Why Accenture Is Increasing Investment In Artificial Intelligence

by Trefis Team
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Accenture (NYSE:ACN), which provides management consulting, technology and outsourcing services, is structured around five operating groups – communications, media & technology, financial services, health & public service, and products and resources – which together make up 13 industry groups serving clients globally. On a broader level, over 50% of its revenues come from consulting for its 13 industry groups, while the rest comes from outsourcing services.

However, in light of the advent of artificial intelligence system, which is expected to disrupt businesses and industries on a global scale, Accenture has announced that it is accelerating its research and development efforts in artificial intelligence. [1] In this note, we will explore the broader trends in the AI industry and how Accenture plans to capitalize on it.

See our full analysis on Accenture

Expected Trends In The AI industry

Artificial Intelligence (AI) systems are advanced computing systems that are programmed to display specific intelligent operations. ((Artificial intelligence)) For example, a traffic management system can be programmed to observe levels of congestion amd effect changes in the timing of traffic lights to minimize back-ups at bottlenecks.  Closer to home, both Google and Facebook monitor user preferences so as to optimally deliver interesting content and advertisements.  Given the profusion of data and the need for ongoing analysis, the use of AI techniques and processes in expected to mushroom in coming years.   According to IDC, the global market for content analytics, discovery and cognitive systems software is projected to reach $9.2 billion at a CAGR of 15% by 2019, double of what it was in 2014.  ((Worldwide Content Analytics, Discovery, and Cognitive Systems Software Forecast, 2015–2019, June 2015)) Some other research firms cite these systems as a catalyst that will have a US$5-US$7 trillion potential economic impact by 2025 with Business Intelligence emerging as one of the biggest addressable market.

Accenture Is Increasing R&D Spend For AI

To be in the mix of things, Accenture is significantly increasing investment in R&D for Artificial Intelligence in all of its Technology Labs, additionally establishing a new Accenture Center for Innovation in Dublin. The company is focusing across three key areas: pilot projects to balance automation with augmentation, tackle select industry challenges and develop new business concept prototypes. [2]

The company’s press release [1] said that its technology Labs network will collaborate with other Accenture teams and new partners in the startup ecosystem to achieve the following objectives:

  • Create more intelligent tools by teaming with Accenture Digital to advance capabilities in cognitive computing, machine and deep learning, natural language processing, data augmentation and predictive analytics to help clients become an insight-driven enterprise
  • Integrate and apply artificial intelligence into Accenture Operations solutions that improve both front- and back-office operations, including customer support, procurement, supply chain and warrantee services
  • Embed artificial intelligence capabilities into architectures, tooling and service management analysis conducted by Accenture Technology
  • Design and scale artificial intelligence capabilities for Accenture Consulting around the world across multiple industries, including healthcare, public safety and financial services.

How Will This Impact Its Topline And Bottomline?

While in the short term, increased R&D spend would result in lower margins and cash flow for the company, the consequences of not catering developing expertise in AI system can have long-term repercussion for the company as it relies heavily on engaging its closest clients in the consulting practice with its great strengths in strategic advisory services. If Accenture can build up its expertise in the AI systems domain, it can advise its clients to deploy the technology across different spheres such as business intelligence, etc. Considering that AI has a potential of close to generate spending of $9.2 billion in content analysis alone, the company stands to make significant revenues by leveraging its existing client base in data, optimization and measurement vertical.  Accenture’s digital expertise is recognized as it leads the industry of digital experience service providers. [3] If the company captures 20% of this market, its top-line in the future can increase by $1.84 billion.

However, the AI systems industry is still evolving and we continue to monitor the AI landscape as it unfolds in the future. At present, we have a $80.07 price estimate for Accenture, which is 25% below its current market price.

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Notes:
  1. Accenture Expands Global Artificial Intelligence Capabilities and R&D Agenda, November 5 2015 [] []
  2. ARTIFICIAL INTELLIGENCE R&D AGENDA []
  3. Accenture Interactive Named a Leader Among Digital Experience Service Providers by Independent Research Firm, November 16 2015 []
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