Accenture bullish on manufacturing and product engineering

Equity brokerages and analysts in India routinely track Accenture's quarterly results for a bunch of reasons. The $44-billion technology consulting firm is the industry bellwether in global IT services.

Two, its latest financial quarter showed momentum in billings and revenue, particularly outsourcing revenue. In Accenture's third quarter ended 31 May 2021, its outsourcing revenue breached the $6-billion mark, up from an average of $5.2 billion in the preceding four quarters. This augurs well for Indian IT firms that generate revenue from outsourcing or offshore delivery.

And three, Accenture is seen as a strong indicator of how the global technology-services market is shaping, and where it's headed. In February, Accenture’s management said its revenue growth returned to the pre-COVID level, a quarter ahead of expectations. And its hunger just hasn't waned.

When Accenture began its financial year on 1 September 2020, it had earmarked $2 billion for M&A. That is expected to touch $4 billion when it concludes the financial year in August. It has made 39 acquisitions so far, compared to 34 in 2019-20.

Recently, it announced three acquisitions in a week. On June 18, Accenture acquired Exton Consulting, a banking and insurance technology outfit in Paris. Four days before that, it had announced the buyout of DI Square, a software services firm in PLM (product lifecycle management) and ALM (application lifecycle management).

Accenture had also agreed to acquire umlaut, an engineering consulting firm in Germany with clientele in automotive, aerospace and defence, telecommunications, and energy and utilities. Umlaut is a billion-dollar deal, which will get closed in 2022.

So how is the market shaping?

Accenture CEO Julie Sweet is bullish on the digitisation opportunity in manufacturing and product engineering. In the pre-pandemic era, manufacturing enterprises weren't as fast to digitise as financial services and retail sectors. Accenture has a group called ‘Industry X’ that combines data and digital capabilities with engineering to help clients transform factories and plants.

Both umlaut (4,200 engineers and consultants) and DI Square (70) will join Accenture’s Industry X group. DI Square takes Accenture deeper into automotive and manufacturing clients in Japan and other markets, while Umlaut's workforce is spread across 17 countries.

“COVID-19 has accelerated the need for companies to transform these core operations, and umlaut’s highly-specialised engineering services will enhance our ability to meet the accelerating demand,” Sweet said in a press statement to announce the acquisition.

In March, Sweet had explained the rationale driving Industry X to equity analysts, pointing to its strong double-digit growth. "It is also driven by the need to enhance the efficiency and flexibility of manufacturing facilities, and the ability to interconnect machines and operate remotely," she said. Since 2017, Accenture has made more than 20 buyouts to build its Industry X capabilities.

In June, she cited an Industry X project with a global automaker to execute online remote software updates for in-car computer systems. It allows seamless deployment of new software versions. In another Industry X engagement with a large electric company in Japan, Accenture is digitising their operations and standards across each department of the power plants.

Its Industry X acquisitions include operations technology provider Electro 80 in Australia, industrial robotics and automation services provider Pollux in Brazil, operations consultancy Myrtle in the US, and technology consultancy SALT Solutions in Germany.

For large Indian IT firms like TCS and Infosys, manufacturing has been a weak spot. Both derive a bulk of their revenue from banking and financial services, and retail. If Industry X is anything to go by, product-engineering opportunities will open up in manufacturing, communications, as well as energy and utilities industries.

As Sweet told analysts in February, “We’re at this amazing tipping point right now, where we’re seeing an acceleration of digitisation in manufacturing and product engineering.”