Friday, August 13, 2010

Cognizant’s Success Demystified

Back in 2006/2007 Cognizant was just an emerging company and not a close competitor for IT giants like Infosys, Wipro, TCS, or MNC giants like IBM or Accenture both in terms of revenues & talent. But all that has changed in the last three years. Quarter after quarter Cognizant has outpaced the Indian giants i.e., TCS, Infosys, Wipro posting double digit growth numbers. Infact Cognizant was one of the only IT services firms in India to hire aggressively during recession. Cognizant recruited nearly 20,000 professionals to prepare for the renewed demand after recession.

So what is it about Cognizant that makes them different? Well everything. We have heard stories that Mr. Lakshmi Narayanan, Cognizant’s vice chairman does not believe in consultants. He would throw a highly cited survey into the dust bin and listen to real people. Current CEO Francisco D’Souza is a good mix of numbers, people’s person and absolute empathy to client needs.

  • Company has taken some bold steps and adopted some path breaking strategies to grow much faster than many of the leading IT services firms around the globe. In the year 1998 Cognizant decided to plough back any profit earned in excess of 20% back into the business.
  • During the same time frame Cognizant adopted “Two in a Box” Relationship Model as large percent of its workforce was located offshore (India & China). For every client it decided to have a manager on the ground in India and one on the ground at the client site. Currently Cognizant has around has 500-600 accounts, served by 750 client managers. (These accounts have been built by a team of about 70 sales professionals around the world) Company added one layer of senior management to be able to follow the big shifts in the BFSI sector and catch opportunities early. It has always remained client centric organization spending about 23% of its revenues on sales and general administration expenses as against an Infosys which spends about 12%.
  • It follows a factory like delivery model or “run-of-the-mill application maintenance work” with two shifts for commoditized projects like payroll applications in its Coimbatore center saving infrastructure costs like office space, computers and software licenses while delivering twice the work.
  • Cognizant attributes its increasing revenues to its strategy of investing even during the recession and being able to sustain high customer service levels. In a recently concluded customer satisfaction study, the company was ranked the leader among twenty-five India-based and global service providers and was the only firm with no dissatisfied clients.
  • Cognizant continued to expand its global footprint through acquisitions and recently acquired Galileo, a boutique firm focused on testing services in the French market. Galileo’s services help French customers to optimize and extend business performance through IT system measurement, management, and testing. Outsourced testing services have great potential in the coming years, the industry is expected to grow 19% annually over the next five years to reach $17.7 billion by 2013. With over 12,000 professionals, Cognizant can accurately claim to be the world’s biggest testing service provider.
  • Even without a home grown product in the BFSI segment (Unlike TCS or Infosys) it has been very successful with 42% of its revenues coming in from BFSI clients. It tied up with Temenos to go to market jointly especially in the Asian and Middle East market.

However biggest worry for Cognizant today is the its inability to grow its BPO practice. BPO is a major differentiator and an entry point to cross-selling other IT services. Today BPO constitutes about 5% of Cognizant’s revenues and the firm is aggressively planning to plug the gap in its services portfolio. The only way to plug this gap is through acquiring mid to large size BPO firms.
Another big worry for Cognizant is the lack of second layer of leadership who can step into D’Souza’s shoes when it is in sniffing distance of TCS, Infosys and Wipro in terms of revenues from BFSI segment. During its growth phase it had four strong pillars (Kumar, Lakshmi, D’Souza and Chandra) who could lead the company through tough period.

Monday, August 9, 2010

Current Status of Indian IT-ITES Industry

Indian IT-ITES Review 2010 (July 2010 - Gaurav Vasu)

Indian IT-ITES sector generated revenues of about USD 73.1 billion in FY2010, a growth of 5.4 per cent over FY2009. Sector provides direct employment to 2.3 million people and contributes to about 6.1 per cent of India's GDP. Indian IT-ITES sector continues to be export oriented with about 69 per cent ($50.1 billion) of India's total IT-ITES sector (US still being a major contributer). Indian IT-ITES sector created 90,000 addition jobs for FY2010 and as per Nasscom estimates next year Indian IT-ITES sector would add another 1,50,000 (Net hiring) professionals for FY2011.

Top 20 IT Exporters from India (Includes services and product firms)

  1. Tata Consultancy Services

  2. Infosys Technologies

  3. Wipro

  4. Cognizant Technology Solutions

  5. HCL Technologies

  6. IBM India

  7. Accenture India

  8. Tech Mahindra

  9. MphasiS

  10. Oracle India

  11. Patni Computer Systems

  12. Hewlett-Packard India

  13. Capgemini

  14. CSC India

  15. L&T Infotech

  16. Syntel

  17. Aricent

  18. Prithvi Solutions

  19. Polaris Software Lab

  20. Mindtree Consulting
Top IT-ITES firms are optimistic about the global demand in the next two qaurters and hence all the top players are hiring aggresively.

However companies across the globe are focusing on reducing capital expenditure hence concepts like "Cloud Computing and SaaS" have taken a center stage. Global economies especially US and Europe are still battling with lower private consumption and high unemployment. Slight recovery in the US is largely due to government spending & stimulus.

While MNC's and top five Indian IT-ITES players are doing well most mid to small size companies are still struggling to stay afloat. Mid and small IT-ITES players have failed to close deals in the domestic market.