A Rebound in Consulting: Accenture’s Growth and Implications for Indian IT Services
The consulting sector is witnessing a notable resurgence, with Accenture leading the charge. This rebound signals a potential recovery in discretionary spending among international clients, particularly benefiting major Indian IT services companies. However, it also highlights a significant gap in the consulting capabilities of Indian firms compared to their global counterparts, particularly those with robust consulting divisions.
The Importance of Consulting in IT Services
Consulting plays a pivotal role in the growth of technology services companies. Unlike traditional outsourcing, which primarily facilitates participation in deals, consulting empowers firms to shape those deals and stay ahead of industry trends. As the software services landscape undergoes a structural shift, estimated at $250 billion, consulting emerges as a crucial driver for sustainable growth.
Experts assert that an increase in consulting revenue is a leading indicator of a revival in discretionary spending. Ramkumar Ramamoorthy, a partner at growth advisory firm Catalincs, emphasizes that consulting enables companies to explore new areas such as cybersecurity, interactive technologies, and the Internet of Things (IoT). Accenture’s impressive performance in these domains is evident, with revenues of $19 billion from Accenture Song, $9 billion from Security, and $8 billion from Industry X.
Accenture’s Recent Performance
Accenture recently reported a significant rebound in its consulting segment, marking a 3% year-on-year growth in constant currency terms for the fourth quarter ended August. This growth is particularly noteworthy as it follows five consecutive quarters of decline. Consulting accounted for 60% of Accenture’s sequential revenue increase, underscoring its critical role in the company’s overall performance.
Ramamoorthy points out that consulting allows firms to proactively shape deals rather than merely responding to requests for proposals (RFPs), where pricing power is limited. This proactive approach is increasingly vital as companies pivot towards generative AI and other transformative technologies.
The Challenge for Indian IT Firms
Despite the promising outlook for consulting, many Indian IT players lack robust consulting divisions. While some firms are making strides to expand their consulting capabilities, they still face challenges in keeping pace with industry leaders like Accenture. For instance, Wipro has made strategic acquisitions, including management consultancy Capco and SAP consulting firm Rizing, to bolster its consulting offerings. Wipro’s CEO, Srini Pallia, has emphasized the importance of developing AI-powered industry solutions through a consulting-led approach.
In contrast, Tata Consultancy Services (TCS) has undergone restructuring within its consulting and services integration division, highlighting the challenges faced by Indian firms in adapting to the evolving consulting landscape.
Future Prospects for Indian IT Consulting
Analysts predict that consulting will be a key growth driver for the Indian IT sector. Yugal Joshi, a partner at research firm Everest Group, notes that while the type of consulting offered by Indian IT firms may differ from that of Accenture or the Big Four, there is a growing expectation for more industry-aligned consulting services. Although some investments in client accounts may not yield immediate revenue, they are essential for fostering strategic conversations and securing larger business opportunities in the future.
As Indian IT majors prepare to report their second-quarter results, starting with TCS on October 10, the focus will be on how these firms adapt to the changing consulting landscape. Accenture’s recent consulting bookings of $8.6 billion, up 1% year-on-year, reflect a strong demand for integrated services that combine strategy, consulting, technology, and operations.
Conclusion
The rebound in Accenture’s consulting business is a promising sign for the broader IT services sector, particularly for Indian firms looking to enhance their consulting capabilities. As the industry evolves, the ability to shape deals and provide comprehensive consulting services will be crucial for sustainable growth. While Indian IT companies face challenges in this regard, strategic investments and a focus on industry-aligned consulting could pave the way for a more competitive future. As the consulting landscape continues to shift, the ability to adapt and innovate will determine the success of these firms in the coming years.