What do Accenture’s UK job cuts mean to the IT services industry?

Total value of contracts

According to research by ISG, the total value of contracts signed globally during the quarter was $13.2bn (£10.5bn), a drop of 5% from the same period last year.

Traditional outsourcing, in which an organisation buys people to provide a service, was hit hardest, with total spending on these services down 16%.

In EMEA, traditional IT outsourcing (ITO) deals reduced in value by a massive 21%. Overall the EMEA IT and BPO market was down 9% in the second quarter compared to the same period last year, when cloud based deals, which increased 13%, are taken into account.

Specialist IT outsourcing lawyer Mark Lewis said business levels are down as projects are put on hold. “I think that job cuts at Accenture UK certainly reflect the wider industry,” he said. “To make the story even more depressing, Accenture is a bellwether for the IT services industry at scale.  So others won’t be far behind.”

He said he is surprised  at the level of cuts at Accenture, 8% of its workforce in the UK, and questioned whether  this reflects the UK market for IT services, or just that it is cheaper and easier to lay off staff than in France and Germany?

Lewis added that the scars left by the pandemic on the IT services industry will be clearer in September and expects the UK will come back strongly when the shape of the UK’s economy become clearer. “Whatever happens, there will be opportunities for IT services. For me, a more interesting question is: will there be more activity for IT products or services providers or will the winners be a combination of both?”

But he said there are likely to be cuts made by other IT services providers in the UK with some, like Accenture’s, drastic, and others not. “Times like these force companies to take a much longer, harder look at staffing levels, required skills bases, and the like.  And this is an unprecedented time, so I think that companies are taking the chance now to consider questions they haven’t had the time, inclination or opportunity to do.”

Barry Matthews, partner at ISG, said the pandemic has inevitably impacted the consulting industry as a whole as businesses prioritised some projects and have delayed or stopped others. 

On Accenture’s cuts, he said it’s a significant cut, but is part of its changing operating model as it focuses more on geographies rather than industries and moves to digital services rather than legacy services.

He said ISG expects the market pick up again in the fourth quarter. “The speed, shape and scale of the recovery is a matter of much debate of course and depends on how we all cope coming out of lockdown and if we manage to avoid another lockdown. The recovery is likely to be slow with continued caution.”

The level of job cuts depends on the recovery, said Matthews. He expects the post Covid-19 digital transformations will help reduce the job losses. “I think that the expansion in digital services, as a service and all things cloud and the work required to make businesses more agile and resilient are likely to offset some of the downturn and avoid significant job cuts at the majority of service providers.”

One senior IT executive in the UK banking sector, who wished to remain anonymous, was not surprised that Accenture made so many UK cuts and does not expect the jobs to come back.

“Part of the problem for companies like Accenture is that banks, that are major customers, are increasingly looking to avoid pay over inflated prices for management consultants,” he said. “Management consultancies are very expensive operations and banks are realising that there are other ways of getting that experience without paying the huge cost. It is no surprise these companies are reducing staff in the UK where it is expensive.”

Companies like Accenture with global deliver networks can replace fill gaps left by UK job cuts with staff in other regions, where wages are often much lower.