Accenture reported solid Q1 financial year 2023 results, with strong new bookings despite the macroeconomic conditions. Managed services was the critical driver for their overall growth (11% YoY). Generally, Accenture’s financial results come early and set the expectation among other major IT service providers. The slow revenue growth percentage of Accenture’s financial result concerns other providers and reflects the overall market demand.
- Accenture’s YoY quarterly growth, consulting bookings and YoY growth, and guidance for Q2 FY 23 suggest a lower demand in the market. Also, indicates a moderate growth for its peers.
- Though enterprises continue to spend on cloud and digital transformation activities (and the spending in this space will continue in the coming quarters as they are fundamental for modern businesses), they are increasingly cautious about discretionary spending due to the current macroeconomic environment. Accenture’s lower consulting booking revenue figures may indicate a drop in demand for discretionary services.
- The shift in enterprises spend emphasizes that service providers must stay relevant to business needs. Industry experience, functional expertise, global delivery and technology capabilities, and partner ecosystem are essential to meet the client’s needs at challenging times.
- Additionally, as per the recent quarter result, Accenture recorded smaller consulting growth than managed services growth which is unusual. These growth and booking data imply enterprises’ focus remains intense on robust digital core, like hybrid cloud, data, artificial intelligence, security, and digital transformation initiatives, but have less focus on pilot projects and discretionary spending.
- Furthermore, managed services new bookings is almost same as consulting new bookings. This further indicates Accenture might stay focused more on managed services for the time being. Accenture could consume other service provider’s managed services market shares in the coming quarters.
The Bottom Line: Enterprises are ready to spend on IT despite the macroeconomic conditions but are less keen on discretionary spending.
They focused on cost optimization at this stage instead of experimenting. Service providers’ offerings must be relevant to clients’ needs and aligned with business objectives with end-to-end delivery capabilities and domain and industry expertise. We can expect stiffer competition among the major IT service providers, particularly Indian-centric ones. To get a better perspective of the market demand, we must wait till Q2 2023 for clear visibility for the rest of 2023.
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