Ladies and gentlemen, good morning. Thank you for standing by, welcome to the Accenture Digital Conference Call. At this time, all lines are in a listen-only mode. Later, there will be an opportunity for your questions. If you do wish to ask a question, please press star followed by the one. Once again, for questions, please press star and then one. As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Ms. KC McClure. Please go ahead.
Thank you, Tom, thank you, everyone, for joining us today on today's conference call to discuss Accenture Digital, including highlights from our 2014 Technology Vision. As Tom just mentioned, I'm KC McClure, Managing Director of Investor Relations. With me today are Paul Daugherty, our Chief Technology Officer, and Mike Sutcliff, Group Chief Executive of Accenture Digital. Before we get started, let me remind you that some of the matters we will discuss today may include forward-looking statements that involve risks, uncertainties, and other factors that could cause actual results to differ from those expressed in the call, including, without limitation, those in our most recent annual report on Form 10-K and other documents filed with or furnished to the SEC.
I would also like to remind you that we will not be providing you with an update for or making comments related to our third quarter of fiscal 2014 or the business outlook for the rest of this fiscal year. Let's get started. There will be time for QA later in the call, so with that, let me turn it over to Paul.
Thanks, KC. I'm going to start off talking about our technology strategy and specifically the role that our technology R&D function, our research and development function, plays in shaping our differentiation in the marketplace. As you all know, technology's accelerating at an unprecedented rate with a tremendous amount of change on the horizon. Because of the incredible pace of change, being a leader in the technology space means you always have to be looking ahead. It's not enough to be an expert in the key areas of technology today or even what's going to be around a year from now. You really have to be looking several years ahead and thinking about how emerging technologies will change business models and impact industries overall. Accenture's been taking that perspective and very much looking ahead.
One way we do that is through our dedicated research and development group, Accenture Technology Labs. For more than 20 years, we've been exploring the future of technology through Accenture Technology Labs, and we've been increasing our focus in some areas like Silicon Valley significantly in recent years in response to the changes in technology. Our labs is an incubation group where we test new technologies and also pilot them with pioneering clients. We also have an open innovation strategy where we team with a number of important constituencies in the ecosystem. We team with venture capitalists, entrepreneurs, startups, university labs, and corporate R&D labs as well, so that we can tap into not just the best thinking in Accenture, but the best thinking in the entrepreneurial world, the investment world, the university world, and again, among our corporate partners.
What we do each year is we take all those insights and our experiences, and we publish our Accenture technology vision, and I hope some of you have had a chance to see that. The material's all available out there on the web digitally. The technology vision identifies the technology trends that we believe will shape businesses in the next three to five years. We use this to identify trends that we believe will become our offerings in the future, so it also shapes our business and our technology strategy. For example, in the early 2000s, our vision introduced concepts like enterprise mobility and virtualized infrastructure and identified those as key trend areas. Today, we know those areas as they've evolved as mobility and cloud, which have both become mature Accenture businesses.
Those are great examples of us being ahead with R&D, identifying future trends, getting on top of them early with our clients, and then building significant businesses. You'll hear more from Mike on this as he talks about our digital growth platform and how we've grown that business. With that as context, I'll spend some time talking about our technology vision with a focus on why the trends are important for our clients, what trends we're currently focused on, and how they shape our current technology strategy. We've been publishing our vision for the last eight years. One of the things that makes our vision unique, there's others that produce visions, but one thing that makes our vision unique is the fact that we put the technology in business terms so that our clients can understand the impact of the technologies on their business.
That we look at the trends in terms of an action plan for businesses. What can you do as a business if you want to take advantage of these technologies? That resonates very well in the marketplace with our clients. The key theme last year of our vision was every business is a digital business. We intentionally kept that theme in this year's vision as well because every business still is a digital business, and we're still early in the adoption of digital business, as Mike will talk about. There's one important nuance that we see this year with our vision that we call out, which is big is the next big thing. Again, big is the next big thing. What we're focusing on with this theme is that we've seen a change where large companies are going digital in big ways.
It's not just about the startups and the emerging digital companies, but large companies are moving from becoming digitally disrupted to becoming disruptors in their own right. We're seeing that with many of our large clients. They're no longer just responding to the change from the startups, but they're incorporating digital technologies, digital strategy, and digital transformation in surprising ways and driving disruption in their industry and even disrupting others. We believe our big clients, as we look at this, have tremendous advantages, and this creates a great opportunity in terms of the size, scale, talent, and other attributes they have to become leaders in the next wave of what's happening with digital. Just 2 examples to paint this out for you.
First would be Tesco, the U.K. grocery retailer, who's now offering online and mobile services and driving over 20% of their grocery orders via online channels. They've even launched their own tablet so that they can create an end-to-end digital experience for their consumers. A grocer, Tesco, disrupting their market through digital. Another great example is GE, General Electric, who's investing heavily in the industrial internet. We have a joint venture with GE Aviation called Taleris. Through it, we're using the industrial internet to manage the reliability of airplane fleets and reduce delays on unscheduled maintenance and increase efficiency. For example, Taleris sensors mounted in planes can do more than warn an operator of an impending engine failure. They also enable the carrier to optimize the route networks and flight plans to minimize disruption, streamline spare parts logistics, and reduce downtime, fuel costs, and passenger inconvenience.
Great benefits by applying digital technology in a big company again. Big is the next big thing as the theme. Just to dive down 1 more layer, I'll dive into 2 of the 6 trends in the vision. There's 6 trends overall, but let me just focus on 2 of them to give you a sense of the vision and some of the key trends. The first trend I'll highlight and dive into is digital-physical blur. The key point here is that things like wearable devices, sensors, drones, autonomous cars, and the like, are blurring the lines between the digital and physical world and providing us with real-time intelligence to inform our decisions both at home and work.
From health monitoring devices like the Jawbone or FuelBand that many of you may wear, to sensors in manufacturing plants, the physical world is coming online, changing behaviors and expectations and disrupting entire industries. This is a big area that our digital business is focused on, and Mike will talk about this a little bit later on. A good example of this is work that Accenture's doing related to the industrial internet and Internet of Things with Magneti Marelli, which is part of the Fiat group. Magneti Marelli provides high-tech systems and components for the automotive sector. We're collaborating with Magneti Marelli to develop and manage their digital entertainment and communication solutions and services. This includes the entertainment or infotainment services, as well as GPS navigation, in-vehicle tracking, security, diagnostic systems, and the like.
All this improves the onboard driving experience for the consumers, it's really about combining our industry knowledge along with our knowledge of creating the digital experience for the driver and the passengers in the car, then combining that with the industry experience of how to put that all together in terms of end-to-end processes and businesses for our clients. It's a great example of the digital-physical blur and the kind of transformation and disruption that we see as big companies move to digital. When you think about what this means for our clients, there's a lot of opportunities for more intelligence, more information, it also creates some sticky challenges. It's things like we saw our clients face with prior waves of technology.
They have to figure out what value all these new technologies can provide, then engineer their business processes to integrate them in a useful way and really transform their workforce and their business. They have to rethink their technology platforms and their skills of how they deliver these complex transformations and solutions. That complexity, that integration, that transformation puts it squarely in the middle of Accenture's sweet spot and really pulls together the expertise that we've got in strategy, in digital and technology integration and operations as we help our clients build digital transformations as they move to the vision of the digital-physical blur. We're ahead of other technologies that are making the digital-physical blur a reality.
We're doing a lot of work in our labs, looking ahead again to the next few years in things like augmented vision through Google Glass and other vision technologies, artificial intelligence, which is moving very fast in terms of creating virtual agents and related capabilities, drones, autonomous drones, robotics applied to digital manufacturing, many other technologies that are really at the heart of the changes that we see happening with the digital-physical blur. That's one trend. A second trend that I'll touch on briefly is the data supply chain. The data supply chain is about thinking about your data differently. What we're seeing as we help clients with digital business and with this digital vision is that data is often their key limitation. One in five companies, based on the research we've done, only one in five companies integrates data across their enterprise.
While 80% of our clients in our high-performance IT survey say they're investing in analytics, 80% are investing in analytics, 40% of our clients aren't getting the value they want. Half the clients aren't getting the value that they expect of analytics, which is a huge opportunity, a lot of it comes back to data. In the vision, what we're talking about is a new view that's required around data to help you get the value out of it. It's the notion of a data supply chain.
Rather than thinking about a static warehouse, it's important to think about new technologies and applying technologies differently to get to the notion of a supply chain where you're continuously evaluating your data, cleansing your data, applying machine learning and analytics to improve the value of the data, also continually ingesting and discovering the capabilities of new types of data that you can bring into the enterprise. That's a very different view around data. It requires different thinking, different governance in the organization around data, and different technologies that are applied, and we think that that creates a big opportunity for our clients going forward. Second, a quick view of our vision overall. Every business is a digital business. Big is the next big thing as our big clients move to become the disruptors in digital.
You've heard about two of the trends, the digital-physical blur and data supply chain. In summary, we're seeing big companies embrace digital and lead and disrupt in their markets, and digital's become fundamental to our clients' business and technology strategies. It's pivotal to how they're competing, innovating, expanding at the center of the discussions that we're having in the executive suite. In fact, our recent high-performance IT research that's also available on our website, or we can send that to you as well, found that the high performers, those that are performing at a higher level than peers in their industry, are moving to digital much faster than other organizations, anywhere from 50% to twice as fast as other organizations. High performers are moving to digital more quickly and seizing this advantage to become the disruptors and create the advantages around being a digital business.
Our clients are embracing digital in a big way. They realize it's not just about digitizing their enterprises, but it's about transforming the organization, looking at their strategy, and looking where the new business opportunities come along. With that, I'll hand it over to Mike to share how we're helping them on that journey and how we're investing in Accenture Digital.
Well, thank you, Paul. I appreciate that. We believe that digital technologies are fundamentally changing the way that organizations are operating, from how they interact with their customers, their citizens, patients, or students to enable new experiences, to how they enable employees to collaborate with suppliers, how they execute business processes more efficiently, and how they grow their business and expand their footprint with smarter versions of products and services. We believe it's about doing things differently, but it's also about doing different things than they've been able to accomplish in the past. The application of digital technologies has created an entirely new set of opportunities and challenges for our clients, and as a result, it's created a new set of opportunities for Accenture to help them create value. Our focus is to help our clients change the way the world works and lives.
Working with these digital technologies allows us to help our clients imagine the future, and then develop new sets of capabilities to create that future. We focus on delivering better customer experiences, patient outcomes, better citizen services, and better education, in addition to delivering reductions in costs and improvements in products. We created Accenture Digital to integrate and further expand the extensive capabilities that we had developed in digital marketing, mobility, and analytics to help clients unleash the power of these digital technologies to transform their businesses. As you would expect, we work closely with our experts from Accenture Strategy, cloud computing, software as a service, and security to develop these new digital solutions for our clients. We're also working closely with our industry teams, combining our digital capabilities with our extensive industry expertise. We are focused on helping our clients realize the value of digital.
In every industry, we are trying to deliver the value of digital at speed and at scale. Our approach is to work with clients on delivering better business outcomes, starting with Accenture Strategy professionals who can help clients understand how and where these digital technologies will enable disruption within and between industries. We apply a comprehensive portfolio of business and technology services to help clients change how they create new products and services, how they market, sell, and deliver against their missions to serve their customers, their citizens, their patients, or their students. We expect all of Accenture to understand how we will help clients deliver change using these digital technologies.
Accenture Digital will be the coordination point as we bring to bear the full capabilities of Accenture, including our expertise in business and technology strategy, our deep experience in customer insights, our leading capabilities in systems integration and enterprise applications, and our scale and excellence in global delivery and operations to help our clients realize the power of digital. Accenture Digital started by bringing together about 23,000 professionals across the company who had wide-ranging skills and deep experience and expertise in developing, delivering, and managing digital strategies and solutions. We believe that this creates the world's largest digital capability, but we're really just getting started. Accenture Digital will enable us to quickly assemble specialized skills and form integrated teams that can serve each client's specific needs. Most importantly, we're able to do that at scale and anywhere in the world.
We have two broad sets of discussions with clients who are interested in leveraging these digital technologies to impact their performance. The first conversation is around digital customers, channels, and markets. This is about designing and enabling improved multi-channel customer experiences, digital customer interaction, digital sales, and digital channel distribution capabilities. It leverages our expertise in multi-channel customer experience, service design, social media, social networks, digital sales, digital marketing, e-commerce, and mobile e-commerce platforms, including mobile offers and connected customers. The second set of conversations is around how digital technologies enable the digital enterprise. This is about enabling new operating models and business processes, connected product platforms, analytics, and collaboration capabilities to enhance productivity. This leverages our expertise in digital corporate services, digital manufacturing, digital operations, digital supply chains, and connected products.
We see this as being applied across industries in areas such as smart water, smart grid, smart buildings, smart cities, intelligent pipelines, digital utilities, digital plants, and lots of other industrial Internet applications. We believe that the combination of connectivity and computing creates an incredible set of new opportunities around connected devices, connected machines, and connected people to create new services and attract new customers. In fact, we have a great example of our work related to the connected vehicle. Recently in Barcelona at the Mobile World Congress, we demonstrated our connected vehicle capabilities, which bring together both consumer electronics and automotive devices, where drivers and passengers can both connect with their preferred social networks or Internet content providers through their smartphones and their vehicle head units. It also includes the tablet in the car concepts, which is a fresh and upgradable user interface instead of applications.
We're working with many automotive manufacturers now to bring this concept to their customers. Finally, it leverages our connected device platform to continuously deliver information to the car and pull information from the car to monitor vehicle performance. Accenture Digital has continued to invest in our industry and our technology capabilities to further differentiate us in the marketplace, particularly in areas where we see new waves of growth. In our previous calls, we've talked about the acquisitions that we've made in the last 18 months to strengthen our capabilities in digital marketing, mobility, and analytics. It's included companies like avVenta, Fjord, Acquity, NewsPage, Apogee, Crittercism, Neo Metrics. This morning, we just announced another acquisition to help build our analytics capability. Together with our ecosystem partners, we have been on the leading edge in innovations in these areas.
For example, we did form a strategic global alliance with GE to develop technology and analytics applications that help companies across a wide range of industries take advantage of the massive amounts of industrial-strength big data that's generated through their business operations. Accenture Digital provides expertise that sits squarely at the forefront of these trends that we believe will be critical to our clients' businesses going forward, including these connected devices, the industrial internet, telematics, and machine-to-machine computing, among others. Let me share a couple of examples. We're helping Thames Water prove the benefits of smart monitoring capabilities, conducting an 18-month pilot, leveraging Accenture's Smart Grid Services powered by Accenture Analytics for Thames Water. We're using real-time data to monitor their assets in an efficient way so we can deliver improved performance. We'll also implement advanced analytic capabilities to enable more efficient water sourcing and remote monitoring of their assets.
The information and the data will help the utility anticipate equipment failures and respond in near real-time to critical situations such as leaks or adverse water events. We're now looking to take this innovative solution to market to help other clients in the same space. We have another example in our work with Adidas, where our team was working with the Adidas organization to help them expand the success of miCoach as a platform of smart technology to help fit the lifestyles and the behaviors of their runners. Adidas wanted our Fjord organization to help them transform the miCoach experience from the web and the smartphone applications to the wrist device without compromising the functionality and the features previously designed for their online and their smartphone applications.
That meant that our Fjord team would step into largely uncharted territory because there are very few examples of companies successfully designing small wearable touchscreens. We were able to map the interactions of the existing miCoach designs and render them on a tiny 26-by-26 millimeter screen. The result of this micro design, Fjord created a smartwatch that could be likened to having a personal trainer encouraging you from your wrist. The device achieves a completely wireless solution while maintaining maximum connectivity to the miCoach service. Perhaps the biggest measure of success was during the user testing when users were impressed with how intuitive the design was, despite it being the first time they had operated such a small screen. The compact design has no cords or extraneous bulk of a smartphone, runners love it.
The smartwatch is really meant for any athlete who wants to simplify their workout accessories. From these examples, you can see how digital technologies are becoming fundamental to how our clients think about business and technology, and how they're going to use those technologies to compete, innovate, and expand their businesses moving forward. I'll share one final example with you. We're helping the team at Ducati redesign dealer communication and operating model, processes and tools, and align them to industry practices which enhance their operations with dealers and their interactions with customers in a powerful, dynamic way through the use of mobile devices. Accenture helped launch the program with an extensive core function assessment and mobilized a team to design, develop, test, and implement, and then roll out a new dealer communication application for Ducati dealers worldwide, leveraging both SAP and Siebel Systems.
With our help, Ducati's progressed on its journey to high performance with a global solution that serves users worldwide in seven languages. By leveraging this new dealer communication system, Ducati is able to capture and consolidate local and global sales activity, spare parts, warranty, and service activity, improving their ability to respond daily to their changing consumer demands. As Paul described a moment ago when we talked about the Accenture technology vision, the impact of the changes brought about by digital will only intensify in the near future, disrupting the business models across both commercial and public service industries. We expect leading clients across each industry to continue setting the pace as they apply digital capabilities to create the future. That's why we've created Accenture Digital.
We're focused on providing all of the support our clients need for their decisions, their actions, and their investments required to become a digital business. With that, I'll turn it back over to KC, and we can move on to questions.
Thanks, Mike. Tom, would you provide instructions for those on the call, please?
Yes. Ladies and gentlemen, if you wish to ask a question, please press star followed by the one. You'll hear a tone indicating that you've been placed in queue, and you may remove yourself from queue at any time by pressing the pound key. Once again, for questions, please press star one. Our first question today comes from the line of Joseph Foresi, representing Janney Montgomery Scott. Please go ahead.
Hi. I was wondering, could you just start off by giving us some idea of the type of clients that are moving into this digital vertical? Maybe you can give us the growth rate of the clients or the profile that they share.
Well, I guess I would say that we're seeing Accenture Digital demand increase across each one of our industries and impact across all of our geographies. It's one of the most pervasive demands that we've seen across the industry in a very long time. It'd be difficult to pick out a specific type of client. What I would tell you is we've seen some industries move into digital a little earlier. Our consumer products and retail customers, some of our communications and high-tech customers and financial services customers were kind of earlier to the party. When we look today, we're seeing significant demand increasingly from the resources industries as well as public service. It's a little tough to tell you that there's a particular profile or type of customer.
What I would tell you is we're seeing lots of movement in the industry. Customers are coming at it from different angles. Sometimes they're starting with that discussion around digital customer channels and markets. Sometimes they're asking how they can be more efficient with internal operations. Sometimes they're just asking how they can connect to the ecosystem and play a little differently than they have in the past.
Okay, just one second one. What does a typical project look like? Is it larger than your average project? Who do you usually compete with for that business? Are these more on the sole source side? Thank you.
Well, good questions. The first thing I would say from a competitive footprint is as with the rest of Accenture's business, we compete with lots of players from hardware and software providers, different service providers from different industry perspectives. I expect that that will continue to broaden over time. We compete with lots of different people. In terms of the type of projects, we see everything from the small, short strategy projects where we're trying to help clients think through disruption that's occurring in the industry or disruption that they would like to create. We also see large industrial-strength projects where we're either building new e-commerce platforms or developing new analytics applications or deploying new mobile capabilities that haven't existed in the past. Those can be multi-year projects that take lots of energy.
There's the full gamut, as you would expect, across Accenture business, from strategy to technology to operations. Those projects can range from weeks to years.
Thank you.
Next we'll go to line of Sara Gubins with Bank of America Merrill Lynch. Please go ahead.
Hi, thanks for having this call. I'm wondering if the contact with the client is changing much within digital. In particular, I'm wondering if more of the conversations and projects are being sponsored by Chief Marketing Officers, or does most of this still reside with more of the IT departments? Thanks.
Well, that's a great question. In fact, I think we've got a point of view paper out on the internet about that specific topic because we are seeing the Chief Marketing Officer who is worried about this question around digital customer channels and markets and how they're interacting with customers and creating customer experiences as a major topic. Absolutely, we're spending a lot of time. That's why we built [uncertain] as a business to start with. We were really focused on serving the Chief Marketing Officer and the needs of the entire customer service organizations that are clients. Lots of work there. We also see a lot of work coming through the traditional technology component of the business because of course, they're being asked by their business to be responsive to these new demands.
Interestingly, we're also seeing different buyers across the organization, whether they're in manufacturing or supply chain or operations, as they're thinking about how to apply these digital technologies to enable them to be more efficient in the things they've done in the past, but much more interestingly, to enable them to do things they haven't been able to do in the past. When you think about 3D printing or some of the concepts that are being applied now in supply chain and operations, we are actually seeing different buyers who are really not information technology buyers, but more operational technology buyers.
Great. Thanks. With this kind of spend, do you think that this is budgets shifting from prior areas of focus in IT, or is this really additive and new budgets that are spending through digital?
Well, again, I would say this is a situation where we're seeing both. What we are seeing is that some of these technologies are good substitutions which allow the IT organization to dramatically reduce spend that they've had in the past and refocus that money. For example, on one of our financial services illustrations, we actually saw one of our clients drop their cost of storage by 99% because they were actually using a new solution that was just fundamentally more efficient. They took the money that they saved in the storage space, and they applied it to doing some new analytics work that they thought was important in moving the business forward.
We're also seeing budgets come from outside of IT, where we've got other people in the business who see a way to create value, and they're willing to invest other budgets, not necessarily the budget they had thought about as the technology budget to try and create that new value. I would say it's both. It's a bit of a shift in the internal technology spend. I think that shift will actually continue to accelerate away from some of the things they had been focused on in the past, as they all ask themselves how they're going to develop these new technology capabilities to support the business. As I referenced a minute ago, I think we're going to see a bit of a convergence between operational technology and information technology spend within our companies.
Thank you.
Next, we'll go to the line of Bryan Keane, representing Deutsche Bank. Please go ahead.
Yeah, I just want to follow up on kind of the same lines. The question that often comes up is, does the work in digital cannibalize some of the traditional Accenture business lines? Just would like to get your thoughts on that.
Well, I guess the way we view it is, Accenture's job is to help our clients change their business to be more productive. We absolutely see them shifting their spend from some of the legacy environments or the ERP platforms that they had been working on in the past. Frankly, we are very, very large alliance partners with many of the large providers like Oracle, SAP, et cetera, Salesforce, and we see those companies shifting their technology solutions to match the needs of the customers at the same time. There's a lot of movement going on in terms of how CIOs are planning to spend their money. Both Accenture and many of our technology partners are very proactively moving our business towards the new spend pattern.
We don't really think of it as cannibalization as much as we think of it as changing the way we're supporting the clients. We all think the clients are going to spend more money on technology in the future, not less, and we plan to be a big part of helping them do whatever they think is most important for their business.
Does this move towards digital, is this like in the first inning of a nine-inning game, or are we starting to progress a little further? How many years is this exponential growth going to take place? Is this a 10-year phenomenon where exponentially the growth rates in digital and your headcount is going to grow at a quicker rate?
First of all, our perspective on the market is we are in the early stages of the market development, and we do see a decade of significant growth ahead of us. In terms of headcount, I won't comment on that because we think of Accenture Digital as a capability inside of Accenture, but all of Accenture will become digital over the next several years as the market continues to mature. I'll ask Paul to comment on the multi-year perspective because Paul and our Accenture Technology Labs are really taking a look into the future and probably have a perspective on the change they see coming next.
Thanks, Mike. I would say it's I think still the early days. I'd say we're in the early innings, if we use the baseball analogy. If you think about some of the things that I talked about that Mike was talking about, we have clear line of sight to some of the changes that are happening with digital now, and we've talked about some examples on the call. If you start looking at new innovations that are just coming into the mainstream, like 3D printing, advanced manufacturing, you look at some of the things we talked about earlier with increasing use of more sensor technology on the operations side of our clients' businesses. There's still a lot more innovation that's going to come and impact more and more parts of our clients' businesses and open up more opportunity for them to transform to be digital.
We're still in the early days with a lot more innovation to come on these fronts. As Mike said, it opens up a broader market because there's more and more technology spending in our clients. Like take the smart water example Mike mentioned earlier, where it's on the operations side of a water company investing in technology to run water operations more effectively. That's an area they wouldn't have spent technology types of dollars on previously that's now opened up to the kind of services that Accenture can provide. It expands our clients' technology spending and the addressable markets that we can serve.
Just last question from me. Do you need to see discretionary spend pick up to push this further, or is this just becoming a core part of everybody's budget? Thanks so much for the call.
Yeah, sure, that's another good question. When we talk to CIOs, they're all telling us that they're very carefully balancing the challenge of reducing their spend on the legacy environment and shifting their budget towards these new capabilities. Yes, an increase in discretionary spend would be helpful, but even if that doesn't happen, as I said, we're also seeing other members of the management team decide to invest in digital capabilities because it helps them grow their business or improve their operations. If we're thinking about the traditional view of IT spend and discretionary versus non-discretionary, I think it's becoming core, and they're managing that shift very carefully because it's a tough balance to achieve in the short term.
As we look out into the future, all of the CIOs that we're talking to recognize that a significant majority of their spend has to shift to these new platforms, architectures, infrastructures, and applications. That's just what they're going to need to do to support their business.
Great. Thanks so much.
We'll go to the line of Darrin Peller with Barclays. Please go ahead.
Thanks, guys. Look, I just want to see if there's a way you can size this opportunity at all, or I don't think it was mentioned on the call yet, but maybe give us a sense of how large this is for Accenture now. I don't know if it's possible on this call setting or not. Then maybe just the growth rate you're seeing in terms of how it's affecting your business. Then just a follow-up question as well around the types of deals in terms of sort of the what happens after the design and development work. What kind of work can follow on to that?
Sure. Let me start by telling you what we've said in the past, right? We're already at scale with our digital businesses, both in terms of revenue and headcount. While we can't provide an update today on the actual revenue number, what we've previously said about our strategic growth initiatives that we pulled together to form Accenture Digital, is that in 2012, in our investor and analyst conference, we told you that Accenture Analytics was about a $2 billion business. Accenture Mobility had just crossed the billion-dollar mark, and Accenture Song was on the cusp of becoming a billion-dollar business. We updated that in 2013, where we described that we were pleased to see these strategic growth initiatives continue to accelerate, with most of them contributing over a billion dollars of revenue and also generating double-digit growth rates.
What I can say without giving you specific numbers is that those trends continue. This is a significant business for Accenture, and we expect it to be a significant growth opportunity in the future as the general market for digital expands. The question in terms of what happens with the projects is, I think these are very similar to what we've seen in the past with different projects across Accenture. We have some projects where clients are asking us to do very short, sharp pieces of work to help them think through and strategize around a particular topic, and then that's it. They just needed the insight of bringing cross-industry, cross-technology points of view to the table. Sometimes they're asking us to do very concise and specific applications development around a mobile application or an analytics application.
Sometimes they're actually asking us to create a new service, which will be a multi-year operation that is offered to them as a service over time and scales with their business. We've got all types of commercial constructs embedded inside the work we're doing across the Accenture Digital projects, and we expect that that will continue to mature over time, much like we've seen in the rest of the work we do across Accenture.
All right. That's helpful. You'd say it's similar in the traditional sense of sort of a strategy or a design development work leading as a spear and then followed by some sort of a maintenance or longer-term arrangement with a client that could drive long-term revenues.
Yeah. Absolutely. If I look at our pipeline today, we see all of those opportunities existing across industries, across geographies.
That's great. Just one last follow-up, then I'll turn it back to the queue. On the industry side, where do we stand in terms of some verticals versus others? Obviously, I know Financials has talked a lot about digital in certain areas around banking and online. Can you give us a little more color on, are there certain areas that are less competitive for you guys that you have that you really own the verticals, or are there certain areas that are really just early adopters or others have a long way to go?
Yeah. First of all, I'd say nobody owns any of the verticals because there's lots of action going on globally. When we look at what's happening in the Eastern European markets versus the Western European markets or the Asian markets versus the Latin American markets, the industries really are at different maturity levels, even within a single industry, across each of those different geographies. As I said earlier in the call, I think the product industries have moved more aggressively, as you would expect in consumer products and retail. They were early adopters of many of these digital technologies.
Sure
Continue to be kind of on the front end of the innovation curve. In Financial Services, it's been more about payments, frankly, than anything else. We're starting to see analytics become a much bigger opportunity for these Financial Services clients. When we look at Communications and High Tech, that industry is really the enabler of a lot of these digital capabilities, and we're starting to see the Communications and High Tech companies apply these digital capabilities to their own businesses. Those would be the three that I would've said came out of the gates the fastest. We're also seeing the Public Service, Government, Education, Healthcare verticals continue to move fairly aggressively. Even when I look inside our Metals and Mining, our Chemicals, our Energy, our Utilities businesses, we have lots of activity going on across those businesses as well.
For me, it's a really interesting phenomenon in that there's no part of the Accenture business that we look at that we don't see substantial activity and substantial growth opportunity moving forward.
Very helpful. Thanks, guys.
Our next question is from the line of Alex Towle with Horwath. Please go ahead.
Hi, guys. Thanks for the presentation. Just a few quick ones, if I may. Could you just confirm whether all analytics within Accenture is now being put within the Accenture Digital umbrella, or is that mainly kind of newer type analytics, big data, Hadoop, NoSQL type analytics? As the first question. Second one, if you could give us an idea of the offshore/onshore headcount split within that 23,000. Then if you maybe, if you're able to on this call, give us an idea of the margin profile that you're seeing within these digital businesses, and whether it's a truly kind of global management and P&L structure within Accenture Digital.
Okay. Several good questions there. I guess I'll start with the analytics question. There is a core set of what I would call performance management scorecarding and basic descriptive analytics that we consider to be a core part of our existing business. We did not pull those into Accenture Digital. The same way we didn't pull cloud or some of the other core capabilities in because we think those are mature and frankly pervasive across all of the work that we do. The work that we moved into Accenture Analytics is the work that we consider to be the leading-edge data science, where we're trying to do predictive and prescriptive analytics. We work very closely, of course, leveraging the capabilities that we've built over the past 20 years around core analytics, scorecards, and descriptive analytic capabilities. I hope that answered your first question.
Second question, I think you wanted to know the balance of the onshore/offshore work inside of Accenture Digital. We have 23,000 people inside of Accenture Digital. The rough balance in terms of onshore/offshore actually differs between Accenture Song and Accenture Mobility and Accenture Analytics, just based on the fact that those businesses have grown in different rates and in different profiles. We really aren't that concerned with the balance. What we see is a significant demand for both onshore capabilities that are co-located with our clients in their onshore core business operations. We also see significant demand to support them with centers of excellence around the world. The reason I don't really have a number for you is some of our centers of excellence for analytics and mobility actually sit in the United States or U.K. or France or Spain or other places.
They're not onshore or offshore, they're just centers of excellence for us that operate in a kind of a global factory model. What you'll see with our mix is it'll just continue to change to meet the needs of the business, and frankly, I expect to see fairly balanced growth in onshore and offshore. I don't expect to see one heavily weighted against the other. Was there a third question there as well?
Yeah. It was just on the margin profile that you're seeing within Accenture Digital and just whether it's a truly kind of global management and P&L structure around those 23,000 people.
No, it's not a management and P&L structure around Accenture Digital. Our management and P&L structure is by industry and that's how we manage the business. Our job at Accenture Digital is to be the leading-edge set of capabilities that we use to support the work that the rest of Accenture is doing. As I said earlier, we think all of Accenture will be digital. Our job is to help the rest of Accenture accelerate our progress in applying these digital capabilities across each of our industries and each of our geographies. In terms of the question on the margin that we've got in this kind of work, again, differs between finance strategy work, technology work, operations work. It differs depending on whether we've got a long-term project where we're sharing risk with a client or one where we're not.
I wouldn't be able to describe the margins as hitting a specific profile. It really does matter what kind of work we're doing.
Right. I just kind of meant really how does it compare to the group average, if you can give us an idea on that.
I really can't.
Okay, no problem. Thanks.
Our next question is from the line of Daniel Perlin, representing RBC Capital Markets.
Thanks. In this digital world, it sounds like half of the business or some portion of that is very much kind of on the industrial side and the other part is very much consumer-facing as you talk about some of these leading industries that started this kind of wave. My question, I guess, is what is it that your practice people, I guess in D.C., are telling you about kind of the framework from which you can work under this digital context in terms of privacy and security? I would imagine that you guys are as attuned to that as anything, and I'm just wondering what you're telling clients is kind of the boundaries that you can push.
Great question. I'll ask Paul to chime in in a minute here because I'm sure he's got an additional perspective. Our perspective starts with the fact that our clients are trying to serve their customers and they're trying to create value for their customers. In many cases, that does require inventing new things and trying things for the first time. What we encourage is that they actually ask clients to opt in and to be very aware of how information is being collected, how it's being used to support them, and what our clients are doing to protect their information over time. Paul, I know you spend a lot of time thinking about data privacy, security, and the different technologies that people are using. I'll ask you to chime in.
Really, I'd highlight three points around this because it's a very good question very much on our clients' minds and consumers and other minds as well. There's three things to think about that we work with clients on. One is we're doing a lot of work with our clients on helping them think through the strategies in how to create the right trusted policies and privacy and security policies for their businesses. If they're doing in-car information systems or if they're rolling out a new device application to consumers, what are the appropriate policies and technologies they need to do to get the right levels of security and privacy and trust? The strategy in helping our clients think through that is absolutely in the sweet spot of what we do and what we help clients with on many of these programs.
The second part of that is then helping implement the right security policies so that you get the right level of trust, that you don't have the breaches and breakdowns around security. There's a lot of work we're doing in that area. One of our trends in our vision that I did not talk to today is around resilience and active defense, which is a very new mindset around security that we've been working on in our labs and are now working with many of our technology partners and clients on to put it in place, the right sets of technologies and managed services that Accenture can provide to help our clients operate more secure environments. That's the second area. The third area is we're engaged with a lot of the stakeholder bodies that are looking at privacy and trust and the direction of that going forward.
An example is work we're doing with the European Commission on cloud and data privacy standards. We work with many industry groups on the same sorts of things so we can help influence and be part of the voice of helping shape the right approaches to those types of issues going forward, because it's an important consideration in terms of how the businesses develop around the new technology.
As you guys, I guess, are competing in this technology, I'm just wondering if those three, as an example, act as a pretty significant competitive advantage. Are there other pieces of Accenture that are pulling you into this? Meaning your policy team is kind of pulling you in, and then the digital team gets to work. I don't know. It's kind of an open-ended question, but it just sounds like that creates part of your competitive advantage in digital given some of the pace of play in technology today.
I think that's true. We get involved in many board-level discussions and CEO and C-level discussions around these types of issues, given the level of concern. That often does lead to then discussions around how to help implement the right solutions and right practices in different parts of the organization. I think it is a strength, and I think it's going to be increasingly important in the digital world. There's more devices, more consumer-facing apps, et cetera. It's only going to become more important, and I think the breadth of services, consulting, technology, operations, managed services that Accenture can provide will really be a differentiator as we look at how those types of opportunities roll out.
Excellent. Thank you.
Next question is from the line of Tien-Tsin Huang, representing JPMorgan. Please go ahead.
Great. Thanks so much for hosting the call. I jumped on a little bit late. I just wanted to ask, in digital, how do you benchmark your capabilities given it's such a fast-changing landscape? I know obviously IBM talks about their capabilities in business analytics. As a follow-on, is the landscape different competitively in terms of what you normally see? Meaning, is it more niche providers or scale providers like IBM? Thanks.
Well, for us, it's everything, right? We've got lots of acquisitions that we've done over the past couple of years have been smaller acquisitions, where we've gone out and found that there were capabilities that we could bring into Accenture to improve our ability to go serve our clients. Those smaller companies come from ecosystems that are generally fairly fragmented, and our experience is that they mainly have remained fairly fragmented. When you look at the digital marketing space or the analytics space or the mobility space, there are lots and lots of small players that exist today, and frankly, lots more getting created every day through pretty significant investments from the incubators and the venture capitalists and the private equity firms. We expect it to remain a very fragmented market with lots of new entrants continually coming in with new ideas, new technologies.
This is an area where technology leapfrogs do occur on a pretty regular basis. People just come up with fundamentally better answers. It's also one where prices move very quickly. I was just talking earlier to our team about the fact that when we look at web services and the prices from the major providers of some of the infrastructure, we've seen significant price reductions in the past 60-90 days.
Sure.
Those allow our clients to do fundamentally different things at very attractive price points. We recognize that the large players in the market, like Accenture and IBM and many of our alliance partners that we work with, are going to continue to develop skills and operate at a global level. We also recognize that each local market is going to have very interesting new entrants and smaller players that continue to create real value. I think our acquisition announcement this morning of an analytics company out of Italy is a good example, right? That was a company that we found that was very active in the European theater. It had some really interesting technology capabilities that we think we can apply on a global level. The fact that they happen to be in Italy was interesting, but not particularly unique.
Got you. That makes sense. Could you give us some sense of how much you spend in terms of $ in R&D into digital?
That's another hard one to actually quantify because it's not just Accenture Digital, of course. It's everybody at Accenture who's investing. You can look at our publicly available information on how much Accenture spends on our marketing and development initiatives. We don't segregate it and say, "This much is digital, this much is not digital," because as I said, frankly, everything at Accenture is moving into the digital space moving forward.
Right. No, that makes sense. Last one, just on the selling front, going to market with digital, how do you sell the digital solution with the client partners? Is it different from how you've attacked other big tech themes or other internal centers of excellence that Accenture's created in the past? Just curious. Thank you.
Yeah. Broadly, the answer is no, with the exception that we're not just selling into the technology organizations. If you think about the weight of our business in the past, a lot of the work was with the technology organizations. When you think about what's happening today, as we talked about earlier on the call, the buyers are the Chief Marketing Officers, the Business Unit Leads, the Operations Leads. We're working with lots of different people across the organization. The approach that we take is exactly the same approach, which is we're there to help our clients solve problems. Frankly, we're trying to bring them, very proactively, ideas that we think will allow them to be disruptors in their own industries. Our client account leads are the ones that know the business the best, know the industries, and understand where the opportunities are.
Our job is to support those client account leads, serving their customers, and creating new value for those customers, whether it's for the technology organization or one of the Business Unit Leads or one of the Operations Leads. That doesn't really matter too much to us. We're just looking for the best way to create value.
I think one thing I'd add on that is, as we work through those teams, as Mike described, part of the power is looking at how we help our clients address the broad set of challenges they have in moving to digital. If you think about it, as our clients are moving to digital, they're layering on a lot of new technology and a lot of new capabilities. They're often not retiring a lot of the technology that they've got. Often what we can help our clients with is the end-to-end, how to make that all work together. How do you get the legacy in step with recently implemented technology, in step with the new digital technology?
For example, at a large retailer we're working with on a major, very large, ambitious, multi-channel digital consumer engagement involving e-commerce and multi-channel engagement with the consumer, a big part of the program is dipping into legacy systems to address things like real-time inventory availability and issues like that are critical to the right digital experience of the customer, but require a lot of legacy technology skills to make it happen. It's Accenture's ability to combine all that together. We've got the leading-edge digital capabilities. We've also got the understanding of the legacy technologies. We've got the understanding of the integration and modernization technologies. We can help the client manage that journey, that transformation across a set of stuff which looks very confusing and complicated to them.
Leveraging those teams that Mike described, that understand that broad set of capabilities and challenges our clients have, helps position us for the differentiation with the broad set of services that we can offer.
Great. Thank you so much for that.
Tom, we have time for one more question.
Thank you. Our final question today will come from the line of James Friedman representing SIG. Please go ahead.
Hi. I'll ask my final question in 2 parts if I could. The first one was, I think it was Paul who was speaking at the time, you had referenced that, if I got this right, 80% of customers in your survey had indicated some adoption of analytics, but only 40% had communicated their satisfaction level. I was wondering what the remedies might be for that. What is it that they're disappointed with, and what do they intend to do next?
I'll take that one real quickly. That came out of our high-performance IT survey, and that's something we can send to you if you're interested, which gets more into the reasons. Generally, there were 2 categories of reasons for the lack of success with analytics. One was not having the right data or not having the right quality data, that when they go to do the analytics, they find that they don't have the right data to drive the analytic algorithms, or the data they got, frankly, isn't good. It's bad quality data, which is a big problem for many organizations. The data is a big problem. The other part of it that our clients struggle with is the talent side of it. Finding the data scientists who understand how to drive the right analytics and have the right knowledge of their businesses, et cetera.
That's an area where we're stepping in and with Mike's efforts in Digital, building those teams of deep data science and analytic practitioners with the right tools who have the industry expertise and specialization to do that for our clients. I think our clients struggle with the data, and there's a set of things we're doing on that front. Our clients struggle with the talent and the data scientists, which we're also helping them address.
Okay, just one follow-up. Back at the Investor and Analyst Day in October, I think it was Brian Whipple had referenced CMO spend, and he had given a number but said it was dated, that he estimated it was 2%-3% of customers' revenue was being spent by the CMO. Without holding you to that, I guess observations you might have on CMO. Is the spend getting distributed better throughout the organization? Is it still this amazing acceleration in the CMO authority? Maybe qualitative observations about who the purchaser is would be helpful.
I would confirm the trend that Brian talked about in that the chief marketing officers have always spent a lot of money on advertising. Now they're saying they've got more to do than just advertise and create awareness or consideration. They actually have to be able to deliver the promise of the brand. The promise of the brand is not just to get somebody to buy it. It's actually what experience are you going to have when you interact with the brand. The reason that we're seeing the chief marketing officers spend more money on these digital capabilities is because they're trying to create an experience, and they're trying to get the company to configure itself to live up to the promise that the brand has made. That's not limited to the purview of the chief marketing officer.
It obviously quickly bleeds over into product design, it bleeds over into customer service, it bleeds over into managing the supply chain. There's lots of impact in terms of what the chief marketing officers are trying to achieve. They've moved beyond this concept of saying that their job is as the marketing officer, to create an image, to create a brand, and to create awareness and consideration. They're saying, "Actually, our job is to make sure that the company delivers on the brand promises that we're creating, and that over time, our customers can trust that the brand promises that we're promising are actually going to be delivered.
If we do that successfully, then we're going to see continued growth in sales as our customers continue to invest in the brand." Yes, the chief marketing officer is spending a lot of money, but it's not always being spent, quote, "in marketing." Many times it's being spent to make sure that that brand promise is being delivered across the company.
AT&T, thanks for doing the call.
Great. Well, thanks everyone for joining us today. Just two things I just want to leave you with. You can find our Tech Vision and our digital microsite materials out on the IR portion of the Accenture website, as well as you can access a replay and transcript from today's session. We will post it to our website as well, and that will happen over the next few days. Thanks again for joining the call.
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