Accenture: Defensive Tech

"Change is the only constant"

– Heraclitus

arvy's teaser: Accenture is a pioneer of digital transformation. Reputation, corporate culture and structural tailwinds determine the company's path in the constantly evolving tech landscape and give Accenture a suitable seal of approval: "Defensive Tech".

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Consulting and Outsourcing.

These are sought-after services when it comes to increasing efficiency, complying with regulations and reducing costs.

In today's fast-paced world, you must be constantly on your guard, or you will not necessarily go under, but you will certainly be overtaken by the competition in the future. History has shown time and time again that, especially in the technology sector, you must be fast and flexible and never stop innovating. Think of the former market leaders (chart 1). All highly praised as "the next big thing" and now forgotten. Change is the only constant, as Heraclitus said 3,000 years ago.

This is where an IT services company comes in. It has an excellent reputation and is a great beneficiary of change. It advises every company that is affected by it and wants to continue to play a role in the future. And that, in turn, is every company.

The company’s name is derived from "Accent on the future".

Accenture.

Chart 1: The Early Tech Leaders: Where are they now?

Source: Fundsmith Annual Shareholders' Meeting February 2024

Consulting & Outsourcing and Always Something New

Accenture is one of the largest IT-services companies in the world, providing both consulting and outsourcing capabilities.

• Consulting (53% of revenue, six-month to two-year contracts): Accenture provides solutions for specific enterprise problems as well as broad-scope strategies in addition to integrating software for more than 75% of the global top 500 companies. Example: It advises on the integration of AI tools, such as Chat GPT, into the enterprise, including from a regulatory, privacy and security perspective.
• Outsourcing (47% of revenue, multi-year contracts): Accenture offers business process outsourcing like procurement services as well as application management. Example: Accenture worked hand in hand with Swisscom on a four-year redesign of their application testing approach - the Swisscom app you have on your phone. Maintenance costs were reduced from 40% to 8% and the release of new features in the app now takes two weeks instead of twelve weeks.

Accenture is a pioneer of digital transformation and knows that there will always be something new in the field of business technology, i.e. constant change. Therefore, Accenture places great emphasis on new trends, which allows the company to stay relevant and work with its key clients. This has led to significant growth.

In recent years, the number of employees has doubled to 700’000, with 350,000 in India (chart 2). That is a huge workforce.

And you must integrate them into your corporate culture.

Chart 2: Accenture’s 2023 Highlights

Source: Accenture, Annual Report 2023

Reputation and a Great Place to Work

When it comes to being advised by someone or receiving outsourcing services, reputation and well-executed services are the be-all and end-all for clients. A major risk in this business is to under-deliver.

Be sure to avoid this!

The company enjoys a good reputation among both customers and employees. For more than 20 years, Accenture has been recognized for its achievements as a global market leader, great employer and responsible company. It is ranked 10th on the World's Best Workplaces™ list. This recognition is based on employee feedback that measures trust, pride and camaraderie at work.

Soft factors like these, which come from within, will influence the company's success on the outside for a long time. I reminisce about one of my favorite books «The hard things about hard things» by Ben Horowitz. I highly recommend it.

Horowitz stated corporate culture with «culture in a company is: how do people behave when you are not looking?». Think about that for a moment. This statement is deeply engrained in Accenture's mindset.

After all, corporate culture is the cornerstone of any successful business (chart 3).

Period.

Chart 3: Fortune 100 Best Companies to Work For

Source: Great Place To Work

Structural Tailwinds and Sticky Clients

According to Morningstar, Accenture enjoys a wide moat due to intangible assets (reputation) and high switching costs (long-term relationships with clients).

The strength of its excellent reputation is associated with reliability, and strategic as well as technological expertise, particularly among large, risk-averse corporate clients.

This trust in Accenture is reflected in the size of its client base. Accenture now has more than 200 diamond clients, the category of the company's largest clients (>$100m in revenues). In addition, Accenture enjoys tremendous consistency in its client base. The company reports that 98 of its 100 largest clients have been clients for at least 10 years.

This makes Accenture a solid company that has a defensive business model with long-standing contracts but can still enjoy strong growth due to structural trends such as the integration of artificial intelligence into everyday working life. A sweet spot.

At arvy, we are invested in several companies with such characteristics and give them a suitable seal of approval.

Defensive Tech.

Chart 4: Accenture over 10 years

Source: TradingView