Cognizant exceeds over 20% growth as non-linear sales accelerate

IT services firm Cognizant has reported almost 22% sales growth in its latest three month business period as the double digit offshore-centric suppliers accelerate

IT services firm Cognizant has reported a sales increase of almost 22% in its latest three-month business period, as its move to non-linear growth accelerates.

Sales were $2.31bn in its third quarter compared to the same period last year.

The supplier is US owned but has always been grouped with the Indian IT services giants because it uses the offshore business model with most of its staff in India.

Suppliers that rely on the offshore services model, where sales are increased by placing extra full time equivalents on customer contracts, are trying to harness non-linear growth models.

Businesses have grown in a linear manner through a time and materials model, with extra bodies being added at a fixed rate. But falling prices, automation and cloud computing are examples of the pressure on traditional linear models such as time and materials.

Over the last decade, Indian suppliers have differentiated through offering lower costs. This was made possible by the lower cost of labour in India compared with the UK and US.

This has helped the India suppliers grow rapidly. 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. 

In the years since, western firms' annual revenue growth has been 0.4%, while Indian firms experienced half the previous year's growth rate at 16%. ISG said this is the result of a maturing market.

But suppliers such as Cognizant realise they cannot rely on linear business models and must provide services where growth is not just linked to more people working on contracts.

Earlier this year, Cognizant CEO Francisco D'Souza said: "We continue to make solid progress, developing emerging offerings in new markets, such as social, mobile, analytics and cloud technologies and new non-linear solutions and services.”

Jennifer Hamel, research analyst at TBR, expects Cognizant’s growth to continue. “Investments in onshore consulting and transformational technologies will help Cognizant maintain industry-leading revenue growth in the next quarter.”

Western firms' annual revenue growth has been 0.4%, while Indian firms experienced half the previous year's growth rate at 16%

“Professional IT services vendors are moving beyond the era of labor arbitrage. To stay on track with this trend, Cognizant continues to invest in its IP portfolio to develop its nonlinear growth model.

One such development is Cognizant’s work with IT automation software supplier IPSoft. Automation software providers often target the traditional offshore model, where IT and business processes are carried out in low-cost locations, as an area to win business.

But Cognizant, like Infosys, is working with IPSoft. “As part of the partnership Cognizant will transform data centers in the US, Europe and India into Centers of Excellence (CoEs) to support the development of automated infrastructure management offerings,” said Hamel.

“TBR believes automating select components of Cognizant’s infrastructure management offerings will eliminate the need for engineers to address low-level, redundant tasks, which will free up resources that can be leveraged for higher-value transformation initiatives,” added Hamel.

Meanwhile, another India-centric supplier Tech Mahindra Revenue reported sales of $758m for its latest financial quarter, which was 17.6% higher than the same period last year.

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