NASDAQ-listed IT services firm Cognizant's CEO Brian Humphries has said that the company does not have enough headcount to fulfill its potential and had to choose the clients to serve and deals to chase given the demand and supply constraint.
This comment comes at the back of rising voluntary attrition of 33 percent (37 percent otherwise), highest among its India peers, at a time when the demand momentum is strong.
For reference, its peers Infosys and Wipro posted a little over 20 percent in attrition. TCS and HCL Tech’s attrition rate stood at 11.9 percent and 15.7 percent respectively for the quarter. The company also continues to exit at the senior executives level. According to CFO Jan Siegmund the attrition is high at the mid-junior levels.
Interestingly, this is the second time the company has warned the company is losing business as it could not hire talent. Humphries told analysts in a call after the software major's first-quarter earnings that it was forced to let go of new business due to its inability to hire talent.
During the Q3 FY21 earnings call on October 27, Humphries said, “…the reality is we don't have enough headcount to fulfill our potential. And therefore we've been faced with choice points, which clients to serve, which deals to chase, where we walk away, where we're willing to make pricing stances that may put a deal at risk, but it's the appropriate thing to do given to the demand, supply and balance.”
According to Humphries, the attrition is likely to remain high going into the fourth quarter, but expect it to see a modest decline.
Hiring, wage hikes
The company is stepping up its hiring to cater to the growing demand, particularly India, where it has more than 2 lakh of its workforce.
The company added over 17,000 people in the quarter ending September 2021. “Given our focus in recent years on accelerating pressure hiring in India, we've made meaningful progress on addressing our pyramid. In the fourth quarter, we expect to make offers to 45,000 new graduates in India for on-boarding and 2022. Retention and recruitment have our leadership’s full attention.”
The company is also investing significantly in retaining employees. This includes wage hikes, promotions, and also charter their career path where they are given opportunity to explore open leadership roles within the company.
All these will increase cost impact its margins.
Cognizant reported $4.7 billion in revenues for the quarter ending September, up 11.8 percent year-on-year. It has guided for 11.1 percent revenue growth guidance for FY21.
Cognizant’s attrition problem
While the high attrition in hot skills is an industry-wide phenomenon, Cognizant's issues extend beyond the buoyant job market.
It continues to lose leaders who have been at the company for decades. Moneycontrol reported recently that Suresh Bethavandu and Muthu Kumaran have left the company, which came on the back of two more senior executives, Arun Baid and Dan Smith, leaving, the latest among a raft of key executives who left the company since CEO Brian Humphries took charge in 2019.
Former Cognizant leaders who played key roles in building the company have now become the preferred choice of private equity firms and global IT/BPM services companies.In the past two years alone, eight companies — Mindtree, Firstsource, Bristlecone (part of Mahindra & Mahindra), Collabera, Hitachi Vantara, Zensar, Qualitest, and Virtusa – have handpicked ex-Cognizant leaders as their CEOs. Others have joined as managing directors or CEOs of large private equity firms and startups.