What could be further apart than these two – apples and oranges, I hear someone say. While Accenture is a renowned leader in provision of IT consulting services to the world’s leading companies, BCH is barely moving through the morass of bureaucracy and inefficiencies (a little sarcasm here). Here is the quote from Accenture’s website on their business credo – “Accenture is the world’s leading management consulting and technology services organization. Through its network of business approach – in which the company enhances its consulting and outsourcing expertise through alliances, affiliated companies and other capabilities – Accenture delivers innovations that help clients across all industries quickly realize their visions”.
We will get back to this and other quote references later, meanwhile, let us consider why should BCH want to get together with Accenture? Clearly Accenture has the expertise that BCH does not possess – that is after 30 plus years in customer service, accounting and computer services. Obviously, the key is that BCH grossly underutilizes its resources involved in these services to such an extent that Accenture could easily transform sloppy and inefficient practices into a first class enterprise with very firm defined goals, even after creating a whole new layer of executive management and associated costs. But what is the new enterprise? I can only hear the discombobulated questions from soon to be Accenture employees - “Are we in computer services? Accounting? Customer services?” - Can the BCH inefficiencies be so atrocious?
Well, not at least in the human resources aspect of the deal - just ask any of the Customer Service representatives at BCH. They will readily confirm their sloppy time management practices and need for sharper and more stringent business rules – that’s why there is strict time management routines demanded of ordinary Customer Service staff already! May be, they should better utilize those underworked phones, computers and tables – that is the prized real estate after all – is it not? Oh, it must be about the growth as confirmed by the Accenture partner Chuck Filewych in one of his recent interviews – “we intend to build a strong locally based first class growth oriented customer service enterprise”. That might be it, but then why entangle oneself into a mess with BCH – why not rent a cheap piece of office real estate, install some phones, hire bunch of people at reasonable wages and go after customers – does not this sound reasonable? Most likely outcome is embedded in the key word of the Accenture’s corporate message – “…help clients across all industries quickly realize their vision” – I thought that we had discarded the word quickly from our business vocabulary in the post Dot Com and Enron era. Apparently not, but the real truth must be somewhere close – let’s consider all possible motivations and myths that put these two parties together and who is likely to be stuck with the final bill.
Myth I - Accenture possesses better expertise than BCH
To an extent the above statement is true, given that Accenture provides all sorts of consulting services to companies in virtually any business. In fact the nature of services themselves vary quite vastly across the board. In addition, Accenture has lately been involved in a number of outsourcing projects across the world that deal with computer support, human resources and customer service. All this clearly points to high probability that Accenture is well suited for such undertakings as outsourcing. On the other hand, one might consider the following: BCH has been running its computer support; customer services etc. for a number of years and surely possesses necessary level of pertinent expertise. Yes, it could be inefficient in some ways it is running the business, but this could be corrected through some management consulting practices that stop short of privatization. In addition, Accenture is a fairly new player in the direct management of the services in question – this is a clearly a weak point for them. Lastly, multinational consulting outfits are typically very insular and region focused – as such the much touted world wide expertise is not worth all the rhetoric that is put into it. All in all, better management expertise is not likely to be the real reason the deal in this case.
To support this point, just ask any customer services representatives about their work load and daily work schedule requirements – BCH already employs fairly well-structured, and demanding work environment that is likely to be only marginally improved from HR management perspective. The better utilization of office space, computer and phone equipment is possible but this issue will be addressed in the next point.
Myth II – Accenture wants to build a strong locally based growth oriented enterprise
The question first and foremost will be - how would Accenture define its expertise regarding its potential future clients and competition – computer support, human resources, purchasing, accounting services and customer services? What is the business of Accenture? It is a truly difficult question. These services might not be “core” for BCH, but a certainly “core” for a number of world-renowned companies that typically do not specialize in the whole mix. So Accenture might have hard time adequately managing the mess - let alone tons of competition in each of the categories.
Moreover, if Accenture wants to go out and win contracts it can do it on its own quite successfully. Accenture can easily bid on different contracts, acquire its own equipment and office space at rates most likely lower of those offered by BCH and can hire cheaper and more agreeable staff – what is the need for BCH? The obvious answer - they need BCH for the BCH based contracts themselves and not for any other reason – but more about this later. To summarize this point, Accenture cannot grow (other than finding more head cases like BCH) by plunging wholesale in provision a number diverse and competitive services with no specific attributes other than the most obvious target for outsourcing – “non-core”. Accenture is not likely to be very successful bidder on any of its new contracts considering that the main aspect of the deal – people cannot be much more streamlined and more expensive than Accenture can get on its own without BCH. In addition, the very basic concept of successful consulting business is to use very little capital in its undertakings. Outsourcing business is quite opposite to that – it requires considerable amounts of capital to be put at risk. Moreover, it is well known fact that the most successful human resource based outsourcing businesses are the ones that operate from low cost English speaking jurisdictions such as India – hence the idea of any future growth, let alone local based one appears to be rather dubious. The only way Accenture is likely to put any capital in the deal (this is a great time for treasury bonds but very poor one for low rated undertakings) - when the deal is bullet proof through BCH guarantees (i.e. ten-year payment guarantee).
Quick Realization of Visions
So given the above – the issues of growth and especially firm hands-on management expertise might not be the strongest attributes of the deal with BCH. But what is the driver? BCH has been a political toy in the hands of successive BC governments for generations. This one is no different. However, it espouses a very strong tendency to favor everything private versus anything public. What a convenient way to make more friends among the corporate elite if not make some deals that benefit both – government (seller) and corporate elite (buyer)! One should ask how it is possible that every party benefits in the deal. The simple economic sum of the transaction is a goose egg, zero that is and the losing party – COPE and other employees. How does it work? Simple:
· The contract is structured more or less on the basis of the current costs associated with services in question.
· The price for such services to be paid to Accenture by BCH is relatively close to such costs and the contract is signed for ten years.
· The labor contracts taken on by Accenture amount to a two-year commitment until the expiration of the current COPE agreement.
· Accenture figures it can deliver services at some new drastically lower costs after it cuts COPE loose or makes them accept some horrendous concessions in two years time. Here comes a profit stream that behaves even better than a certificate of deposit – BCH takes care of any inflationary effects.
· Accenture pays a certain amount out of its future profits represented in today’s dollars to BCH today. Be sure that majority of future benefits will remain with Accenture.
· BCH by receiving the amount can claim a win by not getting any higher than present service costs and gets to record an accounting (and cash) gain.
· BC government gets a higher dividend for the year (years) that the gain is recorded and COPE gets screwed.
· Economy is marginally worse off as people in higher income brackets get more money and consume only some of it only marginally helping the economy – a lot of it is not in BC. A bunch of people in the lower income brackets get to consume less and thus hurt the economy for nearly the whole amount, BC economy that is.
· Many current managers are laid off and general service levels drop but nobody cares…
So as one can see there is nothing untruthful about “quick realization”, it is certainly there, except in not such a victimless form.
Just another thought before we go. Why do you think the Fleet deal collapsed? Again, it is simple. The Fleet deal is much more capital versus labor intensive. While it is quite possible to reduce cost of labor (i.e. concessions and lay-offs) in the future, the capital costs are a bit of a problem as GM would charge the same for its cars regardless whether the buyer is BCH or someone else. Since the labor cost savings are small as compared to the whole proposition, Fleet is much less appetizing than the rest to be taken by Accenture. This deal is bullet proof, as labor component is very weighty and can be easily dealt with the happy acquiescence of the present government. Government is for the people, is it not?
We will get back to this and other quote references later, meanwhile, let us consider why should BCH want to get together with Accenture? Clearly Accenture has the expertise that BCH does not possess – that is after 30 plus years in customer service, accounting and computer services. Obviously, the key is that BCH grossly underutilizes its resources involved in these services to such an extent that Accenture could easily transform sloppy and inefficient practices into a first class enterprise with very firm defined goals, even after creating a whole new layer of executive management and associated costs. But what is the new enterprise? I can only hear the discombobulated questions from soon to be Accenture employees - “Are we in computer services? Accounting? Customer services?” - Can the BCH inefficiencies be so atrocious?
Well, not at least in the human resources aspect of the deal - just ask any of the Customer Service representatives at BCH. They will readily confirm their sloppy time management practices and need for sharper and more stringent business rules – that’s why there is strict time management routines demanded of ordinary Customer Service staff already! May be, they should better utilize those underworked phones, computers and tables – that is the prized real estate after all – is it not? Oh, it must be about the growth as confirmed by the Accenture partner Chuck Filewych in one of his recent interviews – “we intend to build a strong locally based first class growth oriented customer service enterprise”. That might be it, but then why entangle oneself into a mess with BCH – why not rent a cheap piece of office real estate, install some phones, hire bunch of people at reasonable wages and go after customers – does not this sound reasonable? Most likely outcome is embedded in the key word of the Accenture’s corporate message – “…help clients across all industries quickly realize their vision” – I thought that we had discarded the word quickly from our business vocabulary in the post Dot Com and Enron era. Apparently not, but the real truth must be somewhere close – let’s consider all possible motivations and myths that put these two parties together and who is likely to be stuck with the final bill.
Myth I - Accenture possesses better expertise than BCH
To an extent the above statement is true, given that Accenture provides all sorts of consulting services to companies in virtually any business. In fact the nature of services themselves vary quite vastly across the board. In addition, Accenture has lately been involved in a number of outsourcing projects across the world that deal with computer support, human resources and customer service. All this clearly points to high probability that Accenture is well suited for such undertakings as outsourcing. On the other hand, one might consider the following: BCH has been running its computer support; customer services etc. for a number of years and surely possesses necessary level of pertinent expertise. Yes, it could be inefficient in some ways it is running the business, but this could be corrected through some management consulting practices that stop short of privatization. In addition, Accenture is a fairly new player in the direct management of the services in question – this is a clearly a weak point for them. Lastly, multinational consulting outfits are typically very insular and region focused – as such the much touted world wide expertise is not worth all the rhetoric that is put into it. All in all, better management expertise is not likely to be the real reason the deal in this case.
To support this point, just ask any customer services representatives about their work load and daily work schedule requirements – BCH already employs fairly well-structured, and demanding work environment that is likely to be only marginally improved from HR management perspective. The better utilization of office space, computer and phone equipment is possible but this issue will be addressed in the next point.
Myth II – Accenture wants to build a strong locally based growth oriented enterprise
The question first and foremost will be - how would Accenture define its expertise regarding its potential future clients and competition – computer support, human resources, purchasing, accounting services and customer services? What is the business of Accenture? It is a truly difficult question. These services might not be “core” for BCH, but a certainly “core” for a number of world-renowned companies that typically do not specialize in the whole mix. So Accenture might have hard time adequately managing the mess - let alone tons of competition in each of the categories.
Moreover, if Accenture wants to go out and win contracts it can do it on its own quite successfully. Accenture can easily bid on different contracts, acquire its own equipment and office space at rates most likely lower of those offered by BCH and can hire cheaper and more agreeable staff – what is the need for BCH? The obvious answer - they need BCH for the BCH based contracts themselves and not for any other reason – but more about this later. To summarize this point, Accenture cannot grow (other than finding more head cases like BCH) by plunging wholesale in provision a number diverse and competitive services with no specific attributes other than the most obvious target for outsourcing – “non-core”. Accenture is not likely to be very successful bidder on any of its new contracts considering that the main aspect of the deal – people cannot be much more streamlined and more expensive than Accenture can get on its own without BCH. In addition, the very basic concept of successful consulting business is to use very little capital in its undertakings. Outsourcing business is quite opposite to that – it requires considerable amounts of capital to be put at risk. Moreover, it is well known fact that the most successful human resource based outsourcing businesses are the ones that operate from low cost English speaking jurisdictions such as India – hence the idea of any future growth, let alone local based one appears to be rather dubious. The only way Accenture is likely to put any capital in the deal (this is a great time for treasury bonds but very poor one for low rated undertakings) - when the deal is bullet proof through BCH guarantees (i.e. ten-year payment guarantee).
Quick Realization of Visions
So given the above – the issues of growth and especially firm hands-on management expertise might not be the strongest attributes of the deal with BCH. But what is the driver? BCH has been a political toy in the hands of successive BC governments for generations. This one is no different. However, it espouses a very strong tendency to favor everything private versus anything public. What a convenient way to make more friends among the corporate elite if not make some deals that benefit both – government (seller) and corporate elite (buyer)! One should ask how it is possible that every party benefits in the deal. The simple economic sum of the transaction is a goose egg, zero that is and the losing party – COPE and other employees. How does it work? Simple:
· The contract is structured more or less on the basis of the current costs associated with services in question.
· The price for such services to be paid to Accenture by BCH is relatively close to such costs and the contract is signed for ten years.
· The labor contracts taken on by Accenture amount to a two-year commitment until the expiration of the current COPE agreement.
· Accenture figures it can deliver services at some new drastically lower costs after it cuts COPE loose or makes them accept some horrendous concessions in two years time. Here comes a profit stream that behaves even better than a certificate of deposit – BCH takes care of any inflationary effects.
· Accenture pays a certain amount out of its future profits represented in today’s dollars to BCH today. Be sure that majority of future benefits will remain with Accenture.
· BCH by receiving the amount can claim a win by not getting any higher than present service costs and gets to record an accounting (and cash) gain.
· BC government gets a higher dividend for the year (years) that the gain is recorded and COPE gets screwed.
· Economy is marginally worse off as people in higher income brackets get more money and consume only some of it only marginally helping the economy – a lot of it is not in BC. A bunch of people in the lower income brackets get to consume less and thus hurt the economy for nearly the whole amount, BC economy that is.
· Many current managers are laid off and general service levels drop but nobody cares…
So as one can see there is nothing untruthful about “quick realization”, it is certainly there, except in not such a victimless form.
Just another thought before we go. Why do you think the Fleet deal collapsed? Again, it is simple. The Fleet deal is much more capital versus labor intensive. While it is quite possible to reduce cost of labor (i.e. concessions and lay-offs) in the future, the capital costs are a bit of a problem as GM would charge the same for its cars regardless whether the buyer is BCH or someone else. Since the labor cost savings are small as compared to the whole proposition, Fleet is much less appetizing than the rest to be taken by Accenture. This deal is bullet proof, as labor component is very weighty and can be easily dealt with the happy acquiescence of the present government. Government is for the people, is it not?
1 comment:
Great article Alex. I had my first experience with Accenture recently, indirectly. They are the consulting firm that helped to set up a client of ours.
It was amazing to think that they are taking a product, in our case we sell something similar for about 10K, putting their "world class consulting" on top, and charging between half and three quarters of a million for it.
Makes me feel like I'm in the wrong industry!
An interesting glimpse of business and politics in BC.
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