Cognizant’s Executive Leadership Discusses the Company’s Q2 2015 Results and Growth Outlook
Following the announcement of Cognizant’s second quarter 2015 results on August 5, 2015, the company’s executive leadership spoke with the media about the company’s performance and growth outlook for the rest of the year.
“We had a terrific quarter,” Francisco D’Souza, CEO, Cognizant, told CNBC-TV18. “The broad theme this quarter across the industries and geographies that we serve is the theme of digital. We are winning in digital, our clients are increasingly looking and turning to large-scale digital transformation and they are looking to implement innovation at scale and we are able to help them. The pipeline is strong and we feel good about the business looking forward.”
He added, “New digital technologies are enabling our clients that move fast to gain a competitive advantage in the marketplace. Our clients are looking across their businesses to see how they can apply these digital technologies for competitive advantage and they are turning to us to help them in that journey. We made investments in this space early. We recognized this trend at least five years ago. As a result, we think we have got the leading capability in this space to help our clients go through those transformations.”
“We are very optimistic about the demand environment,” D’Souza reiterated. “There are more tailwinds in the business at the moments than there are headwinds.”
“We are seeing banks and financial institutions around the world in far more healthy shape than they have been in many years,” he said. “They are now starting to turn their attention again to developing and deploying digital technologies in areas such as digital banking, online banking, online payments, and so on.”
“The US healthcare industry is going through a period of consolidation,” he noted. “We think that this is a tremendously strong opportunity for us in the long run because the consolidation is being driven by the industry seeking out more efficiencies and new models for healthcare overall. We think that given our TriZetto acquisition and our own intellectual property in healthcare, in the long run, healthcare will be a strong market for us, one where we can innovate and provide creative solutions.”
He added, “This quarter, Continental Europe grew very nicely. We see strong demand in the Continent both for traditional outsourcing services and also digital technologies. We will see strength in the Continent and Europe overall will do very well. We will continue to see strong performance in North America driven by innovation and digital technology adoption.”
When asked about the company’s acquisition strategy, D’Souza said, “Our acquisition program has been a key source of advantage for us. We are continuing to look for tuck-in acquisitions. We are certainly looking at digital acquisitions that will help particularly as we look to scale our digital capabilities across the world. In addition, we are looking for acquisitions that will deepen our presence in the particular industries that we serve.”
Speaking with ET Now, D’Souza said, “We had the strongest sequential growth in the history of the company. We are helping our clients with digital transformation and with innovation at scale. The strategy of reinvesting in the business and of making ahead-of-the-curve investments in anticipation of client demand is really paying off.”
“What we’ve been talking to clients about is this notion of total value of looking at both the efficiency and effectiveness side and the innovation side together,” he said. “Because ultimately, what you’ll have to be able to do with the client is help them to drive greater degrees of efficiency and effectiveness in the traditional service offerings in order to be able to free up dollars that they can invest in innovation and growth with new digital technologies. We see a pricing environment that is relatively flat and that is a result of the combined value proposition that we offer to clients.”
D’Souza added, “As you know, we were very early in identifying the digital trend. We coined the term SMAC [social, mobile, analytics and cloud], and began making investments in our people, capabilities, and thought leadership around digital very early on. Our view of digital is that it is far more than technology. To be able to help a client transform and really adopt digital, you really have to work with the client from the initial ideation all the way through technology implementation and scale-up of the digital businesses. Our approach to digital involves bringing together technologists with strategists, consultants, industry domain expertise and designers in a physical space to innovate, ideate and create new digital solutions and business ideas.”
According to D’Souza, digital pervades all parts of Cognizant. “There isn’t really any part of our business that isn’t impacted in some way, shape or form by digital technologies. The yardstick that we are using to measure ourselves is if we are winning in the marketplace. I think our results this quarter show that we are,” he said. “It’s a great time to be in the technology industry. We are going through this incredible renaissance of technology. Digital technologies are changing the world. So there is a lot to look forward to.”
“Cognizant traditionally has served two camps of customers, those who want to ‘run better’, or optimize their efficiency, and those who want to ‘run different’ and innovate their information technology,” Gordon Coburn, President, Cognizant, told Investor’s Business Daily. “We’ve been seeing a significant shift from the ‘run better’ to the ‘run different’. As that shift was happening, we did very well in capturing that new spend.”
He added, “Much of the innovation was funded by improvements that clients made in efficiency. We’ve seen that now for the last year. We think we’re in the early days of that.” Banking and healthcare were among the industries trying to innovate right now, said Coburn. He noted that banking, in particular, continued to offer growth opportunities for tech services providers as the industry became more automated. “If you go into some banks now, there are only three or four people working there. Automated tellers are getting smarter and enabling bank managers to get more information on customers,” he said.
Speaking with The Times of India, Coburn said: “Client demands are changing; they are trying to squeeze cost on the traditional outsourcing side and taking those dollars and investing on the digital and innovation side. Cognizant has invested heavily in these newer areas. So we are one of the small number of winners in the shift towards digital transformation and innovation at scale. How have we done this? We have built out our consulting business, digital capabilities, and platform-based solutions, and optimized our traditional services. We saw this trend coming early.”
He added, “In digital, we built consulting capabilities that help clients come up with ideas collaboratively. We launched our emerging business accelerator that has brought to market 15-20 products. I think the key is, we avoided becoming complacent even when the business was good for the past couple of years. We have constantly challenged ourselves, thought about whatever clients wanted and invested in that, cannibalized our own revenues so that we could be ahead of where the clients wanted to be, and emerged as a trusted advisor to those clients. Cognizant’s Digital Works’ approach combines design, strategy, technology, and industry expertise—coupled with the physical space for co-innovation with clients—and plays to the company’s strengths.”
“We believe that our continued industry-leading performance is driven by a number of market dynamics that are creating what we call a dual mandate, where clients need to continue to drive efficiency and effectiveness in their current operations and free up dollars to then drive digital transformation and innovation,” Karen McLoughlin, Chief Financial Officer, Cognizant, told Bloomberg Radio. “This has really been the strength of Cognizant. We have made significant investments over the last few years in building out our consulting and digital capabilities.”
“We turned our guidance up by about $90 million on a full-year basis,” she added. “We are seeing very strong demand right now for digital transformation and innovation. This dual mandate is what is driving the growth. We see tremendous growth opportunities both inside North America and also in the near-term in Europe and some of the APAC countries in the coming years. Clearly, automation and robotics are becoming more prevalent in the industry and I think that productivity will be a focus for years to come.”
When asked how sustainable was Cognizant’s current juggernaut, Rajeev Mehta, CEO, IT Services, Cognizant, told The Economic Times, “We’ve been doing this for a long time. Four key things continue to support our growth: tremendous opportunities in digital, continued investing in consulting, operationalizing traditional services, and a very significant opportunity in platform-based solutions. I think all-in-all Cognizant is very uniquely positioned to be able to help our our clients ‘run better’ in terms of the traditional, operational work, and ‘run different’ with digital.”
He added, “I think we are uniquely positioned in the healthcare space—we’ve always been strong there. We think healthcare is going through phenomenal change right now and we’re in a position to benefit from that. We do expect future opportunities to look at more platforms and outsourcing deals that are out there. We have a healthy pipeline on that. In addition, the combined capabilities of TriZetto and Cognizant put us in a very unique position to cash in on opportunities that were normally not available to us.”
“Overall pricing has been fairly stable for us,” he noted. “I think clients are really looking at total cost of ownership. It allows clients to benefit from that and it also allows us to manage our teams more effectively.” Mehta said that Cognizant was executing on many fronts. “We are executing well in all geographies, whether it’s North America or Europe. Asia continues to do well. We’ve done a very good job in expanding our portfolios. And we’ve continued to expand our vertical presence in other areas. We also have horizontal breadth in terms of BPS and infrastructure, which are sizable businesses that are creating a strong pipeline for us. We are also able to execute on the digital front,” he said.
“We continue to invest in digital capabilities; we are seeing tremendous demand in that area,” Mehta told Business Standard. “We are continuing to invest in our consulting business, which is helping us drive digital-type engagements.” He added, “We still see a lot of large opportunities, whether in North America or Europe. If we look at the traditional outsourcing service, the ‘run better’ side of the business, many clients are looking at consolidation of vendors to drive greater synergy and derive a cost benefit. We see a healthy flow of such multi-billion dollar and multi-year deals.”
Mehta noted, “If you look at the ‘run different’ side of the business, that is where a lot of spending is happening in digital solutions. They might look at smaller contracts initially as clients are in an exploration stage and looking at doing prototyping. When it eventually leads to much larger contracts is when you start interfacing all these elements…In general, we are very optimistic about the potential for our healthcare business. We see merger and acquisition activities in the space to be a significant opportunity for us to play a role in terms of driving synergies.”
“Our “run better, run different” value proposition continues to resonate well with clients and, as a result, demand for our services remains strong,” R. Chandrasekaran, Executive Vice Chairman, Cognizant India, told Financial Chronicle. “The dual mandate is also driving a fundamental change in the way IT and operations budgets are allocated. Clients are recalibrating their spending, moving dollars from “lights-on” maintenance and operations projects to new digital initiatives. This shift is good for us, because we are in a strong position to capture the enormous opportunities that are emerging from the transition to digital business. Through our investments in new solutions and services, we are enabling clients to enhance efficiencies and productivity while simultaneously re-imagining their businesses and building new capabilities to succeed in the digital era.”
He added, “Our aggressive hiring during 2014 and Q1 2015 to the tune of approximately 46,000 net additions—as well as significant workforce retraining—has enabled us to stay ahead of the curve in having the right skills and resources in place to meet the growing client demand for digital transformation. While transitioning more toward digital services, we are reskilling our people for the next generation of demand.”
“The TriZetto integration,” he noted, “is progressing on track and the combined value proposition of Cognizant and TriZetto is resonating well in the market. We are seeing growing interest in platform-based solutions, leveraging TriZetto’s software. In constantly optimizing our traditional services, as well as investing in new services to enable clients to drive higher levels of operational efficiency, we are finding new ways to simplify and automate clients’ core processes, IT applications, and IT infrastructure…The tools we obtained from the acquisition of TriZetto, together with our homegrown automation tools like ADPART and Automatika, continue to reinforce our strong competitive position to deliver new models.”
“We’re very excited about our Q2 performance,” Chandrasekaran told Bloomberg TV India. “We feel very good about the business opportunities. If you look at our growth, it’s pretty broad-based. We grew across all industries we serve, across all geographies, be it the US, Continental Europe or APAC. Overall, we feel good about our business performance. We are also very happy about the pipeline of opportunities that are out there. We attribute it to the investments we’ve been making in our business in terms of creating newer capabilities to remain relevant to our customers. We’re winning a disproportionate share of digital transformation opportunities. It’s all the result of the investments we’ve been making over a period of time in digital technologies, in data science, business strategy and consulting. All these skills are culminating and creating newer set of opportunities, and resulting in a very healthy pipeline.”
He added, “As we’ve been saying, Europe is a long-term bet. We remain committed to it. The type of deals we are winning in Europe is healthy. Our strategic investments in Germany and France are helping us get traction. Because of their own challenges in terms of remaining competitive in a global scenario, companies in Europe are looking at opportunities to take out cost, which drives opportunities for our services. Europe is winning a lot of deals and continues to track well.”
“In the U.S.,” he noted, “it’s a mixture of ‘run better’ and ‘run different’ type of deals, where we’re winning significant market share. APAC, particularly India and Australia, is growing nicely. India is going to be the hotbed for innovation, and the type of challenges that customers face here offers lot of opportunities to be innovative.”
Chandrasekaran told The Hindu that the traction in the digital transformation space, the emerging opportunities for integrated deals in the wake of vendor consolidation all around, and the investment Cognizant had made in digital technology sphere would all serve Cognizant realize its revised revenue guidance for 2015. To a question on the revenue growth in Europe despite problems in the economy, he said, “In good times, we do well, and in bad times we don’t do badly.” Quizzed on the challenges faced by Cognizant, he pointed to M&A in the healthcare space. The experience that Cognizant had in providing integrated solutions in other spheres and the investments it had made in honing the healthcare domain knowledge would keep it in good stead to address the emerging scene, he said. Going forward, a larger proportion of the revenue would come from the digital shift that was happening across the corporate world, he said. “Currently, the biggest exercise is on” to retrain the experienced people to tap newer technology opportunities, he added.
“We have made our investments and continue to win disproportionate share of the marketplace,” Chandrasekaran told The Financial Express. “We bring the best-in-class solutions. We have always invested in building deep industry capability and drive thought leadership in many areas. Growth has been pretty robust across geographies. We are probably the leaders in the healthcare segment because of our client base and broad-based capabilities. We expect some more consolidation in the healthcare market but once all that is over, it will open up opportunities. In the long term, we are optimistic about the healthcare segment.”
He added, “Today, when one talks about digital technology transformation, we have to combine design skills, business understanding and strategy, the ability to handle large volumes of data, internet of things and connected devices. It is the combination of all these which is driving transformation. We have an elaborate framework for this, which involves idea generation, collaborating with our clients, and putting them down in implementation mode. Cognizant is on the forefront of digital transformation. Now it is becoming mainstream and we cannot think of any client who is not interested in going digital.”
“Within Cognizant, we have our own ecosystem to encourage our own associates if they have bright ideas” he noted. “We have an emerging business accelerator program and set aside certain venture funding to invest in these ideas. This will help our associates set up their own ventures within Cognizant. This entire program is under the direct supervision of our CEO.”