IT Services: Moving in right direction

Concerns about the impact of the Russia-Ukraine conflict and persistently high inflation are leading to the emergence of renewed focus on costs among European firms. Higher focus on costs can lead to reprioritization of tech budgets and delay/reduction in discretionary spending. The current deal pipeline and decision-making have not been impacted for Accenture. Cyber security, supply chain resiliency, and energy efficiency are also on top of mind for enterprises due to the Russia-Ukraine conflict. 

Accenture despite being the largest IT services firm will grow at the fastest pace among all global Tier 1 player, a remarkable feat. Cloud business was $1 billion in revenue in FY2012 and has grown to $26 billion in a decade and is still clocking 30% growth. The company has done a good job of anticipating future opportunities and investing strongly through organic and inorganic routes to capture new avenues of spending and achieve a market leadership position. 

Enterprises are on a journey to become cloud-first businesses. This involves (1) getting to the cloud, (2) utilizing the power of the cloud, and (3) operating on the continuum (seamlessly operating between the public cloud, private cloud, and the edge). The opportunity for IT services companies goes beyond cloud migration which is a 2-3 year opportunity and provides visibility of continued strong spending on IT by enterprises.

30-40% of workloads have moved to the public cloud from 20% in the past 18 months. The Companies are building a digital core to modernize the IT landscape. 

Sustainability, blockchain, Industry X, and cybersecurity are high potential areas. Accenture already has a decent scale in sustainability (close to $1 billion), and Industry X and cybersecurity are both $5 billion businesses and have strong growth runways ahead. Metaverse can be a fairly exciting opportunity. These will form the next waves of growth post cloud and data opportunity. Quantum computing, space tech, and science tech are potential areas of big demand in future years. Accenture has already started to invest in these trends through organic and inorganic means.

Accenture is able to attract about 4.6 million skilled candidates per year, including 600,000 employee referrals. Accenture uses high touch through high-tech recruiting, using the best technology, artificial intelligence to discover talent. Apprenticeship programs enable the unlocking of new talent pools.

Adoption of compressed transformation is increasing and accelerating across enterprises providing a structural tailwind to demand Indian IT for the next several years. Companies are spending more on innovation than on maintenance. Tech spending is viewed as a growth accelerator. However high inflationary environment and geopolitical tensions (Europe is more vulnerable) are realities that enterprises are responding to. Higher focus on costs is an outcome but not necessarily a bad one for Indian IT, cost focus can bring back mega deals for the industry and will benefit Tier 1 players enabling them to close the gap with mid-tier peers.