Cognizant, the Nasdaq-listed IT services major with a large employee presence in India, believes there are significant growth opportunities despite volatile global macro-economic environment with its digital business leading the way. The company, which expects to reach a revenue size in the range $14.7-14.84 billion in 2017, sees enough room for growth in developed markets of the US and Europe. Francisco D’Souza, CEO, Cognizant, in an interview with FE’s P P Thimmaya, says that the high-margin digital business has already become mainstream for the firm. Excerpts: Has the recent changes in US immigration policy had an impact on Cognizant?
In our view anywhere in the world we operate, we need to work with the respective governments to balance things. We have to make sure that we protect local workers. In America, we are aggressively hiring US citizens and permanent residents. Working with governments to protect the local workers’ interest is a critical part of the equation. In many developed markets where there is a big digital build-up, there is shortage of talent. So the policy needs to find a balance on how you protect the local workers and at the same time make the local businesses competitive. What will be your inorganic strategy?
Our primary acquisition strategy will continue to be on tuck-ins. We will look at acquisitions, which fit in to any of these criteria – capability, industry, geography and platforms. We are not opposed to doing larger acquisitions, like Trizetto, but those will be few and far between. If we find the right opportunity, we will consider them. How is Cognizant going to raise the operating margins to 22% by the end of calendar year 2019 (it is now at 20%) as per the company’s plan? We laid out this plan in the early part of February 2017. Our first focus will be on high quality sustainable growth. We are focusing on businesses that are inherently of high value.
Today, if you look at the digital business, it is high-margin compared to the rest. Secondly, there are opportunities internally to simplify the business in terms of structures, real estate etc. Some savings will come from them as well as from other operational efficiencies, like utilisation. How are digital platforms reshaping businesses? When we talk about digital, I think it is a convenient word to use to describe the change that is happening. Digital is a collection of technologies. The general accepted set of technologies, which constitute digital has expanded substantially. It has the potential to change the competitive dynamics of many industries. For the clients to adapt to this new environment, they need to change their businesses, operating and technology models simultaneously. The big initiative we have had at Cognizant over the last 2-3 years has been to build out a set of capabilities that we need to engage with clients in the digital segment.Today, we bring a broad set of capabilities to clients. I believe digital is already mainstream. In the second quarter of this year, our digital business was more than 25% of our revenue, growing 30% year-on-year.
The big initiative we have had at Cognizant over the last 2-3 years has been to build out a set of capabilities that we need to engage with clients in the digital segment.Today, we bring a broad set of capabilities to clients. I believe digital is already mainstream. In the second quarter of this year, our digital business was more than 25% of our revenue, growing 30% year-on-year. Will the traditional service line of businesses for Cognizant lose significance? I do not think these businesses will go away. This will become more important in the digital world as for most of our clients, who are digital immigrants, will build digital capabilities on top of their traditional technology environment. Will Cognizant invest aggressively in start-ups?
We have selectively started to make investments in promising companies. We will make investments where there is strong synergy. Will Cognizant invest in the US healthcare sector given the uncertain regulatory environment? The healthcare industry in the US alone is $3.5 trillion. Our healthcare business is around $3.5 billion. Regardless of the regulatory environment, healthcare is a fundamental human need. Technology has the ability reduce cost of healthcare and improve the outcomes. We will continue to invest.