Cognizant Technology Solutions, which recently announced a 200 per cent bonus, having beaten street expectations for five quarters in a row, is on a high. Nipping at Wipro’s heels to become India’s third largest information technology service provider, it is looking at sustaining the momentum. President and Managing Director, global delivery, R Chandrasekaran, outlines the plan in an interview with Swati Garg. Edited excerpts:
How sustainable is the growth of 45 per cent, q-o-q?
The Cognizant growth story is driven by three aspects— building customer businesses, focus and discipline, and re-investment into business for growth and deeper differentiation. We have built on the customer relationship model, and are looking at continued expansion in the scale and scope of global sourcing to new areas, the so-called share shift. We are also looking at cashing in on the continued spending on discretionary projects that started in 2010 and are slated to carry on into 2011. Also, new opportunities presented by the future of work is characterised by virtualised business models such as cloud and mobile technologies.
What's your strategy for maintaining the growth momentum?
When we issued the first public offer in 1998, we decided to keep our margins lower than our peers, and take those dollars and reinvest these for long-term growth, industry leadership and deep differentiation. The reinvestment strategy has worked consistently and delivered results. We continue to win a disproportionate share of deals. The discipline of consistently executing this re-investment approach over many years, through up and down cycles, will provide us with a strong growth platform to drive sustainable growth.
What is your take on the global market? Are spends back to pre-recession levels or would it be correct to state that corporate IT spends are stagnating?
As clients search for cost savings to fund growth and innovation, traditional outsourcing across IT business processes and infrastructure looks poised to grow. Clients are increasingly looking to complement the benefit from labour arbitrage by the improved efficiency and effectiveness that third-party providers are delivering. Firms are examining what activities are core to their business and what should be done from somewhere by someone else. As a result, companies are driving more work and corresponding budget to a global delivery model, in addition to traditional application development and maintenance. Discretionary spending is increasing as well.
What is your strategy on acquisitions?
Our approach is to look at small ‘tuck-under’ acquisitions, that add capability in specific areas. Our sweet spot is in the $20-80 million range, may be going up to $200 mn in target company revenue. Our acquisition philosophy is driven by three objectives: Expanding our geographic footprint, filling in gaps or strengthening our solutions spectrum and strengthening our domain, consulting or analytics capability. Six of the last eight tuck-under acquisitions by Cognizant have been in the consulting or high-end capabilities space. This indicates the importance we place on consulting and other high-end capabilities to address structural challenges. Central to Cognizant’s acquisition philosophy is our strategy of acquiring for capability and not capacity.
How will you deal with wage inflation and growing attrition?
We are comfortable handling wage inflation within our margin structure. Historically, we have been able to absorb cost increases through price increases or cost management strategies, such as managing discretionary costs, a mix of professional staff and utilisation levels and achieving other operating efficiencies.
We have fared better than most of our peers were in dealing with attrition. In the December 2010-ended quarter, we saw a decline in attrition as compared to the third quarter. We have historically reported attrition by annualising the turnover which occurred within the quarter, including both voluntary and involuntary. This number decreased sequentially to 16 per cent in the fourth quarter. Our attrition statistics include all departures, including BPO and employees in our training programme. Over the next several quarters, we are going to step up efforts to ensure these opportunities manifest themselves for our associates, so that they continue to benefit from Cognizant’s growth.