reward [companies like Accenture] for abandoning our country," says Congresswoman Rosa L. DeLauro, (D.-Conn.), who tried in June to bar Accenture from getting the contract. DeLauro failed, and Accenture seems unlikely to lose the deal unless Democrats wrest control of both the White House and Congress in November. Still, it will be operating under a microscope, and slip-ups could cost it dearly. Accenture execs pledge that they can manage the risks. They say the political firestorm over US-VISIT should die down once Accenture demonstrates it can do an effective job. And the company is taking great care to avoid the pitfalls of its outsourcing push. Before it takes on new contracts, at least five people conduct reviews. "Deals go through many, many screens," says You. Accenture will have to clear many high hurdles to keep setting the pace for the tech services industry.  By Spencer E. Ante in New York
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