Friday, April 19, 2013

Incorrigibly cognizant!

Cognizant’s ability to consistently achieve astronomical revenue growth has surprised many. Will it’s new strategic outlook be able to keep the ‘shock & awe’ coming?
 
While debating on a particular strategy related to employee & customer orientation in a technology company with a top CEO, I gave the logic that works best when you are trying to escape an argument – the proof of the pudding is in the eating, and the particular company was doing well. The CEO smiled at me and nodded his head, saying that even the most unconventional strategy looks great when someone successfully applies it. The whole world then analyses why the strategy worked for that unique organisation and we feel we have got collectively smarter. The fact is, perhaps next time too, we will only identify the merits of an unconventional strategy when it has met the benchmarks of success.

Though Cognizant is not the company I was discussing, there is no doubt that the successful rise of this company has become the flavour of the season in the IT space. Cognizant, which beat Wipro in terms of revenues to reach the number 3 position among Indian IT players in the quarter, saw revenue rise by 34.4% yoy to reach $1.48 billion and net income reach $208 million, a growth of 20.78% yoy. And the surprising part is that IT experts weren’t really counting on the company delivering these numbers, as it still got 77.8% of its revenues from North America, a region that the IT world is looking to slowly derisk from. Annually, the company is showing a growth of 40% on an average over the past five years. It makes sense to understand what makes the company stand amidst this environment, and whether the growth is indeed sustainable.

There were a number of things that Cognizant, a relatively young upstart did since it commenced operations in 1994 as the IT development and maintenance services arm of Dun & Bradstreet. The first was its initiative to shift headquarters to the US within two years of commencement of operations and ensure that its top management was where its clients were. It also pioneered and trademarked the ‘Two-in-a-box model’, which combined the global delivery model with the relationship manager onsite to give clients a differentiated experience.

Cognizant is extremely dependent on employees in India, which account for over 75% of the workforce. In that sense, it ensured an effective utilisation of both worlds, and other Indian companies, even though their business is also largely driven by US and Europe, developed a global positioning much later. In fact, Cognizant is also lobbying for change in H1B visa norms, and CEO Francisco said at the CEO Council recently on outdated immigration laws, “Millions of foreign skilled professionals are in legal limbo due to a massive backlog for permanent resident visas, hampering their ability to fully contribute to the US economy...”

One critical decision that Cognizant took in 1998 when it went public was to retain lower margins in favour of stronger growth and differentiation in organic terms as compared to its peers. However, it does have a cash reserve of around $2.2 billion and no debt on its balance sheet. Even when you look at net profit for the quarter ending June, Cognizant lags Wipro, whose net income was $295 million for the quarter. But the reinvestment approach has done a lot for the company, which has developed an extensive portfolio of offerings in areas like ERP, testing, IT infrastructure services, et al.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
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