Cognizant Technologies, which has guided for a revenue of $4.5 billion for the calendar year 2010, has surprised many with its growth rate — even during the global economic crisis. The third quarter ended September 30, in particular, saw the company's revenue grow 10 per cent sequentially and 43 per cent year-on-year. The concern now is for President and CEO Francisco D’Souza to continue this growth. Edited excerpts from an interview with Shivani Shinde:
What will Congnizant do to maintain this growth?
The global services industry is still an under-penetrated market. The market opportunity is around $700-800 billion. If you take the top six Indian players, the combined revenue of these firms hardly makes even three per cent of that market. If you start with that premise, then the issue is how to tap this opportunity. As part of Cognizant’s philosophy and strategy of reinvesting, we have been able to maintain our operating margins (non-GAAP) at 19-20 per cent, lower than our Indian competitors. Everything above that we reinvest in the business. We have shown in the past that Congnizant can reinvent itself as the market changes. Ten years ago, we were largely an application development services firm, but today we are a full services player.
The other side of the picture is to have operational discipline that allow us to capture this opportunity and scale the business in an environment of rapid growth. The only way to move fast is to push responsibilities downward into the company and involve people who are at the front-line.
What new opportunities are emerging after the slowdown?
There are three big trends in the market which, we think, are big opportunities for us and, perhaps, for the IT industry. First is the next generation technologies on the horizon under the concept of cloud computing. The second trend is the new generation of workers and consumers, whom we call the millennial generation. Finally, the new generation of business models driven by the economic crisis. As we come out of the crisis, our customers are assuming that economic volatility would be more frequent and the new normal. Hence, our business model needs to be more virtualised, more globalised.
How do you plan to tap these new opportunities?
We already have specific and focused consulting services around these trends and what companies around the world are doing to address these changes. Also, as a part of growing these capabilities, we will look at the inorganic route.
Cognizant is focused more on the US and Europe markets. What are your plans to expand in other geographies?
At Cognizant, our operating philosophy is that at any given time, we will focus on a limited number of assets. If you look at the geography market, over the last five years Europe has been our focus. Five years ago, Europe was just 10 per cent of our revenue. Since then, we have taken it to 20 per cent and have invested heavily in creating a footprint in Europe.
As we come towards the tail-end of that investment cycle, we are driving our attention to emerging markets. Within this, principally, we are focusing on Asia and Middle East. These are the next two in geo focus for us. Together, the two are about three per cent of our revenue, but have been growing very well over the last few quarters. We would also look at Latin America, but I think that will be a little behind Asia and Middle East.
Has Cognizant’s acquisition strategy changed in the last two years? Would you consider acquiring Genpact?
As a company policy, we do not comment on market speculation. Having said that, our inorganic strategy has been focused on tuck-under acquisitions that add capability. We like to acquire for niche capabilities and not growth. The reason for that is there is plenty of opportunity to grow organically. And, this strategy has been consistent since we started doing acquisitions 10 years ago. But what has changed is the size of the acquisition, as Cognizant has become bigger. So, today, our sweet spot would be if the target’s annual revenue is in the range of $20-80 million and could go up to $200 million.