People laughed when Andersen Consulting separated from its
now-infamous sibling and renamed itself Accenture. Nice move.
Oscar Wilde's wisecrack about marriage: "Divorces are made in heaven." Well, maybe so. In August 2000 the accounting firm Arthur Andersen and its sister firm, Andersen Consulting, split after a rancorous battle over how much the consultants owed the accountants. Under an arbitrator's ruling, the consulting firm grudgingly dropped its name, and on Jan. 1, 2001, became-Accenture. Kibitzers ridiculed the name, but the company spent $175 million promoting it.
Then came Enron.
These days any tag is better than "Andersen," a name now intimately associated with the shredding of documents. Of course, Joseph Forehand, the lifelong Andersen veteran who is now Accenture's CEO, doesn't want to gloat. Accenture, he emphasizes--in case you haven't caught on--has nothing to do with Arthur Andersen. Indeed, in 1989 the auditors and consultants were set up in legally separate units. Analysts believe that Accenture, based in the U.S., is free of Andersen liability, should any lawyer be eyeing it. "Our reputation is sacrosanct," says Forehand, 53.
The Enron debacle makes Accenture's split look prescient, as other firms that do both auditing and consulting follow suit. In February, Deloitte Touche Tohmatsu announced a plan to separate its two sides. Earlier PricewaterhouseCoopers set plans to sever ties with its $6.7 billion consulting unit; in the spring it will register an initial public offering. KPMG Consulting split from its parent and went public in 2001.
Eighteen months after freeing itself, Accenture is thriving. Despite the recession and tech bust that are choking other consulting firms, Accenture mustered a 38% rise in operating income (net before depreciation, interest and taxation) last year, to $1.7 billion. Revenue grew 17%, to $11.4 billion (47% of its revenue came from outside the Americas). The industry grew at less than half that rate, to $415 billion, says Gartner Dataquest, a research firm. The work keeps coming. From September through December 2001, Accenture booked $5.6 billion in new contracts, its highest four-month total ever. Investors have pushed the stock up 90%, to $27.50, from the July 2001 public offering.
Forehand says that his challenge is to double Accenture's annual revenue in the not-too-distant future. To keep stoking growth, he has increased the firm's government contracts (up 26%, to $1 billion last year), moved deeper into outsourcing (up 20%) and pushed a lucrative but risky change in how Accenture gets paid for its work. It is moving away from the old model of hourly fees and toward pay-for-performance. Some 80% of its revenue now comes from performance-based and fixed-price deals, up from 50% five years ago.
Accenture also has gambled in setting up 20 independent business units that specialize in various pursuits; they include managing Microsoft installations, offering online education and handling personnel departments. It holds a majority stake in six of them, and if they jell, the businesses may be spun off to Accenture's shareholders.
For the next seven years Accenture will run employee education at Avaya, the former network gear division of Lucent. Accenture is revamping Avaya's 2,000 product and management courses so that people can take classes online.
There is a risk-pricing these jobs correctly is tricky. For most of them Accenture gets a fixed fee plus an amount based on how much money its clients make or save or how much their service improves. Example: Accenture gets a base fee from a recent $2.6 billion, five-year deal to manage AT&T Consumer's customer service operations. If, eventually, AT&T serves customers faster than already promised, Accenture gets paid more.
The network of small affiliated companies offers services that Accenture can sell to its clients. E-peopleserve, which Accenture owns jointly with British Telecom, manages systems and people who run recruiting and benefit programs. Last fall, when Accenture signed a $115 million deal with Cable & Wireless, it hired E-peopleserve to take over the technology that runs Cable & Wireless' personnel department. Without E-peopleserve Accenture probably would not have gotten the job.
Accenture thinks that some of these satellites could add as much as $500 million each in revenue over the next five years. So far, though, the affiliated companies have generated less than 2% of Accenture's revenue. Most aren't profitable, and since 1998 they have produced equity losses of $110 million for Accenture. The firm has played the
investment-banker game before, with mixed results. Since November 1999 it has plunked more than $300 million into a portfolio of 70 small companies; last quarter Accenture recorded losses of $90 million on those equity investments.
Forehand advocated creating a network of businesses even before becoming CEO in November 1999, after George Shaheen quit to run the now-defunct online firm Webvan.
Forehand feels for his former colleagues at Andersen, at least the ones who did no wrong. But there's a twist: Andersen's pain could be Accenture's gain. Businesses burned by the aftereffects of the Enron mess need to look more pristine than ever, so hiring separate auditing and consulting teams could become the norm. That means that clients could hop to Accenture, the Big Five consulting stepchild that became the first to go it alone--even in name.