Technology consulting and outsourcing giant Accenture (NYSE:ACN) is set to report second-quarter results on March 27. Accenture reported a better-than-expected first quarter driven by the outsourcing business. Consulting business was soft, but portrayed enough potential, and the company stated that it’s investing continuously to nurture business growth. The prime area of interest in the upcoming release would be to ascertain how the outsourcing and consulting divisions have performed.
Outsourcing Remains the Key Driver
The outsourcing business has become a "sweet spot" for Accenture. The success of the business can be gauged from the continuous contract wins. Past quarter, outsourcing revenue grew 5% year over year, while new bookings shot up 33.3%. The improvement was mainly due to the growing demand for its outsourcing solutions, and growth in Europe.
According to research firm Everest Group, Europe holds a dominant position in the global outsourcing services market. The economy’s gradual recovery and improving business scenario is making it a good outsourcing destination. Accenture expects the UK, Spain and France to rebound too, which would further boost its overall business prospects.
Not only this, Accenture is penetrating more into the procurement outsourcing market to accelerate business growth. Last December, the company acquired Procurian, a leading U.S. based procurement business process outsourcing (BPO) solutions provider. Companies like IBM (NYSE:IBM), Genpact, Infosys (NYSE:INFY) and Cap Gemini are competing to grab a larger share of the BPO service market that offers huge potential. According to Everest Group, the procurement outsourcing market would continue to grow at a CAGR of 18%, and Accenture and IBM together would dominate the market with more than 50% share. With Procurian, Accenture will have a competitive edge over IBM and other existing players.
Consulting Business Looks Promising
Accenture’s consulting business has faced challenges in the past few quarters owing to the tough spending environment. But analysts are quite positive on Accenture’s prospects in this area. Although the business revenue declined 1% year over year, new bookings grew 2.4% to $4.3 billion. Book-to-bill ratio was greater than 1. The company expects its order pipeline to remain strong, and thinks that the conversion will lead to a flat-to-low-single digit growth in consulting revenue in the second quarter. Accenture also expects positive revenue flow from its North American industrial segments.
Last month, research firm Gartner (NYSE:IT) recognized Accenture as a leader in the "business operations consulting services" space. The company secured high scores in two areas — "completeness of vision" and "ability to execute it." The recognition strengthens Accenture’s position as an experienced provider of consulting services. With spending in the IT services market to grow by roughly 4.5% this year, Accenture could see further growth in the consulting business.
Growing Exposure in Digital Technology
Accenture has been investing heavily to make its presence felt in the high-margin digital technology market. The idea was simply to tap the growing customer preference for digitization as a weapon for cross industrial business growth. The company’s effort got reflected last December in the "Accenture Digital" platform (combination of mobility, analytics, social and cloud offerings), which would not only formulate digital strategies for its customers, but implement and supervise those strategies too.
Digital technology is a comparatively new area in the IT services market, but is quickly becoming a major raw material in modern business. Accenture, with the capability to understand customer needs, looks poised to capitalize on the digital opportunity with its comprehensive digital service offerings.
Improving European business condition coupled with synergies from Procurian could make things better for Accenture. And if the consulting business starts showing positive growth with improvement in the spending environment, it would have a positive effect on the company. How well would Accenture’s exposure into the digital business impact the current quarter remains to be seen, but it would help in future growth and improving long-term company prospects.