About the organisation
Like much of the IT services and outsourcing industry, Accenture felt the impact of the recession later than most businesses, and it took longer to return to growth.
Businesses could not pull out of long-term outsourcing contracts quickly, but they were also reluctant to sign new ones until the future of the economy looked more certain. The company’s consultancy business was particularly hard hit, as clients refrained from ambitious new projects.
Accenture’s lowest ebb was the third quarter of the 2009 financial year, when sales dropped 16% compared with the previous year.
But while many companies reacted to the recession by cutting IT investment, Accenture maintained that investment throughout.
As CIO Frank Modruson explains below, the company invests in opportunities to cut the operating cost of IT – it has invested $1 billion in the past ten years, cutting IT operating cost by $3 billion. The fact that business volumes were
down was no reason to stop doing that, he says.
Of course, Accenture’s IT department is in a fortunate position – the company is built on the proposition that investing in IT today delivers value in the future, a maxim that not all organisations adhere to.
But it’s not always easy being the ‘doctor’s doctor’, Modruson says. “The business holds us to a very high standard,” he explains. “We’ve earned their trust with our record of delivery, but I know that if we had a bad project there would be a lot of scrutiny on us.”
Information Age: When the recession hit, how did it affect Accenture’s IT strategy?
Frank Modruson: Our management team, including myself, has been through a few recessions now. This one was harder and took longer to recover from than previous recessions, but we had more experience of dealing with it.
Often in a recession, the IT department gets a phone call saying ‘cut spending’, because it is an overhead. We did not get that call. In fact, we continued to invest in IT throughout the recession.
We’ve been on a march to make IT’s operating expenditure very efficient for many years. Back in 2001, we were spending more than $9,000 per person on technology. Now, we’re spending $3,000 per person.
On top of that, the technology is actually better. For example, we have about 80 telepresence rooms around the world, we have 25,000 video end-points and PCs that have web cams in them – all this stuff is very expensive. Meanwhile, satisfaction with IT has gone up from 66% in 2001 to 92% this year.
How we’ve achieved that is by investing in IT to drive down operating cost. Over the last decade, we’ve invested about $1 billion in our IT. Over that same time period, we’ve saved about $3 billion in operating cost.
What are some IT investments that have cut operating costs?
One of the things we’ve done is simply to replace the old equipment that accumulates over time. Most enterprises have equipment dating back to the 1970s; they’ve got mainframes, mini-computers, Unix boxes, Linux boxes, etc.
Having all this stuff running at same time, and trying to get it to run together: that can kill you. What we’ve done is replace all the old stuff. Generally speaking, the reason why new technologies are successful is because they are better, faster and cheaper than old technology.
Our oldest application is our treasury system, which dates back to 1999, and we’re replacing that now. All of our database software, operating systems, data centres, network – everything else is relatively new.
Back in 2000, we standardised all of our systems on Microsoft’s technology platform. Most IT projects at other organisations include an evaluation of what technology to use, but we skip that stuff. In reality, the technology is pretty good across the board.
And in 2004, we moved to a single instance of SAP across the entire organisation. That was a big watershed event, because it became a key anchor point for one version of the truth around managing the business.
Did you consider any short-term cost reduction measures?
Of course, you consider your options and discuss the repercussions. I raised the option of extending the replacement cycle for our laptops. We depreciate the cost of laptops over 24 to 30 months, so after that they become free. But we’ve got over 100,000 laptops, so that’s quite a cost saving.
We’d done that after the dotcom crash, and it was very unpopular. The failure rate of the device rises very steeply after 24 to 30 months, and if an employee’s laptop breaks they lose a day while it gets fixed, and employee productivity drops as their laptops start to fall apart.
When I suggested doing it again this time, our CFO, Pamela Craig, said to me, “We did this once before, and it was a bad idea back then, wasn’t it?” I said, yes, it was a horrible idea. “So why the hell are you suggesting it now?” she said. It was an easy way to save a big amount of money, but here was the person running the books saying no.
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Were any large projects under way when the recession struck?
Yes, we were midway through a project to unify our voice and data system on a single network. In 2007, we launched a project to replace all the network equipment and infrastructure, install new phones, put WiFi in every office and eventually put in telepresence – basically to replace the entire network across Accenture.
Did you consider scrapping that project?
We have an IT steering committee, which is made up of the chief operating officers of all our business units and is chaired by the CIO. Every year it reviews all the ongoing projects, looks at the business cases and reaffirms their endorsement.
For the network transformation project, we had shown in the business case that it would pay for itself in about two and a half to three years. And every year the steering committee looked at the progress and approved the next year’s investment. They could have asked whether it could be stopped, but it never came up.
The thing about IT projects is that they can take six months or a year to get into place. In a recession, the last thing you want to do is cut a project, and then when growth returns to tell the business that they have to wait another 12 months to get the system they wanted.
Has the steering committee ever stopped a project midway through?
They did get very frustrated during the SAP migration project. It was a big undertaking, and it took the lion’s share of our IT investment budget. They asked me why we were spending so much on that one project, leaving so little for investment in other areas of the business. We got through it, but we had to cut our IT investment budget for a couple of years after that.
Return to growth
Has the return to growth affected how you are investing in IT?
The IT projects we do reflect the improvements that we want to make in the business more than the economic phase we’re in.
For example, we’re upgrading the treasury system because it will replace a lot of mind-numbing reconciliation work that is better done automatically. We’re doing it because it makes sense, not because our business is doing any better or worse.
In fact, if I look back at our IT investment spend over time, it hasn’t generally been tied to the economic performance of the world.
Is that an approach you commend to every organisation?
It depends on their circumstances, of course. But if there is an investment you can make that will improve the efficiency of the business, why would you wait before you do it? You are only delaying the benefits that way.