By Ayushman Baruah
Nasdaq-listed Cognizant Technology Solutions has been posting slower growth than its peers but the management believes the company is in transition. It has improved its operating margin by 30 basis points year-on-year and 50 basis points sequentially to 15.5% during the June quarter. Brian Humphries, CEO, Cognizant talks about his plans to get the company back on track, attrition, and consulting capabilities in an interview with Ayushman Baruah. Excerpts:
Cognizant has been posting slower revenue growth compared to its peers. What are your plans to get back on track?
The starting point is that we are a company in transition and last year we actually had our highest growth since 2015. So, we have to recognise that the growth rate has picked up in recent years. And even as we are repositioning the company, the fundamental answer to this question relates to the strategic repositioning of the company to higher growth categories. And that largely is evidenced by the progress we are making towards scaling into digital which today is 50% of our business. When I took over the company, it was less than 30% of the business. So, that is fundamentally a higher growth element in the market.
Which are the other growth drivers helping the transition?
The second element that enables us to get after growth is tapping into the international market opportunities available to Cognizant. We already have some success stories. For example, the UK, our second largest market, is about $1.8 billion in size and growing at 20% year over year. We have had some great wins there. We also plan to grow via M&As (mergers and acquisitions) which remains a strategy to accelerate growth. We tend to acquire digital assets which are increasing our growth rate. And last but not the least, we look at opportunities to complement our digital growth with some large deals.
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But your high attrition rates are a concern…
It’s really about repositioning the company towards high growth categories, first and foremost. And of course, in order for us to fulfils our true growth potential, we have to make progress on attrition. Attrition is elevated across the IT services industry as it is across other industries. And continuing to work towards bringing that down will be important for us to accelerate growth. First, we have to address attrition via compensation. Last year, we paid substantially more in compensation than any time in our history.
Aren’t you also focusing on career paths of employees?
Last year, we overhauled our promotion process and we actually had a 300% increase in promotions in Cognizant, which really enables us to fulfils the career path ambitions of employees who join Cognizant. The third thing is about learning and development. We have meaningfully invested in our employees in their knowledge in the last year. We invested about 23 million hours in learning and development and about 130,000 digital courses were taken by our employees last year.
As a lot of your peers have either deferred or cut variable pay for the employees, what is Cognizant’s plan?
I think it’s highly linked to their margin erosion. I am not going to comment on our variable pay because we pay it at the end of the year and we just reported two quarters till now. But we are actually an outlier in the industry. We increased our margins 30 basis points year over year and 50 basis points sequentially. We guided our margins to increase further in Q3. So, we have found a way to offset labour cost increases by being smart in terms of how we go about driving margin expansion. And of course, margins are important for variable pay. I am delighted with the progress we have had in our margin expansion year to date.
How do you plan to strengthen your consulting capabilities?
We pulled together Cognizant Consulting as one global organisation in Q4 of last year and my vision for Cognizant Consulting is really to align process modernisation and technology modernisation and change management at the intersection point of industries. So, you will see us continue to strengthen our advisory capabilities with a view to doing those industry by industry…we have been strengthening our team and we have had some great wins recently, but the objective of that business is to be synergistic with the rest of Cognizant’s portfolio. We are not trying to do strategy consulting but you will see us do consulting around tech modernisation and process consulting aligned to industries.