Where is Cognizant getting its growth from?

As IT services firm Cognizant seems to be growing at an astonishing pace, given the current economic uncertainty, I thought it would be interesting to see where sales growth is coming from. This is a great indication of what IT businesses are spending money on.

Cognizant is a good supplier to watch in terms of going with market trends. It has even been grouped with the likes of Apple, Google and Amazon in terms of financial performance. The fact that all the companies ranked have recorded over 30% growth over the last six years despite recession is a clear message that IT outsourcing is getting bigger.

So following Cognizant’s latest results, which revealed 36% sales growth in the third quarter of 2011 compared to the same period last year, I had a conversation with Malcolm Frank, chief strategist, at the company.

He told me about the two market trends that are driving IT outsourcing

1 – Companies are outsourcing for efficiency

The first one is a more traditional advantage of outsourcing with businesses looking to reduce their capital spending and operational costs. Obviously with the cloud maturing there is a lot of activity in this area.

Frank said: “Clients are outsourcing to get efficiencies in their business models.” To this end businesses are outsourcing maintenance of computing platforms; testing as well as business processes.

2 – Innovation

But perhaps more interestingly is the second trend. The fact that businesses are outsourcing innovation. Franks says this is happening in four key areas: mobility; social computing; cloud; and big data.

“We have seen these four, whether discreetly or in conjunction, driving demand where customers are trying to transform core business processes using these technologies.”

He says for example retailers are investing heavily at the moment in innovation with service providers. All four of these technologies are being harnessed to improve business opportunities.

For example customers all have mobile devices that they take everywhere. These devices are used to browse and buy products. Cloud computing will make connections with these customers closers, particularly through the use of social computing platforms.

As a result the retailer will be constantly collecting information about customer behaviour and to make use of these high volumes of data (big data) it will need storage and business intelligence tools to manage it. IDC says the amount of digital data will grow 44 times over between 2009 and 2020.

Frank says that the numerous austerity periods of last ten years have made businesses focus on cost cutting and as a result have become more dependent on suppliers for R&D. The days when IT departments at corporates bring in major new technologies is a thing of the past.