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according to the case digest 1 answer the four questions from the reading Accenture.
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MARK JEFFERY
Strategic IT Transformation at Accenture
In 2001 the firm then known as Andersen Consulting took the bold step of separating from its
parent, Arthur Andersen. Rebranded as Accenture, this new organization had a bright future, but
it also faced the challenge of building a new IT infrastructure to support a global organization that
consulted on leading-edge technology. Frank Modruson, Accenture’s chief information officer
and the person responsible for carrying forward the IT transformation challenge from 2002 on,
had ambitious plans for the new technology infrastructure that was to replace Arthur Andersen’s
legacy systems. (See Exhibit 1 for the Accenture IT organizational structure.)
Difficult decisions had to be made. Should Accenture continue managing technology
platforms with a decentralized approach, in which each country chose its own IT platforms and
had the autonomy to run them? Or should the firm take a mixed approach, in which the same
standard applications would run throughout the enterprise but would be managed independently
by individual offices? Or should Accenture espouse a “one-firm” approach and boldly shoot for a
centralized implementation of its most critical systems, with all its offices interconnected on the
same “instance” of a software platform? Furthermore, should the firm retain its traditional
conception of IT as a cost center, or should it regard IT as a service provision center that
generated measurable value for the organization? These questions, and the answers formulated by
Modruson and his team, drove Accenture’s CIO organization to undertake one of the most
remarkable IT transformations in a global organization in recent years.
History of Accenture
The Arthur Andersen accounting firm was founded in 1913 to meet the requirements of new
tax regulations enacted when the Federal Reserve System was established that same year. As
Andersen expanded across the globe, the firm decided in 1954 to differentiate its practice from
the work of its competitors by offering consulting services within its accounting audit practice.
In 1989 Arthur Andersen decided to split its business into two separate entities: Andersen
Consulting, in charge of all consulting activities of the firm, and Arthur Andersen, which
continued to provide traditional financial audit services. Due to the strong growth Andersen
Consulting experienced, two distinct company divisions emerged. The firm’s accounting services
were becoming commoditized, while its consulting services were highly valued and demanded by
clients worldwide. When Andersen became an installation provider for business software leader
SAP, Andersen Consulting felt SAP implementation was an activity within its business territory.
©2010 by the Kellogg School of Management, Northwestern University. This case was prepared by Daniel Fisher ’09, Mirron Granot
’09, Anuj Kadyan ’09, Albert Pho ’09, and Carlos Vasquez ’09 under the supervision of Professor Mark Jeffery. Cases are developed
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Representatives from both Andersen and Andersen Consulting repeatedly found themselves
pitching services to the same high-level executives at prospective clients.
In December 1997 Andersen Consulting began a process of arbitration that sought to separate
the consulting division from the financial audit firm. On August 7, 2000, the arbitration panel
reached a verdict: Andersen Consulting would pay $1 billion to Andersen and give up its name in
exchange for independence. Andersen Consulting took up the challenge and on January 1, 2001
(fondly known as “01/01/01” within the firm) adopted its Accenture name in a $175 million
rebranding campaign. The world’s largest management consulting organization was then born.
This ambitious move was followed, on July 19, 2001, with an IPO of 12 percent of the
company’s equity, in which Accenture raised $1.7 billion.
History of IT at Accenture
From its inception in 2001, the new Accenture was a large organization with $11 billion in
annual revenues, 75,000 employees, and more than fifty offices around the world. An effective IT
infrastructure was key to integrating the new global corporation: knowledge had to flow freely
across country lines and industry practices, and timely, accurate financial information was
required to meet the more stringent demands made on a publicly traded company.
To support its launch as a newly independent business enterprise, Accenture had the right to
use Andersen’s technology infrastructure for one year. This gave Accenture only a very short
time to create an IT infrastructure of its own. Complicating matters was the fact that Andersen’s
technology itself was deficient in many ways:
As was typical in long-established organizations, Andersen’s systems were composed of
a patchwork of legacy applications that did not interconnect readily with each other.
Due to the obsolete software platforms on which they ran, key systems and databases
could not be accessed remotely through the Internet. Large, expensive private networks
were required for this task, and financial information often had to be manually compiled
to aggregate results from different offices.
Over the years, Andersen’s offices around the world had adopted their own individual
accounting and human resources software systems, making it very complex to get an upto-date snapshot of the whole organization’s status at any one time.
As a company that prided itself on advising its clients on advanced technologies and best
practices in IT implementation, Accenture clearly needed to resolve these issues regarding its
own internal practices. (See Exhibit 2 for the Accenture IT infrastructure prior to the
transformation.)
A Time of Transition
Accenture had an opportunity seldom presented to an organization its size: the chance to start
and build an IT infrastructure from scratch, using the most advanced technologies from the outset.
As its guiding imperative, Accenture sought to create a technology capability that would offer its
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IT TRANSFORMATION AT ACCENTURE
consultants and support personnel access to knowledge and information “anytime, anywhere.”
This strategic necessity was driven by the fact that 75 percent of Accenture’s employees spent
significant amounts of time working outside Accenture offices, either at client locations or
traveling. Consultants needed to remain connected while being highly mobile, whether they were
at a client’s site or at an airport. Today’s business environment makes wireless connectivity and
other technologies almost a given, but in 2001 this was an aggressive technological goal.
The IT team determined that addressing the following key challenges was paramount to
achieving the performance goals the firm had set. (Accenture’s multi-year goals at the time are
summarized in Exhibit 3.)
Changing the IT Philosophy: What Should IT Mean to
Accenture?
The first strategic decision facing Accenture’s IT management team was conceptual yet
critically important in shaping the organization’s attitude toward technology. Arthur Andersen
had viewed internal IT the way most large companies still do today: as a cost center with an
assigned budget, run largely by technology-savvy engineers with limited involvement from
management. As in other traditional organizations, IT expenditures at Andersen were budgeted in
yearly meetings.
Technology priorities frequently had a political component: The internal stakeholder with the
loudest—or perhaps the highest-ranking—voice was first in line, with others lining up in
descending order of power or importance until the company ran out of money in the budget for
that year’s IT expenditures. Many other IT decisions were made by individual offices in different
countries. These had their own specialized IT staffs, who often contracted or developed their own
software applications to solve urgent needs with little input from firm-wide experts. This “many
islands” approach made it difficult for the firm to integrate its information, highly costly to run
support infrastructure, and impossible to staff service personnel globally and attain economies of
scale.
Accenture’s incoming IT management had a different vision—proposing instead that the new
Accenture enterprise should run IT not as a cost center but as a business within a business. Under
this conception, IT would be responsible for providing:
IT products and services conceived and driven by the needs of internal customers and
stakeholders, rather than by the interpretation of what IT engineers estimate internal users
would need in the future.
Clear and verifiable service levels for each of the IT products and services offered. The
optimal service levels would be determined by what users required. These would also be
competitive with those offered by specialized companies in the field and would be
constantly benchmarked for improvements as learning curves and better technologies
enabled efficiencies.
IT spending priorities would be determined by a panel of C-level executives from
different realms of the business: strategic, financial, operational, and technical. Priorities
would directly respond to either the economic value or the strategic significance each IT
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project brought to the organization. Such value would be quantified and presented to the
steering committee, which would then make a decision based on the costs and benefits of
each project. This would eliminate lobbying and remove the politics from critical
technology decisions that should drive the competitiveness of the organization.
When appropriate, different levels of service would be offered for a particular
technology. A price would be established for each level of service, with customers
choosing what served them best and often paying for support on a transactional basis
(i.e., paying per support call, rather than paying a fixed fee for IT support).
Accenture’s CIO organization thought deeply about which core or strategic IT competencies
it should handle in-house and which it should outsource to external vendors; it also had to decide
whether outsourced services should be sourced locally or sent off-shore.
Such a radical change in the approach to IT did not come about easily. There was pushback
from different levels of the organization, especially within large contingents of the IT staff who
were more comfortable conceiving their roles as “providing superior technical insights.” The new
approach now made IT staff responsible not only for operational statistics such as server up-time
but also for dealing with people and satisfying service levels, for managing an internal technology
service, and for creating and delivering IT tools that would support Accenture’s business
requirements.
To ensure the new IT services would be appropriately delivered, service level agreements, or
SLAs, were drafted for each product line. These mimicked the type of agreements that Accenture
often drafted with third-party providers, minus the penalty clauses. Accenture monitored prices
with third-party providers to assure that the services being rendered by IT to its offices were
delivered at a fair price and at a world-class level. Assuming there would be a learning curve and
efficiencies would increase with time, Accenture continued to benchmark third-party providers
periodically, and set their prices and performance metrics as an internal goal for the services
being offered within Accenture’s own organization.
Selecting a Platform
From the moment the initial IT planning stages began, it was clear to Accenture that the
organization’s inherited software and hardware configuration would be unable to meet its needs.
As business units and different industry practices began to voice their necessities, the Accenture
IT steering committee realized many applications had to be changed and new ones had to be
acquired. (See Exhibit 4 for the steering committee members.) One of the most strategic topics
that came to the table for discussion involved whether Accenture should opt for a “best-of-breed”
or a “one-platform” approach.
Under a best-of-breed strategy, the organization would buy what it believed was the best
possible application in the market for a specific need—potentially ending up with many
applications, from a plethora of vendors, that did not necessarily “talk to each other.”
Alternatively, Accenture could espouse, to the extent possible, a one-platform approach—that is,
have one strategic partner provide compatible applications that might not necessarily be best in
class. A single global platform would resolve the problem of the Pareto effect created by the
company’s requirements, wherein a relatively small number of specialized applications needs
tended to create a disproportionately large number of complexities.
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Each approach had its respective strengths and shortcomings. A best-of-breed approach
potentially would make internal stakeholders very happy in the knowledge they had access to the
best IT the industry had to offer for their needs. Furthermore, best-of-breed applications ideally
provided more depth and functionality than peer applications, and the companies who ran them
had a higher incentive to incorporate the latest technology and process trends in the field to
maintain their lead.
On the other hand, a best-of-breed approach would put Accenture in a less cost-effective
position, since the enterprise would not develop the clout with a single vendor to extract the best
terms in licensing fees and maintenance. In addition, running multiple applications would require
multiple specialists, increasing the training costs and IT personnel count. Multiple applications
could affect the ability of the organization to consolidate and share information among business
units, creating silos that might require special middleware or even custom-designed interfaces to
connect one silo with the others, increasing costly maintenance headaches and staffing.
The one-platform approach would have the advantage of generating important economies of
scale for the company. When dealing with only one vendor or even a few select vendors to meet
its application needs, Accenture would gain leverage as it pressed for deeper discounts in
licensing fees and maintenance. More important, Accenture could efficiently operate with a lower
IT support head count when dealing with a single platform, reducing training costs for its IT
specialists while leveraging economies of scale under the establishment of global support centers.
Furthermore, applications sourced from the same vendor typically “talk” to each other, allowing
information to flow seamlessly and in real time, without the need to design custom interfaces or
to acquire expensive middleware. The biggest advantage of a one-platform over a best-of-breed
approach is the ability to deploy new technology more quickly and less expensively.
The single-vendor approach, however, would lower Accenture’s negotiating power regarding
future purchases from that one vendor, who would recognize that any decision to move to a
different platform would be a costly one. Furthermore, if the vendor was not financially strong or
encountered future operating challenges, Accenture could put itself at risk should the vendor fail
financially.
Managing Applications
Accenture’s team determined that the organization’s 600 global and 1,500 local applications
on multiple platforms generated too much IT complexity. After considering the alternatives,
Accenture opted for a single-vendor approach with the hope of minimizing the total cost of
ownership of its IT infrastructure. With this move, the firm also sought to minimize the number
of worldwide applications it deployed. Accenture’s IT team strove to simplify its strategy by
centrally managing its worldwide technology and choosing as select partners those vendors with a
global presence who could serve Accenture businesses and offices in different countries. (See
Exhibit 5 for the new Accenture architecture.)
To run most of its back-end IT operations, as well as to provide basic communication and
productivity applications, Accenture chose Microsoft as a partner. Over the course of two years,
other applications currently being used but not belonging to the Microsoft family would be
transitioned to the Microsoft equivalent. The belief was that having a single platform and
common global applications would help reduce overall expenditures and allow for the flexibility
to grow through scalability.
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Accenture chose Microsoft because of the software giant’s solid financial position (which
diminished long-term partner risk), its global presence, and the high degree of integration it
offered in its applications. Microsoft provided Windows NT to run Accenture’s server and
network infrastructure, as well as its SQL database for all data-related tasks. Accenture also
adopted Microsoft Outlook for its e-mail client, together with other tools from the Microsoft
Office suite of products.
The cost benefits of migrating to a single-platform architecture were significant. For example,
Accenture was able to move from three distinct directory systems to a unified one, from more
than four hundred Novell file servers to fifty Microsoft servers, and from 440 users per e-mail
server to 2,500 users per each Exchange server.
In a similar vein, Accenture chose SAP as its worldwide application provider for financial
and human resources solutions. Selecting a global provider and a “single-instance” platform
represented a radical change for the organization. Under Andersen, it was not uncommon for
every office to run its own financial and HR suite of products, necessitating costly specialized and
local IT support for each application. The lack of integration in Andersen’s financial and HR
applications had also caused headaches for the company’s consulting arm, turning the
consolidation of financial statements, not to mention the global monitoring of cash flow and other
critical tasks, into a complex and time-consuming endeavor. Furthermore, a lack of uniformity in
HR applications made decisions difficult when the offices tried to plan how to staff globally for a
pipeline of new projects.
Accenture also handpicked a few providers for its hardware needs. It went with HP and other
suppliers for its computers and servers and with Cisco for all network-related equipment.
Amid its broad IT restructuring, the company decided to explore outsourcing alternatives for
infrastructure- and IT-related activities that it thought could be managed more efficiently by
specialized providers. For example, Accenture decided to outsource most of its data storage and
backup needs and to appoint a third party to run its network infrastructure. Accenture’s move
toward server virtualization allowed the company to reduce its number of e-mail servers from
more than 250 to 115.
Through the successful simplification of its IT infrastructure and the adoption of single
platforms such as Microsoft and SAP to run key global processes within the organization,
Accenture achieved important cost reductions in running its overall technology infrastructure.
This trend, which began to bear fruit in 2002, had not since abated. One example of such
reductions is the savings achieved in providing support to end users of Accenture technology.
(See Exhibit 6 for the cost reductions in Accenture end-user technical support.)
Under its new IT philosophy, Accenture sought to keep customized platforms and
applications to a minimum. Systems were custom designed for those requirements only after two
criteria were met: (1) if the requirements were of critical importance to the business; and (2) if a
capable outside vendor was not available to meet those requirements through an existing
application.
Accenture’s approach and commendable track record in efficiently running its IT
infrastructure became a great proof of concept for the organization’s clients, who saw that
Accenture “walked the talk” regarding its recommendations. As Accenture CIO Frank Modruson
said, “Accenture technology consultants urge our clients to simplify and rationalize their IT
wherever possible, so we have to be just as rigorous inside our own shop.”
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Running IT Like a Business: A Detailed Example
To see the impact of the decision to run IT like a business, it is useful to examine the results
of the change in one particular area, such as its e-mail infrastructure. Seeking to maximize
efficiency while maintaining appropriate levels of service, Accenture decided to run its e-mail
infrastructure under a managed service approach. The new directive entailed fundamental
changes in the organization. For one, several IT engineers were named managers of an internal
product—not simply custodians of an IT application. As product managers, they became
responsible for innovating around that particular product, as well as for offering different
“flavors” for the product that would satisfy the various segments of internal customers in the
Accenture organization. Under this managed service approach, every product offering was
accompanied by different levels of service, each with a distinctive price point for the end user.
Below are real examples:
Previously, Andersen incurred high costs because of increasing storage space in
consultants’ e-mail accounts. To control this, e-mail services under the managed service
approach were offered to each Accenture country in three varieties: 50, 150, or 500 MB
of storage per account. Each level would be priced incrementally; company leaders in
individual countries decided what they needed and were willing to pay.
Application help was also offered in different flavors. At no cost, consultants with IT
problems or queries could use the Internet to access a special help center with solutions
and FAQs. Alternatively, consultants could opt to resolve IT problems by phoning an
application specialist. Because Accenture applications had been standardized worldwide,
an efficient number of telephone-accessible application specialists were now staffed in
key areas around the globe, so they could be accessed 24/7. This type of IT help cost $20
per call, which was tagged to a specific consultant and charged to the consultant’s
country. If needed, personalized service was also available for certain critical
applications. This service was, of course, locally staffed, and was billed to the office at
$100 per incident.
Previously, consultants were accustomed to personalized in-office help only. This was
expensive for Accenture, and most of the time offices were overstaffed with IT service people.
After the new system was implemented, consultants learned to resolve their queries mostly
through the online databases and were gradually trained to call or seek personalized help only
when urgent or severe problems arose. Consequently, IT support costs for Accenture fell
dramatically, while satisfaction with IT help improved slightly.
On the other hand, Accenture maintained a traditional approach to managing its core business
applications. These were so critical to operating the business that their usage was practically
inelastic to cost. It therefore made no sense to establish different levels of service for functions
for which only the highest level of service would suffice. One example was the software that ran
consultant staffing. Centrally controlled by the firm and globally deployed, it was required to
operate core business by Accenture offices in every country. The cost of running this type of
application was absorbed by Accenture as a whole.
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Outsourcing within Accenture: Leveraging a Global Presence
Accenture was born in harsh economic times. The dot-com bubble had recently burst and the
difficult events of 9/11 were soon to come. High-level executives remembered the intense
pressure at the time for cutting costs at all levels, including in the IT department. Bob Kress,
senior director of IT business operations, recalled:
I was in my office and would suddenly get a call from our CFO: “Bob, we need to cut
$30 million out of our IT budget by next week. Call me Tuesday with ideas.” During a
six- to eight-month period this became common . . . I would get calls asking me to cut an
additional $50 million, or an additional $20 million. As an organization, we were forced
to become highly cost-conscious in our IT spend and also highly creative.
One of Accenture’s fundamental initiatives to reduce IT cost was outsourcing. Drawing from
its experience providing outsourcing services to clients, Accenture went from being a company
that placed its internal IT staff mainly in the United States and Europe to one that housed 68
percent of its IT personnel in lower-cost regions such as India, Southeast Asia (China,
Philippines), and Latin America.
To increase staffing flexibility, Accenture also shifted to a “core-light” personnel strategy. By
2010, only 14 percent of Accenture’s IT staff worked directly for the company as permanent
employees, whereas a full 86 percent was “borrowed” via the Accenture Global Delivery
Network (GDN) and the Infrastructure Outsourcing (IO) group. The GDN comprised more than
83,000 professionals at more than fifty delivery centers worldwide. By applying a systematic
approach to processes, methodologies, tools, and architectures, professionals in the GDN
delivered customized IT solutions under an offshore business model that “followed the sun” by
enabling teams in different parts of the world to work on a project and, at the end of the workday,
pass it along to the next team in the global chain. Accenture had leveraged its GDN not only as a
revenue-generating service for clients but also as a critical core skill that the organization used to
respond to its own IT needs in a cost-efficient manner.
Accenture’s IT steering committee faced important strategic choices when deciding what to
outsource and what to retain in-house. To make a decision, Accenture divided activities into
different buckets: processes that provided a differentiating competitive core; processes involving
highly confidential information; and processes involving tasks that were repetitive and, although
important, could be considered common in any services firm.
The decision then became easier. Accenture was open to outsourcing rote IT tasks to capable
providers. At a basic level, these tasks included data-center management, storage, and hardware
maintenance, among others. At a more sophisticated level, Accenture began to outsource the
development of most of its IT applications. Qualified centers from Accenture’s GDN were
selected for the task. Because this front was deemed strategic, project management and
functionality guidance were maintained in-house. Highly confidential activities were either kept
in-house or taken to centers that could handle information in a strictly secure manner.
As outsourcing matured, Accenture continued to seek opportunities to leverage economies of
scale and of location. For example, the firm initially set up facilities in Madrid to train specialists
in routine but important SAP-related tasks such as invoicing and billing. A few years later Madrid
had become comparatively expensive, so Accenture looked to Argentina for delivering the same
service at a fraction of the cost. Kress explained:
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After the bubble burst, we started to follow a philosophy that sought flexibility as well as
cost efficiency. We could be more flexible to ramp our IT force up or down if we
outsourced it. Of course, we retained the project management talent and our brightest
thinkers, but coding itself—we knew we could do that very well in Asia.
We also subscribed to a philosophy that for every IT initiative there should be a learning
curve. Specifically, we expected IT managers to lower the cost of the department they ran
by 10 percent every year. It was an aggressive target, but it certainly kept us creative—
and kept us on our feet. Management knew they were pushing us, so they were open to
initiatives that required some investment—such as establishing an invoicing center in
Argentina—so long as payback could be achieved in less than three years.
Enterprise Applications: The Big-Bang, Single-Instance
Approach
After Accenture become a public company, it required a more integrated approach to
financial management, one that would meet GAAP standards and other compliance and
regulatory requirements. Accenture was also eager to align its operating goals to the metrics used
by investors and analysts. With more than two hundred different finance applications around the
world, the company found that sharing information, updating data, and conducting in-depth
analysis had become challenging. Legacy financial management systems impeded the
development of the strongest possible operating model.
Accenture took a fresh look at its financial processes. Accenture’s finance organization, with
help from other groups, defined best-in-class financial practices for key business processes. To
support the new financial processes, Accenture sought an advanced, Web-enabled enterprise
technology solution, one that offered greater flexibility, centralized control, robust reporting, and
an ability to integrate the finance organization with other critical corporate functions.
SAP’s business technology was the logical choice for Accenture, as it offered features that
aligned well with Accenture’s existing business processes. Accenture already had vast experience
with SAP implementation. SAP’s repertoire of proven system-integration practices, solutiondelivery methodologies, and other tools and approaches contributed significantly to a smooth
transformation. Accenture implemented SAP using Microsoft technologies, which followed
naturally from the earlier strategic decision to migrate Accenture’s core technologies to Microsoft
platforms. The result was reduced tec
