The last few years have seen IT budgets decimated and, as a result, IT suppliers have been forced to change their business models. The emergence of the digital world and globalisation are just two trends shaping the future of IT services.
In this interview Francisco D’Souza, CEO at IT services firm Cognizant, tells us how the company has continued to grow and what it has done to prepare for the post-recession business environment. Emergence from the doldrums that began with the credit crunch in 2007/08 is seeing businesses invest in a new wave of technologies. Social, mobile, cloud and analytics are all the rage as businesses move from keeping the lights on for as little money as possible to investing to sharpen the competitive edge.
A similar transformation has gone on in the IT services sector. Cognizant, which has the majority of its staff in India, has had to transform. Like other India-based companies it grew fast by selling full-time equivalents to businesses that needed IT resources for a particular period of time, known as the time and materials model. The low cost compared to equivalent resources in the US and UK made this an easy sell. But things have changed.
According to ISG, between 2005 and 2008, Western suppliers’ revenues grew at a 7% combined annual growth rate compared with a rate of 32% for India-heritage providers.
But the recession, which began in 2008, has been a shot across the bows.
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In the years since, western firms' annual revenue growth has been 0.4% and the Indian firms experienced half the growth rate at 16%. ISG said this is the result of a maturing market. Although 16% is a good growth rate, the speed of decline is worrying for these companies.
So how is Cognizant planning to retain high growth levels?
Computer Weekly: How important is the offshore delivery model to your differentiation today, compared to 10 years ago?
Francisco D’Souza: The trends are very clear – it’s no longer labour arbitrage but intellectual arbitrage. Just like the manufacturing supply chain went global, we are seeing the services value chain also go global. This means companies need to tap into the most appropriate, qualified and experienced talent wherever they are available, near or far.
In order to tap into the best and the brightest wherever they are, we have made significant investments in local, regional and global delivery and operations centres. Today we have over 50 delivery and operations centres globally.
Our large global centres are in India, China and the Philippines. Our near-shore centres are in San Jose (Costa Rica), Buenos Aires (Argentina), Toronto (Canada), and Budapest (Hungary). We have also invested in many local centres in Arizona, New Jersey, Boston, Arkansas, Texas, Phoenix, Iowa and North Dakota (in the US), and Canary Wharf (in London, UK), Grenoble (France), Eindhoven (the Netherlands), and many others.
CW: How do established IT services firms retain the growth rates of early stage companies?
FD: Before addressing the drivers of growth, it’s important to understand the market environment. The market is experiencing a secular shift to new technologies such as social, mobile, analytics and cloud (or SMAC). And while our clients clearly realise the tremendous potential of these new technologies, they are also mindful of the continued volatility in markets and demand around the world.
At Cognizant our brand statement talks about the need to ‘Keep Challenging’ the status quo
As a result, they are grappling with the dual mandate of improving current business performance, while investing in technology-based innovation for future growth. This context of rapid business and technology change sets the context for the IT services industry. It means IT services firms must evolve rapidly, and that requires a culture of entrepreneurialism, customer focus and agility.
Those elements of culture are the keys to strong growth. We don’t believe such a culture is a function of size. Rather, it can be fostered and strengthened with the right strategy, people and operating practices. This culture is important because just as this environment introduces lots of new opportunities, the environment also brings risks. The path from point A to B is not necessarily a straight one and every year is different.
It is an exciting journey of on-going discovery for the market, for our customers, and for us at Cognizant. At Cognizant our brand statement talks about the need to ‘Keep Challenging’ the status quo – this epitomises the culture needed to fuel future growth.
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CW: How do you encourage a start-up mentality within Cognizant?
FD: The hallmark of a startup is empowerment, quick decision making, and encouragement of risk taking. At Cognizant we have always had this.
Many of our business units are large. For instance, financial services and healthcare are billion dollar businesses today. Our business unit heads are like mini-CEOs of these large units and are in charge of revenue and profitability, customer and employee satisfaction, strategy, operations, HR, and so on. The executive leadership team provides guidance and oversight of these businesses and our budgets, structure and incentives are all aligned towards driving this entrepreneurial culture.
We also encourage our employees to think like entrepreneurs and have found a way to take their ideas to market. For instance, our Emerging Business Accelerator (EBA) initiative identifies trends and ideas by leveraging Cognizant’s employees, deep client relationships, and an ecosystem of external partners. It helps incubate the most promising ideas across new technologies, new delivery models and new markets.
The EBA works hand-in-hand with our core business and operates similarly to a Venture Capital model. To guide the introduction of ideas, we have created governing boards with experts from the venture capital and private equity industry. The experts scan ideas, provide internal funding, help in building prototypes and finally take the successful ideas to market.
CW: What are Cognizant’s main growth areas?
FD: Cognizant has seen broad-based growth across industries, geographies and service lines.
If I were to highlight two specific areas of growth, it would be Europe and the new technology architectures of SMAC that I mentioned earlier.
As businesses become more tech-centric, technology is increasingly a top priority item for companies
The overall European IT services market is roughly the same size as the North American IT services market, yet the penetration of the global-delivery model in Europe is currently a fraction of that in North America. As a result, Europe continues to be an area of our focus and investment. In 2013, we did two tuck-in acquisitions in the Continent – six companies of the C1 Group in Germany and Equinox Consulting in France. These will help us continue to drive growth in Europe.
For technology architectures, the future growth is going to be fuelled by a once-in-a-decade shift in the new technologies driven by SMAC, which is affecting business models across many industries.
As businesses become more tech-centric, technology is increasingly a top priority item for companies. Clients are also trying to figure out how to manage the information that surrounds people, organisations, processes, and products—something we call Code Halos. Code Halos consist of the data that are rich with meaning and insight – they are becoming vital for business success.”
CW: Where do you see Cognizant in ten years’ time?
FD: The next ten years promise to be one of the most exciting periods in the IT services industry. With the explosion in data and devices, businesses are become more tech-centric, Cognizant is well positioned in the long run to become a strategic transformation partner for our clients.
We have already rolled out 18 platforms and solutions to more than 150 clients
We will continue to make investments in building integrated capabilities across key areas that we believe will be a key differentiator for the company – advisory and consulting services, industry-specific business processes, and scalable technology and service operations – while preserving the culture of innovation and agility.
CW: How important is non-linear growth to IT services firms and how have you addressed the challenge of achieving it?
FD: We believe that non-linear models will be an important driver of growth and differentiation and we continue to look for appropriate solutions and opportunities for investment.
For instance, our portfolio of Cognizant BusinessCloud Solutions enables clients to deploy a range of on-demand business and IT solutions without the longer implementation timelines that are sometimes associated with traditional on-premise solutions. One advantage for clients is that they are accessible on a pay-as-you-go basis.
We have already rolled out 18 platforms and solutions to more than 150 clients. Our BusinessCloud solutions include Cloud 360 (a one-stop platform to manage applications across private, public and hybrid clouds), assetServ (which helps manage digital content and access anytime, anywhere, across multiple devices), TruMobi (a unified, end-to-end mobility suite for application provisioning, security, integration and lifecycle management of mobile devices) and a clinical solution that supports the entire clinical trials process for life sciences customers, fundamentally changing the way R&D is performed.