Cognizant Technology Solutions will eliminate as many as 7,000 mid-senior level jobs globally and reskill about 5,000 employees as part of a plan to save costs and simplify the company’s organizational structure.
“This will result in an annual cost savings of $500-550 million, which will be reinvested in growth," chief executive officer (CEO) Brian Humphries said in a telephonic interview on Thursday. “The gross reduction is expected to lead to a net reduction of approximately 5,000 to 7,000 roles (about 2% of the company’s total workforce), as we are looking to reskill and redeploy approximately 5,000 of the total associates impacted," he said.
The restructuring should also be looked as a way to create more jobs as the company gets back to growth, Humphries said. As on 30 September, Cognizant’s worldwide employee strength stood at 289,900. The company said it is simplifying the organizational model and embarking on a “Fit for Growth" plan that will involve strategic investments and measures to streamline the cost structure.
Apart from reduction of employees, Cognizant also plans to exit certain “content work" within the digital operations practice that is not in line with the company’s long-term strategic vision. This involves determining whether certain content fails to meet client standards. “Exiting this area will impact an additional approximately 6,000 roles worldwide, though the company intends to work with its partners to explore ways to transition the roles to alternative vendors, thereby reducing the impact on associates," the management said in a post-earnings conference call with analysts on Thursday.
The move will also impact Cognizant’s revenue in the communications, media, and technology business segment, with the ramp-down in work expected to be spread over the next one to two years. All other Cognizant digital operations content-related work will continue, the management said.
“Such layoffs are already happening quietly in the industry so this is not something unexpected. A lot of the IT services companies are pruning to grow in areas that are strategic to them. From the company’s perspective, it’s like a necessary evil where they have to take tough decisions as per their growth strategy," said Sanchit Vir Gogia, chief analyst at Greyhound Research.
Humphries replaced Cognizant veteran Francisco D’Souza as the CEO in April this year. In an interview earlier this month, Humphries had said that he is trying to re-establish Cognizant’s bellwether status and accelerate its digital position in four key areas, including cloud, digital engineering, data, and the Internet of Things. Despite the job cuts, Cognizant clarified that it will continue to hire talent globally with a focus on the digital areas. Meanwhile, the New Jersey-based IT services company raised its full-year revenue growth forecast to 4.6-4.9% from the 3.9-4.9% growth it predicted when it announced its June quarterly earnings.
Cognizant’s net profit for quarter ended September rose 4.2% to $497 million from $477 million in the year-ago quarter. Revenue rose 4.2% to $4.25 billion. In comparison, Tata Consultancy Services Ltd’s revenue grew 5.8% year-on-year, while Infosys Ltd’s revenue grew 9.9% annually.
Among verticals, Cognizant’s revenue from financial services clients, who contribute 35.1% of the company’s total revenue, grew 1.9% from a year earlier, driven by improvement in insurance, which benefited from the ramp-up of project-based work.