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Cognizant's '2020 Fit For Growth' plan: 7,000 mid, senior level employees laid off

As a part of the plan, Cognizant said it would lay off close to 7,000 employees, who would leave the firm by mid-2020.

November 01, 2020 / 10:09 AM IST
Cognizant's net profit declined 29 percent to $361 million in the June quarter due to COVID-19 pandemic (Image Courtesy: Wikimedia Commons)

Cognizant's net profit declined 29 percent to $361 million in the June quarter due to COVID-19 pandemic (Image Courtesy: Wikimedia Commons)

 
 
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In October 2019, the Teaneck-based IT services firm Cognizant had announced the "2020 Fit for Growth" plan. As a part of the plan, it would lay off 12,000 mid to senior level employees, of which 5,000 will be reskilled and redeployed. The rest 7,000 will leave the firm by mid-2020, it said.

The 7,000 employees were from the mid and senior level.

Now a year later, the company that has a significant presence in India has said that it had completed the plan, which evoked much controversy. Let's look how the whole plan completed its topsy-turvy journey.

The protests

During the earnings call in October last year, the company said, “Our 2020 Fit for Growth Plan is expected to run for two years. This program is designed to simplify the way we work, reduce our cost structure and fund investments in the business which will enable growth.”

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This was expected to result in annualized gross run rate savings of $500 million to $550 million in 2021, the company added.

This move created ripples in the IT unions in India though the industry leaders Moneycontrol then spoke to pointed out that it was inevitable.

TV Mohandas Pai, former CFO, Infosys, and Chairman - Aarin Capital, said that Indian IT industry had a thick middle and some of these senior employees had to be let go to right the pyramid.

IT unions such as Forum for IT Employees (FITE) and Union of IT/ITeS Employees (UNITE) condemned these layoffs. Alagunambi Welkin, General Secretary, UNITE, called for unionisation similar to the one initiated by workers of HCL America to fight for their rights.

Only a month before this announcement, close to 80 techies from HCL America joined a United Steelworkers (USW) union in the US in late September to demand better working conditions and other employee benefits.

This spirit was further fueled by the layoff of FITE’s union member Elavarasan Raja. In November 2019, FITE members planned to meet Tamil Nadu labour and employment department's officials. Their claim was that Raja was sacked for being a part of the union.

All this while Cognizant continued its exercise. After the mass layoffs the company announced in 2019, Moneycontrol reported that the company was laying off its bench employees. FITE had written a petition to the Chennai labour commission on June 12 and another letter to the deputy commission of labour (Central), New Delhi on June 22 about these layoffs.

In the petition, FITE estimated that there were close to 18,000 employees on the bench and over 27,000 rated with poor performance and hence were at the risk of layoffs.

In a response to Moneycontrol, Cognizant had then said in a statement that the terminations were performance-related and the numbers were not accurate and not based on facts. This was in July.

Based on its quarterly reports for both June and September (the company follows a calendar year for fiscal), the net headcount exited under the plan was 9,000 in Q2 FY20 and 10,000 in Q3 FY20.

Overall, total employee count has dropped from 289900 in Q3 FY19 when the plan was announced to 283100 in Q3 FY20. A net drop of around 6,800. In the meantime the company had also on-boarded fresher and laterals.

Now at the end of its September quarter, the company has completed its goal. In the recently concluded earnings call after its Q3 results, the company said, “The majority of the actions under Fit for Growth are complete, and we have achieved our savings targets.” As per its Q3 report, the company has realised the target of $520 million to $550 million in annualised gross savings.

In addition to this, the company also exited its non-core $250 million content moderation business as a part of its restructuring strategy that saw close to 6,000 employees leave the firm.

So what next?

Growth, obviously. Going by the company commentary, it is getting its growth mojo back after the major transformation journey the company undertook.

For the quarter ending September, the company was able to beat street estimates on revenue and raised its full year outlook to the upper-end of the spectrum to $16.7 billion. Earlier the revenue guidance was between $16.4-16.7 billion.

During the earnings call, CEO Brian Humphries said, “While we continue to have a lot of work ahead of us, we are encouraged by our progress.”

“…we're excited about our strengthening competitive position, the opportunity to expand internationally and the opportunity presented by the third phase of digital. So we'll be several big winners in this attractive market and we aim to be one of them,” he added.

However, if Humphries can deliver or not, only time will tell.
Swathi Moorthy
first published: Nov 1, 2020 10:09 am

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