Cognizant Technology Solutions has always claimed to be a company that is ahead of its information technology (T) industry peers. It was one of the first to move its executive management closer to customers in the US, to get listed in the country it services (on Nasdaq), one of the first to state that operating margins for the industry of 18-20 per cent were sustainable.
But clients are now investing in highly qualified people to deal with outsourcing and check the quality of work that is done offshore. So Cognizant in turn is building a high-profile team of experts to interact with its clients.
This is reflected in Cognizant's sales, general and administrative expenses, 26 per cent of its total revenues, the highest in the industry (the figure for other large IT companies: between 12 per cent and 16 per cent).
Lakshmi Narayanan, president and CEO of Cognizant, spoke to Business Standard on why his company is making these investments. Excerpts:
Why are clients launching "active sourcing programmes?"
With outsourcing becoming mainstream, customers have started strategising on how best to get the maximum from outsourcing. They have started assessing what all should be outsourced and what should be retained in house.
The current thinking among sourcing programme managers is: "I now have the ability to identify the best in each of the areas such as consulting, IT services, BPO and infrastructure services, and I don't mind partnering with one or two of the best in each of these." This has led to their putting together an "active sourcing programme" to select their best vendors.
The reliance on a single vendor to provide end-to-end services in an integrated manner is diminishing. Internally, all large vendors are put in a silo. The customer ends up being the super integrator, incurring the cost, despite paying for integration.
Because of this, as a next logical step, customers have found the need to unbundle requirements and source things from different best-of-breed vendors and retain the strong integration capability in house. This has come out of their experience in large scale outsourcing and also, just as important, the transparency and maturity of vendors.
Why is Cognizant making these investments?
This visible transition in customers' decision making leads to complexities in sourcing. Their focus is primarily on retaining people whose core capabilities are programme management, contract management and integration management.
So when they interact with Cognizant they expect a similar profile of
people at the discussion table. And when they talk about integration challenges, programme management challenges, if we have designers, technologists and project managers as their counterparts, it would be a disconnect.
We have been investing our time and effort in that capability so that we can interact at a higher level with business users.
That's why we are hiring a number of senior professionals, primarily in the US and Europe, who understand better the challenges of system integration, change management and programme management.
Where do these people come from?
Some of them have come to us from our customer organisations themselves. From some customers, we have re-badged as many as 20 to 30 senior professionals. Additionally, we have hired people who have done similar work in companies like McKinsey, IBM, Accenture and PWC.
In the last six months alone, we have recruited about 40-50 such senior professionals.
Are these investments ahead of time?
We believe they are. We are better positioned to make these investments a little ahead of the curve as we manage our operating margins in the 19-20 percent range, and re-invest anything in excess of it in our business for growth.
This gives us a discernable advantage to make investments ahead of time, stay differentiated and establish a leadership position faster.
What tangible benefits has Cognizant got through this?
The tangible benefits include our ability to better reach out and connect at the CxO levels of our customers, consult with them on their offshoring roadmap and be seen as "easy-to-do-business-with" partners. Customers appreciate the investments we make in making their offshoring programmes successful. As an analyst with Meta put it, this helps us provide our customers "the best of both worlds".
When we talk of complex programme management skills, what are we talking about?
For a large customer of ours, we manage the relationship across several lines of businesses, across several countries, managing over 100 projects and interacting with approximately 200 touch points in the customer organisation.
This cannot be managed merely by a battery of project managers. This calls for running it like a global programme, with a governance structure to ensure tight relationship management across all touch points and high execution excellence.
If these investments are ahead of time, when do you see actual tangible benefits accruing to the company?
We are already seeing tangible benefits accrue to us in the quality of customer wins and the type of projects we are handling today, as opposed to a few quarters back.
The kind of complex application development deals we have won recently are good examples. These deals require complex architecture capabilities, high change management capabilities, a different approach to contract management and high integration capabilities.
Another example is a significant deal we won over a large system integrator which required re-badging over 30 of the customer's senior professionals, involving a high degree of change management and integration management capabilities, and defining a new relationship structure both within the customer organisation and with external vendors.
Winning and successfully managing such deals would not have been possible without these investments.
