Once considered a barometer of growth for the Indian IT sector, Cognizant saw multi-year underperformance before the board replaced CEO Brian Humphries with Infosys veteran Ravi Kumar S. Three weeks into his tenure and after the company’s results for 2022, Kumar spoke to analysts about his priorities.
The New Jersey-based company’s profit declined 9.5 percent year-on-year in the fourth quarter of CY22 and revenue remained little changed. Cognizant will give its guidance for the next year when it reports results for the next quarter.
Kumar told analysts he needs time to get his hands on the pulse of the business. His three priorities will be to make the company an employer of choice, strengthen the ability to win large deals, and enhance operating discipline.
Cognizant faced record levels of attrition in a sector that already had a high churn rate due to pandemic-fuelled demand leading to a war for talent. It even lost market share in key verticals and the departure of employees hampered the company from bidding for deals in the past, staying away from participating in large deals.
“Spend time in the IT services industry and you quickly realise that sustained success hinges on the quality, dedication, and scale of our talent. The value we create for clients comes from the knowledge of the skills of our associates. Because the client experience and the employee experience are so tightly linked, we have the opportunity to create a self-reinforcing cycle,” Kumar said.
He said the plans are to be “highly visible with clients and associates” and to meet 100 clients over 100 days.
On guidance
The guidance for the first quarter is $4.71-$4.76 billion, which is a decline of 1.5 percent to 2.5 percent, or a decline of 1 percent to flat in constant currency. The company said it will provide full-year guidance in early May when it announces the results for the next quarter.
“As confident as I am in Cognizant's prospects, I'm fully aware, as we have signalled with our guidance for Q1, that we have a great deal of work ahead of us. It will take time to rebuild the pipeline and go after larger opportunities,” Kumar said. He added that before making commitments, he wants to spend time digging into the business.
India and talent
Cognizant competes with Indian IT companies and also has three-quarters of its workforce in the country. Kumar said India is likely to be the “world's technology talent hub for the next decade.”
“India's population has a demographic profile and digital talent pool unmatched by any other country, and NASSCOM forecasts some 2 million IT professionals will be added to India's talent pool over the next three years. We'll continue to capitalise on this surge in IT talent in India as we intensify efforts to recruit from India's tier-2 cities as well,” he said.
He said the company will continue to invest in this associate base.
“India is an integral part of our strategy to differentiate,” he said.
Kumar added that the supply chain is looking good. “Our talent supply chain is grinding well, or it's kind of moving very, very well. Some of the clients I've spoken to in the last few weeks have started to tell us that we can start to get some of the demand moved to Cognizant with the fulfilment starting to look good,” he said.
Competing for large deals
Terming large deals a top priority, Kumar said they are essential to building commercial momentum.
“Accelerating large deal bookings that will align with our risk appetite requires client centricity and competitive self-confidence to work the corridors of our clients, cultivating and mining existing relationships, while hunting for new ones and always showing up with an informed point of view,” he said.
He added that the company is building out an organisation structure to put in place “high productivity rates, market competitive cost takeout initiatives, contract lifecycle, and risk management, consortium led deals.”
Demand environment
Kumar’s appointment as CEO came as grey clouds loomed over IT companies for calendar 2023, even as their leaderships struck an upbeat note.
He told the analysts that the sector is in a “golden era of technology and software is the new alchemy for every business and industry.”
“Healthcare, life sciences, and manufacturing are stepping up their tech intensity. While those that are more digitally mature like financial services, retail, and communications are staying invested in digitising the landscapes. We also interestingly see workplaces rapidly adopt digital technologies as employees get comfortable with continuously toggling between hybrid and physical workplaces,” he said.
Kumar added that the cloud will continue to remain “the biggest general-purpose technology we have seen in decades.”
Contrary to a recent JPMorgan note, Kumar said cloud migration, modernisation, and application services will continue to create significant market momentum.
“Growth will also be driven by new cloud services like data on the cloud, data exchanges, new SaaS services, and cloud security services,” he said.
The company sees a push to bring artificial intelligence into the business landscape, with the expectation it will “re-engineer enterprises as completely as enterprise software did three decades ago.”
He said the IT services landscape has gone from homogeneous to heterogeneous, and in an uncertain macro environment, discretionary spending will be softer where large digital transformation engagements will start to become moderate in nature, whereas there would also be vendor consolidation and cost takeout deals.
“So I would say it's a duality of sorts. On one side, you would see softness. On the other side, you would see cost takeout and vendor consolidation kind of happening. Depending on the industry you look for, there are industries which have lesser tech and digital intensity and industries which have higher tech and digital intensity,” he said.
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