Brian Humphries has his work cut out as Cognizant CEO
4 min read.Updated: 07 Feb 2019, 11:14 PM ISTVarun Sood
Two immediate challenges are to arrest slowing growth and see that Cognizant does not lose senior managers
At 45, Brian Humphries is the youngest boss of a large IT services firm, globally
NEW DELHI :
During the 2008 financial crisis and for the next two years, Cognizant Technology Solution Corp.’s chief executive officer (CEO)-designate Brian Humphries served as the chief of staff to Hewlett-Packard Co. CEO Mark Hurd. Those were tumultuous times for Hurd and the company he was helming. A few years later, HP was cleaved into half.
On Wednesday, Cognizant said Humphries will succeed Francisco D’Souza, who steered the company from a revenue of just $1.42 billion at the end of 2006 to $16.1 billion.
Sure, Cognizant is not battling similar challenges faced by then HP. Still, Cognizant finds itself at a crossroads a quarter of a century after the company was set up in 1994. Humphries’ experience at HP will come in handy at this juncture.
2018 is the third straight year when Cognizant posted below 10% growth. The company’s new strategy—it dumped its earlier approach of prioritizing profitability over growth in November—to scale up business from digital technologies is still nascent amid structural challenges faced by the industry much like what HP faced in the last decade. Finally, a CEO change at a company is always fraught with uncertainties.
Humphries at Cognizant is only the third instance of a large Indian heritage information technology (IT) services firm hiring an outsider as CEO. Wipro entrusted Vivek Paul with the top job in 1999, only to see the executive leave in 2005 before his term was to end. Vishal Sikka left three years after he was asked to lead Infosys Ltd.
Can Humphries beat the odds?
At 45, Humphries is the youngest boss of a large IT services firm, globally. Rajesh Gopinathan who took over as CEO of Tata Consultancy Services Ltd (TCS) in February 2017 is 48. Unlike Cognizant’s peers, whose CEOs are either based out of India or the US, Humphries will be based out of London. What further sets Humphries apart is that he is the only CEO at an IT services firm to have worked in roles across finance, strategy and operations across the US, UK, continental Europe, and South Africa. Again, unlike CEOs at Indian IT firms, Humphries does not have any fixed-time contract with Cognizant.
“Brian is a terrific executive, and I’m totally committed to my employees, shareholders and all stakeholders to ensure there is the smoothest possible transition," D’Souza said on Wednesday in an interview.
D’Souza won’t answer why he decided to give up the CEO’s role. However, Cognizant’s two earlier bosses, Kumar Mahadeva and Lakshmi Narayanan, passed the baton when they were in their early 50s. D’Souza at 50 appears to be following the company’s unwritten rule of quitting in their early 50s. In his current role as CEO of Vodafone Business, Humphries is overseeing a $13.6 billion business that includes the world’s largest telecom firm’s solutions in areas such as internet of things, security solutions, and cloud-hosting services. Two immediate challenges ahead of Humphries are to see Cognizant does not lose senior managers and to arrest its slowing growth.
Current president Rajeev Mehta will leave the company the day Humphries starts his stint at the Teaneck, New Jersey-based Cognizant on 1 April.
“Any CEO change always comes with the risk of whether there will be more churn in senior leadership team. Save for TCS under Rajesh, all IT firms have seen some exits of senior leaders which means that the company will need time to come back to industry-matching growth. So this will be a concern," said a Mumbai-based analyst at a foreign brokerage seeking anonymity.
Slow growth is another issue.
Cognizant’s 8.9% growth in 2018 was less than its larger rival, TCS, which reported an industry-leading 10.35% dollar revenue growth in January-December period. Agreed, Cognizant fared better than Infosys and Wipro, which reported 7.86% and 3% growth, respectively.
But this too can change in 2019.
One analyst expects Infosys under CEO Salil Satish Parekh to steer the company to a faster growth path than Cognizant in the current calendar year.
“Based on current street estimates, we expect the Indian IT services industry revenue growth rates to continue to re-accelerate in calendar year (CY) 2019 at 9.3% year-on-year growth. Importantly, we think Infy (Infosys) and TCS will generate roughly double-digit growth in CY19, though we think CTSH (Cognizant Technology Solution Corp.) will be below these levels," Keith Bachman, an analyst with BMO Capital Markets, wrote in a note dated 3 February.
Cognizant expects full-year revenue to grow between 7 and 9% in constant currency terms in 2019.
For now, investors and analysts are not complaining.
Cognizant shares ended trading 4.6% higher at $74.5 on the Nasdaq on Wednesday.
“We believe that Brian Humphries will be an outstanding leader for CTSH," Bachman of BMO Capital Markets, wrote in a note dated 6 February. “We believe that areas that Humphries could focus on include: 1) consistently meeting or beating investor expectations, and 2) giving greater emphasis to the top line instead of margins."