Editor’s note: Grooming talent and developing IP ahead of market demand positions Accenture to win share as clients rotate budgets seeking business outcomes, says Technology Business Research analyst Bozhidar Hristov after reviewing Accenture’s latest quarterly financials.

HAMPTON, N.H. – Accenture’s robust account management capabilities, paired with its deep industry expertise, helped the company maintain growth momentum into FY1Q16.

As clients shift budget spend from “run the business” to “change the business,” Accenture’s sustained investments in resources (strategy and operations consulting) and IP (digital, analytics and cybersecurity) position the company to offer business-outcomes-oriented services.

However, Accenture faces fierce competition as it penetrates new and existing domains.

IBM is aggressively investing in Artificial Intelligence (AI) and advertising agencies are growing their business transformation industry expertise. India-centric vendors are investing in higher-value business consulting capabilities and Big Four firms are acquiring technology solutions enabling systems integration services. These contenders are forcing Accenture to maintain its active acquisition and recruitment efforts to attain best-of-breed account managers, marketers and technologists.

Accenture’s quarterly sales crossed the $8 billion mark for the first time in the company’s history, growing at 1.5% year-to-year in USD (10% in local currency) to $8.01 billion. Broad-based revenue growth across Accenture’s investments imperatives (digital, cloud and cybersecurity) within North America and Europe and most operating groups bolstered sales.

Demand for digitization among U.S.-based clients drove North America revenue growth to 9.5% year-to-year in USD, while cost-rationalization initiatives among recovering Europe-based clients (U.K., Spain and Switzerland) bolstered Europe sales, up 12% year-to-year in local currency (down 1% in USD). In addition, robust consulting growth (6.2% year-to-year in USD) stemmed from clients’ demands to transform business operations and Accenture’s ability to convert bookings to cash ahead of IT Services peers’ positively impacted its top line.

According to TBR’s 3Q15 IT Services Benchmark, the average days sales outstanding was approximately 65 days, while Accenture is approximately 44 days.

Embedding automation in services delivery and managing talent to market demand helped Accenture increase operating margin 20 basis points year-to-year to 15.2% in CY4Q15. Additionally, strong consulting and systems integration sales helped lift the margin performance as a majority of the project work stemmed from higher-value strategy consulting discussions.

Pairing business transformation industry expertise with vertical-tailored digital marketing capabilities helps Accenture better appeal to both CIOs and CMOs

According to TBR’s 2Q15 Digital Marketing Services Benchmark, as digital marketing activities become part of larger digital transformation engagements and IT personnel become involved in budget decisions, successful vendors will be those that can layer branding and design capabilities on top of core industry expertise.

To stay ahead of that trend and establish a leading position in the space during CY4Q15, Accenture deepened its relationship with Adobe to co-develop and deliver industry-tailored digital marketing solutions for life science, healthcare and financial services verticals. While for a different set of industries (technology, retail, automotive, media and entertainment), Deloitte has a similar partnership with Adobe through the launch of the MarketMix platform, forcing Accenture to bet on its deep industry expertise, scale and cohesive delivery to differentiate.

Additionally, Accenture acquired advertising agency Boomerang Pharmaceutical Communications, which delivers digital marketing services to pharmaceutical, biotech and medical-device clients. Embedding Boomerang’s IP within Accenture Consulting group will bolster Accenture’s value proposition across the boardroom, adding creative and interactive components to the larger digital transformation discussion in the aforementioned industries.

However, many contenders including legacy digital marketing agencies Ogilvy & Mather and Razorfish are making similar moves, as these operate dedicated vertical units, Ogilvy CommonHealth Worldwide and Razorfish Health, and also invest in technology IP to remain competitive.

Accenture doubles down on AI to develop discounted alternatives to Watson to capture integration and managed services growth

To stay abreast of innovation trends, Accenture expanded its investments in AI and R&D, funding an AI research grant to Insight Centre for Data Analytics at University College Dublin and opening a technology lab in Dublin, hiring 200 professionals.

These investments come on the heels of Accenture’s recent announcements of opening an Internet of Things (IoT) center in Singapore and an Interactive Innovation Center in France. Developing AI-centric solutions is a logical reaction to the emergence of IoT-focused discussions led by rivals such as IBM, which earlier in 2015 committed $3 billion to investment in IoT technologies and has been enhancing its AI engine Watson to launch Watson IoT and Watson Health units. TBR does not expect Accenture will invest in AI as heavily as IBM but rather learn from its relationship with IBM to either embed Watson’s components into its solutions and/or possibly build out less expensive alternatives that can integrate to its clients.

We expect Accenture to maintain its vendor- agnostic approach and deepen its industry-expertise through acquisitions such as Cimation, adding consulting, process automation, cyber and digital expertise to its Resources group domain.

(C) TBR