Accenture CEO Julie Sweet On Layoffs, Belt-Tightening, And Going After ‘Structural Costs’

Addressing a company optimization push that includes the layoffs of 19,000 employees, or 2.5 percent of the workforce, as well as real estate tightening, Accenture CEO Julie Sweet told Wall Street analysts the systems integration behemoth is going on a cost-cutting ‘offensive’ to get ahead of ‘structural issues that have been created over the last couple of years.’

Getting Ahead Of ‘Structural Issues’

Accenture CEO Julie Sweet told Wall Street analysts that the systems integration behemoth, ranked No. 1 on CRN’s 2022 Solution Provider 500, is using cost-cutting efforts, including the layoff round of 19,000 employees, or 2.5 percent of the workforce, as a way to get ahead of “structural issues that have been created over the last couple of years.”

The economic headwinds in the market have resulted in a “laser focus” on costs by customers with fewer smaller deals in strategy and consulting, Sweet told analysts.

“We’re seeing less of the smaller deals in S&C (Strategy and Consulting) and to some extent, SI (Systems Integration), particularly in North America, where we’re seeing more caution,” Sweet said. “North America had record sales this quarter, but in areas tending towards the bigger transformational deals, not the smaller S&C and to some extent, SI deals.”

When asked by an analyst whether Accenture is playing offense or defense, Sweet said she likes how that question was phrased.

“I like that, is it offense or defense,” she said. “It is offensive. I mean, if you look at where we are today, we’ve got record bookings, a strong view of the year at 8 percent to 10 percent [revenue guidance for fiscal 2023], 91 percent [utilization of our people]. We’re going after structural costs to ensure that we’re in a better position.”

Accenture has also been dealing with the difficult challenges of compounding wage inflation with both pricing and with cost efficiencies and digitizing, Sweet said.

“And we have identified an opportunity to go after more structural costs to kind of create that resilience and that room in the P&L (profit and loss statement) as we look forward,” she said. “[We’re] very much, in our view, getting ahead of and dealing with these structural issues that have been created over the last couple of years.”

Sweet had a lot of questions from analysts about Accenture’s performance and its plans in the face of uncertain economic times. CRN breaks down what Sweet had to say.

Steve Burke contributed to this story.

Driving Hypergrowth Despite Wage Inflation

When asked whether customer focus on costs could lead to slightly lower growth rates because of the cost optimization actions Accenture is taking, Sweet replied that Accenture has been achieving hypergrowth despite compounding wage inflation like no one today has ever experienced.

“There’s been wage inflation like none of us have ever experienced and it’s compounding,” she said. “And we’ve been addressing that through a combination of improved pricing, cost efficiencies, and so this is really us taking a step back and being able to more structurally address the impact of compounding wage inflation. So it’s a real positive for how we’re moving forward.”

In fact, Sweet said that the cost cutting and belt tightening is “creating more room” in the Accenture “P&L” (profit and loss statement) so that the company continues to deliver on its “enduring shareholder” value proposition.

“We still expect next year to grow faster than the market,” she said. “We expect to invest at scale in our business, to deliver 10 to 30 basis point margin expansion on an adjusted basis, to have a disciplined capital allocation including a meaningful return to our shareholders. So that is a commitment. This is an offensive move to say, ‘Yes, today, we’ve got great demand, we’ve got great utilization, and we can take out more structural costs to put us in a better position as we move forward.’”

The cost cutting comes even as Accenture enjoys a utilization rate of 91 percent, Sweet said.

Growing Demand For Larger Transformational Deals

Accenture during the second quarter reported record bookings of $22.1 billion, including 35 clients with quarterly booking greater than $100 million, showing there is continued strong demand for the larger transformational deals and the need to build the digital core, Sweet said.

“And I’m personally working right now with clients across insurance, health care, consumer goods, banking and telecom, all of whom are very focused on how do we get rid of our technical debt, how do we build more resilience,” she said. “They’re trying to build digital products, but they’ve got really old systems.”

This is a big opportunity for a company like Accenture going forward, Sweet said.

“We remain in the early innings of building the kind of digital core that you really need to transform every part of the enterprise,” she said. “And so, we continue to feel good, not just about our pipeline, but about the demand we’re seeing really routed in our view that all companies are going to have to do total enterprise reinvention across the enterprise that it’s really a continuous cycle starting with a strong digital core. And there’s a lot of work to do on building those cores out.”

In general, while Accenture is seeing a trend toward larger deals, it’s seeing less of the smaller deals in S&C (strategy and consulting) and to some extent SI (systems integration), particularly in North America, Sweet said.

“If you think about it, what have we been trying to drive for the last few years?” she said. “We want to be at the center of our clients’ business. We want to be able to be relevant, really help them transform, and then be well positioned to continue to be that partner.”

Playing Offense With Optimization

When asked by an analyst whether the current phase of optimization that Accenture is going through, including layoffs and real estate consolidation, shows that Accenture is playing offense or defense, Sweet said she likes how that question was phrased.

“I like that, is it offense or defense,” she said. “It is offensive. I mean, if you look at where we are today, we’ve got record bookings [of $22.1 billion], a strong view of the year at 8 percent to 10 percent [revenue guidance for fiscal 2023], 91 percent [utilization of our people]. We’re going after structural costs to ensure that we’re in a better position.”

Accenture been dealing with the difficult challenges of compounding wage inflation with both pricing and with cost efficiencies and digitizing, Sweet said.

Dealing With Customers’ Laser Focus On Costs

When asked by an analyst about changes in sales cycles or the types of projects customers are looking to engage in, Sweet said what Accenture is seeing most in the last several quarters is a “laser focus” on cost.

“So most programs, clients want to see a shorter return on investments [and] more focus on cost,” she said. “They love cost and growth, but it has to be in most cases a shorter return on the investment. At the same time, it’s important that not all industries are in the same place. So if you’ve got industries, say, in the high-tech area, and some spots in retail for example, cost optimization is very dominant. [In] some of the other less affected industries, say insurance, energy, everyone wants to be more resilient and lower cost. But they’re really trying to deal with their technical debt. They’re thinking about growth [and] how do you reimagine the customer experience.”

Walking The Walk On AI

Accenture is on the forefront of applying AI to its own operations as well as bringing the technology to customers, Sweet said in response to an analyst’s questions about the technology.

Sweet started with an anecdote about a client who just days before the conference call asked about Accenture’s myWizard intelligent process automation platform, which she said is based on best-in-class technologies and not on her company’s own code.

“The way it uses AI, for example, is that when a ticket comes in to address something, an IT issue, AI looks at it [and] identifies whether or not it’s been a problem solved before,” she said. “In some cases, it can solve the problem. In other cases, routes it to the right people. And then it learns from every ticket.”

AI has become key to delivering all Accenture’s technologies, Sweet said. For instance, AI is a key part of automated testing, for looking at Accenture’s own accounts payable and receivables to find ways to increase efficiencies, for delivering consulting services, and for looking at sales to predict when and whether to make a sale, she said.

“So we’ve increasingly been using AI both in how we deliver services as well as in how we run ourselves,” she said.

Accenture’s SynOps platform for integrating human and machine intelligence is also very AI-enabled, Sweet said.

“It’s one of the reasons why clients turn to us because it’s helping them digitize faster,” she said. “They’re not having to build these things. So long term, we see these technology changes, things like generative AI, as playing to our strengths because to use these technologies, it requires deep understanding of the industry, the use cases, the process changes.”

Customers are talking a lot about new kinds of generative AI, which Accenture is excited about, Sweet said. However, she said, there is a lot of work needed to help customers use the technology.

“Being like a copilot to human beings, the entire process has to be changed in order to make that work,” she said. “You’ve got to upskill the people, and you have to be able to do all of that in a very responsible way. So we’re already working with it. There’s been a lot of demand to understand this. And in understanding actually how hard it is to be able to implement at scale in an enterprise versus – I’m assuming you’re all having fun playing with it – but how you build that into an enterprise is very different and a great opportunity, and we’re partnering with all the major players to help them to go from technology to implementation to impact.”

Ignore The Economic Cycles, Focus On Strategy

When an analyst asked when Accenture might see some sort of slowdown if the economy slows down, Sweet said she would never say never to the economy or Accenture slowing down.

“But I really stay focused, we try to stay focused, on our strategy being relevant across cycles and basically growing stronger than the market,” she said. “And so the market is still kind of hovering around 5 percent. And so that’s what we kind of watch more than the economy because technology is so core to every strategy that when the economy goes down, what are you seeing? Well, people are saying we gotta optimize. We gotta lower costs. We gotta do managed services.”

The economy can give a company like Accenture an uplift, Sweet said.

“But what we’re trying to always do is grow faster than the market,” she said. “So that’s a big indicator for us. And you see it’s a very strong market. And it makes sense. I mean, I will just tell you [that with] the amount of just the technical debt across these industries and how much work to do, we are still very much in early innings of what needs to be done to take advantage of cool things like generative AI. You got to have data.”

Consulting Business Down Even As Managed Services Rise

While Accenture’s managed services business during the quarter rose 12 percent over last year to $7.54 billion, the company’s consulting revenue actually fell 1 percent to $8.28 billion. The gap between growth rates of the two parts of the company’s business could increase going forward, as consulting bookings during the quarter totaled $10.7 billion compared to $11.4 billion for managed services bookings.

Sweet said that consulting revenue was below expectations, but that she is not concerned given Accenture’s shift towards larger transaction deal.

“Last quarter, we thought consulting this year would be mid-single digits to high single digits. We now see it as mid-single digits for the year, and we’re fine with that, right? Because that’s about kind of lower S&C (Strategy and Consulting) and SI smaller deals. … It’s because sort of the caution that’s impacting the smaller deals, record sales, great large transformational deals.

Accenture’s S&C business in the current fiscal quarter will be similar to that of the second quarter, Sweet said.

“It may take a little bit longer to reconnect with growth,” she said. “But remember, we don’t look at that as separate. We see S&C as a competitive differentiator for these larger transformational deals, which is our strategy.”