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Source: BW research |
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William D. Green, chairman and CEO of Accenture, recently made what for an American IT CEO is an extremely bold statement: “India will pass the US as Accenture’s largest geography in terms of headcount in August.” What it means is this: in four months, when the New York-headquartered IT consulting-outsourcing services giant closes accounts, it will have 35,000 people on its India rolls — 5,000 more than what it will have in the US.
Green, who was in Bangalore this January on his first India visit, also indicated that the gap would widen over the next six years. During this period, he expects the India workforce to grow at 30-40 per cent year-on-year. By 2012, when Accenture’s global headcount hits an estimated 230,000, India will constitute about 40 per cent. Growth in the US, on the other hand, will be incremental. The headcount flip is critical for achieving Accenture’s big target — $30 billion (Rs 1,32,000 crore) revenues by 2012. So, when the 53-year-old Green took charge as chairman last September, in addition to his CEO role, the first thing on his list was a visit to Bangalore, the firm’s India headquarters. “India will be a big driver of the 2012 road map and getting acquainted with the workforce here is an imperative,” he told BW when we caught up with him.
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| The Trendsetter Since he became chairman, Green has made clear his plans to ramp up the company's India presence |
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The message is clear: to remain relevant in the global IT services business, Accenture will have to find new moorings — in India and Asia — even as it remains an American company. It is the single most critical move it will have to push through to parry the damage that India’s rising dominance as an outsourcing powerhouse has inflicted on its armour.
At $16.64 billion (Rs 73,216 crore) revenues in August 2006, Accenture will have to grow 80 per cent in six years to touch $30 billion. And it will still lag well behind the market leader, Armonk, New York-based IBM. Big Blue’s services business, IBM Global Services, is already $48.2 billion (Rs 2,12,080 crore) in revenues (December 2006) and is projected at $85 billion (Rs 3,74,000 crore) by 2010. Like Accenture, IBM’s services workforce in India will drive much of this growth — estimated to grow from the current 50,000 to 92,000 by 2010. Now, it may not be entirely fair to pit companies of such disparate sizes against each other. But while IBM is certainly in a league of its own in the global arena, the fact that India’s repository of low-cost, skilled knowledge workers holds the key to both their future growth strategies begs the comparison.
The dilemma that Accenture, therefore, finds itself in is an unenviable one. Not only does it have to battle against a competitor three times its size, it also has like-sized rivals such as Texas-based Electronic Data Systems (EDS) and Paris-based Capgemini snapping at its heels. The $21.27-billion (Rs 93,588-crore) EDS has attained some scale in India courtesy its $380-million (Rs 1,748-crore then) acquisition of Mumbai-based MphasiS in June 2006. The acquisition boosted its headcount to 14,000 from just 3,000. Capgemini also took the inorganic route in October 2006 with the $1.25-billion (Rs 5,687.5-crore then) acquisition of US-based Kanbay. It now has 12,000 people in India, up from 7,000 pre-acquisition.
But Accenture’s most difficult challenge comes from India’s home-grown IT services giants — Mumbai-based Tata Consultancy Services (TCS) and Bangalore-based Infosys Technologies and Wipro Technologies. In the past two years, these players have made significant inroads into the US and western European markets. The tipping point was the $2.2-billion (Rs 9,680-crore then) ABN Amro outsourcing contract in mid-2005 — Infosys and TCS together won $400 million (Rs 1,760 crore) of the contract in direct competition with global IT’s Big Three (IBM, Accenture and EDS). The Indian pure-plays’ biggest advantage is in not being encumbered with massive high-cost workforces in the US and western Europe. This probably explains why the stockmarkets value the Indian pure-plays almost at par with Accenture. Consider these numbers: at the close of fiscal 2006 in March, Infosys’s market capitalisation was at $28.9 billion or Rs 1,27,160 crore (revenues at $2.03 billion or Rs 8,932 crore) while TCS’ was at $28.2 billion or Rs 1,24,080 crore (revenues at $2.5 billion or Rs 11,000 crore) on the BSE. Accenture, which closed fiscal 2006 in August with revenues at $16.64 billion, turned in a market capitalisation of $30 billion (Rs 1,32,000 crore) on the New York Stock Exchange.
To be fair, Accenture did take note of the writing on the wall early enough. This is evident in the strategic moves that it has made over the past five years, particularly since 2004. The Accenture that plays in the global IT services arena today is vastly different from its original avatar in 1989 (it was spun off from Arthur Andersen in 1989 as Andersen Consulting). Let’s begin with its business mix. In 2001, 80 per cent of the company’s revenues came from consulting services. The rest came from outsourcing. Today that ratio has almost been turned on its head to 60:40. The objective of the 2012 road map, apart from the $30-billion revenue target, is to get to a 50:50 mix.
The quest for this mix started during the 2001-2003 US IT consulting slump. This was brought on by factors such as 9/11 and the US economic slowdown, which forced customers to cut back spends on high-end business consulting services. Accenture did offer IT outsourcing (systems integration, application development maintenance or ADM) as a downstream service to consulting, but the business was too small to sustain margins when consulting hit a slump. Also, such services, particularly ADM, were now on offer offshore from the Indian pure-plays at half the cost. “That’s when outsourcing contracts started getting sliced up into smaller pieces,” says an analyst at New York, US-based technology research firm Forrester Research. The Indian pure-plays dominated the ADM space, where contract sizes, though smaller, offered faster returns. The impact on Accenture’s balance sheet was severe. In August 2002, it reported a 1.1 per cent growth in net revenues at $11.57 billion (Rs 56,693 crore then) while profits dropped 77 per cent from $1.05 billion (Rs 4,935 crore) in August 2001 to $245 million (Rs 1,200.5 crore) in August 2002. So, not only did it have to grow its outsourcing business, it was also under pressure from clients to do it offshore, notably in India.
So, in 2001, Karl-Heinz Floether, group chief executive (technology and global delivery), who was in charge of the firm’s financial services business, set up a 100-people delivery centre in Mumbai. However, being relatively new to the Indian environment, the start was slow. By August 2003, it had just 4,300 people. TCS, Infosys and Wipro together had over 50,000 and IBM was in the process of acquiring the 6,000-people strong Daksh eServices in Gurgaon, Haryana.
When Green took charge as CEO in 2004, the company decided to crank up growth in emerging markets, chiefly the BRIC nations (Brazil, Russia, India and China). Of the lot, India would play a defining role in changing the way Accenture operated. “Few countries in our history have changed the way Accenture has operated the way India has,” remarked its COO Steve Rohleder on a stop-over at Mumbai in mid-February. Rohleder drops into India every three-four months and was one of the pioneers of the sponsorship model that Accenture adopted in 2001-2002 when it first decided to look overseas for growth. “The sponsor became a direct pipeline to the executive management. As a sponsor (for India), I am able to intervene and speed up the decision-making process,” he explains. By August 2005, Accenture’s India headcount had jumped to 16,000 and it has not looked back since then. Growth also spurted after the company decided to shift from a ‘lateral hires only’ policy to campus recruitments. Along the way, the firm has pumped in sizeable investments by way of six delivery centres across the country. It has also set up its first overseas R&D lab — Accenture Technology Lab — in Bangalore, which will be a 100-people outfit in two years. By August, when the firm’s global delivery network or GDN (offshore delivery centres) headcount touches 65,000, half will be in India.
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