What Clients Should Read into Accenture’s 2014 2nd Quarter Earnings: Stay Focused on Talent!

Accenture’s earnings release was issued last week and today I got a few minutes to really sit down and digest the report along with the remarks of the CEO and CFO. As I read the report, alarm bells starting going off in my head, not for Accenture as a company, but more so for its customers.  Accenture is not in any kind of financial trouble as they slightly missed earnings expectations and their order book is full.  The alarm bells started going off in my head for Accenture customers because of talent level erosion. In light of the earnings miss and resulting pressure on the firm, Accenture customers need to be keenly aware of the tactics Accenture will likely employ to meet shareholder expectations over the coming quarters.  These tactics will come with repercussions that take some time to observe and feel but carry a heavy impact.

Let’s start with what triggered the alarms in the first place. The earnings conference call made several points:

• Attrition rates are climbing.  Annual attrition rates rose to 12% in Accenture’s February ending 2^nd fiscal quarter. This is up 100 basis points from last quarter.  This means that roughly 10% more people left Accenture in the 2^nd quarter than in the first.  That is a pretty big increase.  In rough numbers that is 1 out of every 30 people that work for Accenture decided there was a better place to work.  Attrition numbers reported by Accenture exclude those forced out.
• Management made a reduction to an accrual that is made for variable pay to the tune of $300 million. It was explained that this reduction to the accrual would only impact the variable pay of managers and above. If I assume Accenture has a 10-1 manager to associate ratio, then this change roughly impacts 30,000 people.  If you do the math, they just took an average of $10,000 out of the future pay of managers which is not likely to help the attrition problem.
• Accenture’s Global Delivery network is being stressed with volume pressure coming from Europe and price pressure from the Americas. This puts Accenture in the position to have to bring on additional talent without the ability to utilize salary as an attracting factor.
• Accenture is not capturing the price increases they had anticipated on the back end of large contracts.
• Finally, Accenture has already paired down the sales and administrative costs as a % of revenue which means they have to go after the delivery teams to make up the difference.

Accenture explained in the conference call that they have managed through these periods before and have a playbook that has proven effective. Here is my version of the playbook:

• Accelerate the promotion of talent that is not yet fully developed to the next level. This solves two problems, it helps with retention and it creates margin as the individual promoted will be at the lower end of the pay scale for the job grade.
• Rotate talent off of one engagement when higher margin can be obtained from another client willing to pay a premium. Explain to the current client that you are doing them a favor and somebody with less qualification can do the work.
• Recruit less qualified talent (that will take a lower salary) into the positions that have been vacated by attrition and are required to meet the growth targets.
• Increase rates in markets that will accept rate increases (Accenture defines those as Transformation programs and Digital)
• Be more aggressive on scope change justification to increase the percentage of incentive bonuses and decrease the penalties for underperforming.

While these tactics all might look good to shareholders, they are clearly not in the best interest of clients.

For our existing and potential clients currently using Accenture, find below our own playbook for countering Accenture’s tactics:

• Attach a highly qualified independent contractor to your team that will be able to rapidly assess the capabilities of new Accenture talent that is added to your team. If you get a dud, you want to know that as rapidly as possible and it is not likely Accenture will deny it.
• Watch for burnout on your teams. The delivery network is going to be stressed and those that are stars are going to be expected to carry a bigger load.  Identify those you consider high risk of burnout and have Accenture address the issue.
• Vet all new talent that is being added to your team. Most well written contracts have standards established for minimum years of experience. Check those resumes and don’t pay the new rate until the experience level is reached.
• Lock down the top 20%. Teams typically win when the stars of the team deliver.  Identify who those stars are and work with your partners to lock these folks down for the long haul. Explicitly identify within your program’s risk log the concern of attrition and assign the accountability of mitigation to Accenture.
• Stay on top of your scope and metrics. Your Accenture project leaders have well-honed skills in the presentation of scope change requests that appear to add no real value for the client.  Scope changes can take the form of client participation variances, inability of the client to make timely decisions, etc. While the out-of-pocket costs for fees may not be impacted, these changes can result in additional bonus payments or avoid the engagement of penalty triggers.

If you would like to learn more about how UpperEdge has helped companies assess and avoid large IT transformation project risks, or if you have any questions or comments, please do not hesitate to contact jbelden@upperedge.com.