Finding a successor to CEO Francisco D’Souza, improving growth figures are the two key challenges ahead for firm
Cognizant has had only four CEOs so far, while Infosys and Wipro have had at least four bosses in the last decade alone
NEW DELHI :
For a quarter of a century since it was set up in 1994, Cognizant Technology Solutions Corp. has followed a simple mantra: capitalize on the opportunity emerging out of every crisis.
“Frank (CEO Francisco D’Souza) often says never miss a crisis, it’s an opportunity," said Ramakrishnan Chandrasekaran, executive vice-chairman, Cognizant India.
This approach is best exemplified by the company’s performance during the financial meltdown of 2008. Cognizant’s revenue grew 16% in 2009 and 40% in 2010; Tata Consultancy Services Ltd (TCS) and Infosys Ltd could only manage single-digit growth.
“Unlike some Indian firms, Cognizant increased its investments in business. From hiring more sales executives to even doing some work pro bono for clients, Cognizant realized that all this will help the company in future," said a Mumbai-based analyst at a foreign brokerage, requesting anonymity.
Cognizant, which started as a software services arm of Dun & Bradstreet Corp. with 175 employees in 1994, will end 2018 with over $16 billion in revenues. The Nasdaq-listed firm completes 25 years on 26 January. TCS completed 50 years last year.
Cognizant is envied by its Indian rivals for its scorching pace of growth. Beginning 2010, it has been adding over $1 billion in incremental revenue every year. In other words, in the 12 years ended December 2018, Cognizant has added $14.66 billion in revenue, or the combined numbers of what Wipro and Tech Mahindra Ltd could achieve.
“Cognizant had a challenger strategy," said Ray Wang, founder, Constellation Research, a technology research and advisory firm. “The key was that they had less rules, less bureaucracy to do the right thing, and that led to explosive growth."
Four things underline Cognizant’s steroid-charged growth.
First, the company’s super-aggressive sales culture as the firm always had more people managing its large accounts. Second, Cognizant’s senior management comprises more people from outside the firm, unlike the insular approach followed by homegrown companies. “We are truly an MNC," said R. Ramkumar, executive director, Cognizant India. “We had a CEO who operated out of the US, the next one operated out of India, and the one after him out of the US. If you were to look at the next 25 years, this one aspect of being a global organization with a global mindset and a global leadership positions us well to thrive in the digital era," said Ramkumar, who joined Cognizant from TCS in 1998. Third, stability at the top. Since inception, Cognizant has had only four CEOs. Srini Raju and Lakshmi Narayanan were based out of India, while Kumar Mahadeva and current boss D’Souza are based out of US. Both Infosys and Wipro have had at least four bosses in the last decade alone.
Finally, the company has gained from its focus on fewer countries and industry segments. In 2017, the US accounted for three-fourths of its total revenue, while business from banking, financial services and insurance and healthcare accounted for 38.1% and 28.8%, respectively.
Still, 25 years later, Cognizant again finds itself at a crossroads.
The IT major’s growth fell to single digit for the first time in 2016, when activist investor Elliott Management Corp. pushed the management to focus on improving profitability rather than its growth-at-all costs approach. 2018 will be the third straight year of Cognizant reporting single-digit growth.
Understandably, a few analysts such as HSBC analyst Yogesh Aggarwal, have said in the past that Elliott’s decision was nothing short of “destructive activism".
A bigger challenge ahead for the company is to find the successor to CEO D’Souza, and the board is evaluating both internal and external candidates. D’Souza is expected to step down sometime this year.
“Cognizant has been a good story," said former Infosys CFO V. Balakrishnan. “Their USP has, however, been to grow higher than Indian firms. The Elliott chapter was a distraction for the company, and it needs to be seen if the company can get back its old DNA."
Amazon, which was also founded in 1994, set up its cloud services business, Amazon Web Services, in 2006. AWS’s revenue now stands at $21 billion (on trailing 12 months basis), more than TCS.
For now, Chandrasekaran won’t admit if Cognizant, like its Indian peers, lacked the foresight to invest in cloud computing business. “The good thing is that we were able to scale our business. The bad thing was we didn’t focus on path-breaking innovations, but in the future you will see a lot more path-breaking innovations," said Chandrasekaran.
Varun Sood in New Delhi contributed to this story.