Cognizant exceeds $2bn in a quarter driven by SMAC and non-linear growth

Cognizant announced its results this week and reported sales worth over $2bn in a quarter for the first time ever. The company said its social, mobile, analytics and cloud (SMAC) services contributed to the sales growth as well as services that achieve non-linear growth.

This is interesting because it is the big challenge for the Indian suppliers. They have grown fat of offering more and more to corporate customers. They have been achieving linear growth by selling more and more of the same services. For example add 10 more offshore workers and you add the same amount of revenue, but there is a limit to how many workers you can sell. In contrast a cloud service can increase your revenue whenever the customer increases its consumption, but the cost of providing the service does not increase in the same way as adding workers would.

Rising costs in India as well as technology developments such as cloud computing and process automation software are putting the big offshore suppliers under pressure but they are reacting to it.

Cognizant said in its results announcement that it is benefiting from non-linear growth. I am waiting to hear more details about the services providing this growth and will blog about it when I get some details.

It is not alone amongst the big Indian players. Infosys recently partnered IT and business process automation software maker IPSoft to add value to its services. This means Infosys will be providing higher value work to customers in the form of managing the automation of processes that previously would have been completed manually by Infosys.

And for similar reasons Wipro partnered and took a stake in Big Data science company Opera Solutions.

Then you have TCS, India’s biggest IT services firm. TCS’s deal with the Home Office to run the Disclosure and Barring Service (DBS), is interesting because when TCS takes over the contract there will be fewer of the delivery staff working offshore than there was under the previous supplier Capita. This is because TCS is increasing the amount of automation and digitization, which requires less people.

Could we see a lot more acquisitions from the big Indian players? I always thought someone like TCS would buy a big European supplier to gain a bigger footprint in Europe but it seems it is more likely to be small niche players that offer non-linear growth opportunities.

In his ten predictions for outsourcing in 2103, Mark Lewis, outsourcing lawyer at Berwin Leighton Paisner, said: “Only offshore IT and BPO providers that achieve the nirvana of non-linear growth will put on significant revenue and margin growth in 2013.”

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