How Cognizant overtook Infosys

NS Ramnath
Published: 07, Aug 2012

I have been with Forbes India since August 2008. I like writing about ideas, events and people at the intersection of business, society and technology. Prior, I was with Economic Times. I am based in Bangalore. Email:

For those who track the IT services sector, the big news that emerged out of Cognizant’s results yesterday came as no surprise. Cognizant ran past Infosys in the quarter ended June 2012, and going by the guidance of the two companies we are unlikely to see any change in the rankings in the next few quarters.


Yet, in some ways, this feat should surprise us. Cognizant came late to the race. Infosys was founded in 1981, and Cognizant in 1994. Cognizant was incubated by Satyam (remember that company?) and Dun & Bradstreet. Around that time, Cognizant looked up to Infosys. Venetia Kontogouris, who was with Cognizant since its inception, and was on its board till 2006, once told us that she visited Infosys campus in the 90s, and felt nothing but admiration. After all, Cognizant was merely a captive centre of Dun & Bradstreet then, struggling to get business from outside customers. Infosys was a master of that game already.

Now, how did an upstart like Cognizant overtake an established player like Infosys?

The traditional answer to that question attributed the reason to Cognizant’s reinvestment strategy. Cognizant made only 19-20% in operating margins, a good 8 to 9 percent lower than Infosys, and reinvested that on the front-end. The lower operating margins shows up in higher sales expenses, and to the chagrin of Infosys, Cognizant's faster growth.

The only problem with that explanation is that it doesn’t explain how Infosys could manage both high margins and industry leading growth till a few years back, and it does not explain how TCS, without the benefit of that strategy, seems to be doing well too.

In fact, reinvestment alone doesn't explain how Cognizant went past Infosys. For that, we have to look at the engines of growth. Cognizant has three of them running. One, getting into new areas, and putting the full force of organisation behind it. Two, using acquisitions in key spaces to achieve scale or to access customers faster. And three, being clear in the fact that it's a market-share game. Infosys, on the other hand, relied mostly on a single engine - the robustness of its underlying market.

Let us see how.

Elevators of growth

When my colleague Mitu Jayashankar and I did our first long story on Cognizant in the magazine, Viju George (then, an analyst with Edelweiss, and now with JP Morgan) told us: “If you ask me what Cognizant missed, it missed every opportunity. But the beauty of Cognizant is they play the catch up game very well”. He cited ERP, BPO and Infrastructure management as examples. To all these, Cognizant came late, but caught up fast.

That's one way of looking at it. The other way is: Having come a little later than Infosys to the business, Cognizant has been more keen than Infosys in adding more chicken to its coop, and feeding them to the brim. In other words, Cognizant has been constantly adding more businesses to its portfolio - in terms of new industry verticals, in terms of new solutions and new markets, and has been pulling all punches to scale them up fast.

When Lakshmi Narayanan became its CEO in 2003, areas such as ERP, testing and BPO - all put together accounted for less than 10% of Cognizant's revenues. When Lakshmi stepped down three years later, together, they were contributing close to a third. Similarly, when Francisco D Souza took over, its European business was in low single digits; its consulting business was nascent and its remote infrastructure management (R.I.M.) business had just started. Now, despite a slowdown there, European business accounts for about 15%. Its consulting practice is big - with over 3000 people.

How did they achieve this? When Cognizant decides to scale up a new segment, it puts the entire force of the organisation behind it. It recruits the best talent from outside - offering more money, and more than money, an opportunity build a business and a lot of freedom to do that. We spoke to one such executive, who was brought in from outside to build Cognizant’s infrastructure business. He seemed to be delighted at the way things moved in Cognizant. R.I.M. buisness, he said, needed a different kind of skill sets, roles and pay scales compared to a typical software firm that Cognizant was. He just had to ask for it. The speed with which organisation complied to his requests surprised him. It shouldn’t have. The pressure to be that way comes from the top. When Francisco wanted to give European business a push, he shifted base from New Jersey, and stayed in London for a few months.

When companies want to get into a new area, they typically move to what goes by the jargon ‘adjacencies’ - segments that are very similar to the one that they are already strong in. It’s a useful strategy because there is the comfort of not straying too far from your core areas of strength, and the possibility of using your existing network of people, who will put you on to others. That’s how Cognizant grew too. (R Chandrasekaran explained this to us by drawing a matrix on the whiteboard, and pointing to clusters of boxes as focus areas.)

But, often, when a new market opportunity came up, Cognizant did not spent too much time thinking about whether it’s adjacent to an area it was already strong in. Areas like consulting or remote infrastructure management were several boxes away from the core areas of Cognizant. It simply asked: Will it give us the growth?

When we were reporting on the cover story on Francisco, Mark Livingston, head of consulting told us that whenever a new business opportunity was taken to Francisco he tends to ask three questions:

One: “What are our competitors doing in that space? What are Deloitte, Accenture and IBM doing?”

Two: “What’s the total dollar opportunitiy in the market place. Is it 5 billion or 20 billion? How much do competitors already have? How much of a space do you think we can get?

Three: “What is going to differentiate Cognizant?

“Those are to me the standard Frank questions” Mark said. “The discussion always comes down to how much money you can make.”

Listening to Mark, I felt these questions could well have come from a venture capitalist or a private equity player. The focus is on growth and returns, and not so much on whether one has the talent to build it. That can always be hired.

So, later, when Francisco told us he was trying to build a VC-like structure within Cognizant to tackle emerging business, we weren’t too surprised.

Now contrast it to Infosys. Infosys is in all the markets that Cognizant is in, and in fact it was there before Cognizant got in. But there are two differences.

One is in the approach. Cognizant did everything as a part of the company, and was more than willing to tweak the existing structures to accommodate new ones. Infosys was reluctant to change the existing structure. Its BPO business was started as a separate company, and in fact, it went under a different brand name - Progeon. Infosys Consulting was set up as a separate company, a 100% owned subsidiary of Infosys, and only recently did it merge the two. Even last year, Subhash Dhar, then a front runner for the top job, spoke to The Times of India about the possibility of forming a different company for its emerging technology businesses such as cloud, mobility and analytics. It speaks of the reluctance to change the existing structure.

And, here’s the more important point. Infosys has a greater need to look beyond adjacent areas, beyond the comfort zone, than Cognizant. It’s for one simple reason. While Cognizant has promised the market a lower margin compared to its peers, in return for higher growth, Infosys' promised industry leading growth and industry leading margins. Such opportunities might not happen always in the adjacent areas or within the comfort zone. Which means, to find such opportunities, it has to look far beyond its existing portfolios. To be fair to Infosys, its Infosys 3.0 is one such attempt. But the problem is it might take some years for that to kick in. Meanwhile, Cognizant simply ran past Infosys.


Love Marriage ya Arranged Marriage

In the last six years, Cognizant made ten acquisitions, and Infosys made three.

Earlier, Cognizant's preferred strategy was to buy small companies to get specific skill sets fast, or to get an entry into the house of a must-have customer. Once it bought them, it  'tucked them in', merged into one of its business units.

Now, it has grown more confident. Till a couple of years back, its biggest acquisition was marketRx, a company in analytics space. Number of people who came in: 400. Last year, it bought Corelogic's India operations. Headcount addition: 4000 people, ten times more. In fact, Cognizant’s definition of tuck-in acquisition has changed. “Our sweet spot is probably from 20 to 80 million dollars, but today we will be comfortable with $200 million acquisition,” a senior executive said.

In contrast, Infosys has been dragging its feet on acquisitions. There seems to be no apparent reason why it should. It has plenty of cash - over $4 billion. It’s presumably good at managing cultural issues that come up in an acquisition. Consider: it has been hiring several thousands of new employees every year. Last quarter alone it brought in over 9000 people. It has done complex deals before. The Philips deal is a classic case. And most importantly, Infosys has been always been saying it’s constantly looking out for acquisitions, and in fact one of the reasons its holding so much cash in hand is for this purpose.

So, why doesn’t it make acquisitions then? One answer could be in the way Infosys looks at acquisitions. It wants to "feel right" about an acquisition. “M&A is like falling in love. There is no plan like falling in love!” SD Shibulal said during a Reuters event last year.

There lies the problem. Many fast growth companies tend to look at an acquisition not as 'falling in love', but as arranged marriages. They go to brokers, find a partner, and plunge into a relationship even if they don’t feel all that comfortable at first. Things often work out.


The market share game Cognizant came late to the party, and so, it had to tell a more compelling story to the investors to get their attention. The story it told was: “We will have lower, but stable, margins but we will grow faster than the industry”. In other words, we will keep increasing our market share, come what may. We will eat into others' pie.

Cognizant more or less stuck to that line. In 2009, when we spoke to Francisco D’Souza, after it became clear that Cognizant continued to grow even in a bad market, he said it did because it continued to invest in growth. His only regret was that, he said,  he did not invest even more aggressively and grow even faster.

In the context of Cognizant, it meant putting more people on the ground; getting them to spend more time with specific set of must-have customers, disproportionate to the revenue they might account for at that specific point of time; taking on projects which might not give high margins initially, but might eventually become big; investing more resources on a specific project compared to what peers do and so on. All these meant, Cognizant was constantly grabbing more market share.

Contrast this with Infosys. In the last few quarters, it has been growing slower than the industry. And in the last two, it has not been able to keep even with the real GDP growth. (Its performance against nominal GDP, which includes inflation and is a better measure to compare a company’s revenues against, shows Infosys in even a poorer light).

Growing slower than the industry will eventually tell on a company’s ability to grow for many reaons. The lack of momentum will cause a drag, even after the market picks up. There will be lost growth opportunities from the organisations it did not gain a foothold in. On the supply side, a slow growth company will find it difficult to attract good talent.

Cognizant had more elbow room to get the market share, and it used it well. Infosys was too constrained by a compelling need to maintain margins.


In short, Cognizant was firing on all cylinders - on the basic robustness of the market, increasingly bold acquisitions, and ability to grab market share. Infosys was relying on just one - the robustness of the market. And when that failed, it simply let Cognizant run past it.

Now, what’s the way forward?

Marathon: What to do when you hit the wall

Shibulal likes to use the analogy of marathon Vs sprint to explain why it’s not running as fast as the investors expect it to. Marathon runners don't sprint, because they are in it for the long haul. The only problem with that analogy is that its competitors are running marathons too. (Ask N Chandrasekaran, TCS CEO).

Still, Shibulal’s analogy is singularly apt for Infosys because of one big reason. Infosys is probably going through a phase which marathon runners call ‘hitting the wall’. This is how John Brenkus of Sports Science explains the phenomenon in a superb book called Perfection Point.

When there is plenty of oxygen available for metabolism, glycogen is easily broken down in a process called aerobic metabolism to create ATP which keeps you happy and moving.


But there’s only so much glycogen you can store up, and when you start running low, you start relying on fat. Fat takes more oxygen to produce energy than glycogen does, and even then, it will only do it if there’s still some glycogen left. If the glycogen gets too low and there’s also not enough oxygen available, you start producing lactic acid instead of ATP.


Lactic acid is not good. It hurts. Beyond a certain threshold fatigue sets in and, even worse, glycogen starts breaking down even more quickly into lactic acid, creating a self-perpetuating cycle of progressive awfulness. Among marathoners, this is known as “hitting the wall,” and it typically happens around the twenty-mile mark.

Judging by the speed, Infosys seems to have hit the wall. So, how do the marathon runners get past this. Brenkus explains.

It’s possible to get past the wall, but only if you somehow kick-start the metabolism of fat. One popular way to do that is by loading up on easily absorbed carbohydrates from little foil gel packs. For many people, knocking back a few cups of chicken broth accomplishes the same thing.

Infosys might have hit the wall, but in fact has two big stores of energy to rely on.

The first is the high margins. If it wants growth, it can make use some of the additional 8-9% available with it to get more flexible on pricing, and grow faster. Infosys has this cushion, and Cognizant doesn’t.

The second big store of energy is its cash pile. It can use some of it to make an acquisition - something Infosys says it wants to do but hasn't - to run past its competitors.

But here’s the problem. In marathon, metabolism of fat doesn’t kick start automatically. It needs some conscious change in the behaviour of the runner, a willingness to stop by an aid station to 'knock back a few bowls of chicken broth'.

And then, it kicks in.

The question is whether Infosys is ready to do that. If it is, the marathon race might get as exciting as sprint. Otherwise, don't be suprised if you see yet another competitor getting past Infosys sometime in the future.

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    A good insights . Looking for similar one in the near future

    on Apr 9, 2014
  • Naveena.M.D

    Al the details published are well & good.It's especially very usefull for the freshers like me who are claiming jobs in dis sort of companies....Moreover v can able 2 learn more updates...thank u...

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  • Lokesh KUmar

    Excellent analysis, Infy could not a good visionary after NR. Murthy left.

    on Feb 1, 2013
  • Sri

    An excellent insight into what's happening in IT space between top players. From my perspective, the Indian SIs such as Infy and Wipro really too much inward focus than outward focus. I guess it's all about balancing two important business levers such as operating margins and sales growth and how to shift it based on economic conditions. But the KEY point is, once you shift any of these into maximum, the entire organization culture will drive towards that and it's difficult to bring back or balance it in a short span of time.

    on Nov 15, 2012
  • Chaitu

    Great article and good analysis. I guess the problems of apathy, buerocracy, slow decision making that Infosys facing today are very common to all organizations after growing very big. GE's case before Jack Welch is a good example for this.

    on Oct 21, 2012
  • Lakshman

    Great article - very well analyzed and written

    on Oct 17, 2012
  • VshyfromVshland

    Good one..the metabolism comparison is very apt. I will use another analogy to annul the positive side of Infy's cushion of extra 8-9% margin levers if they don't act now. Its like an aircraft fitted with dual jet even though one never used after almost crashlanded for engine failure!

    on Sep 2, 2012
  • DA

    Good analysis for sure. But I would really want to analyze on what happens when Cognizant hits the wall which it will surely do in coming quarters. The addition of people it is doing, high growth coupled with lower billing rates and lower margin is not sustainable.

    on Aug 28, 2012
  • jagadeesh

    i worked in CTS and closely watched the crossing race of wipro and Infy.But the projects which Cogni is getting is from above two ones and those contributed maximum revenues to them. As of now it can retain its margins and but in future if one engine fails the growth will be slower(eg : consulting , far behind from global majors) .Cognizant can pay hefty pay packages but employees may not satisfied about their work because of the more process and less technical kind of projects.

    on Aug 26, 2012
  • gunship

    1. Top mgmt is never willing to let go of their old fashioned ways of mgmt. 2. business enabler functions with in infosys work for them selves and not as enablers 3. apathy towards workforce 4. too many approvals for too many little things. 5. ignoring the employee

    on Aug 16, 2012
  • Anshu

    The problem with infy is something else. The results we see are only symptoms and not the cause. Infy has become a government organization where senior leadership team has a delusional view of the market. They still think that they are the darling Of the market. Every thing that happens including the Infy3.0 program is a joke. Infy leadership is so very focused on ashetics that they miss the point by a mile. Leaderships (well mostly) are ego maniacs. Most of them have joined infy for retirement. They don't care for infy or it's growth. Sadly enough shibulal as a CEO is a joke. He is delusional and surrounded by people who keeps buttering him. They talk about Strange things except the fact that a good organization is built on people and some guts. I have been in the company for 9 years and I am fast loosing hope. And I am not alone. Even if the leadership reads this they can't get it through their thick skulls. Those who understand the problem are either too scared or too selfish. You raise any valid concern and all the bosses go in this denial mode. It's an IT company where you will need 3 months to get a laptop It still has potential but it take great will power at the very top to realize that they can make things happen; include employees in the journey and don't use them as commodities. Current US litigations are not helping either. And there are more in the store because of their shady hiring policies in USA. Time will tell if infy sustains or becomes a case study.

    on Aug 14, 2012
    • Dinesh

      Well said Anshu, To add to ur view, Infy is more focused towards the cash reserve and infrastructure. They boast their training capabilities but every time they fail to use the resources in the trained stream. Even there are managers who may be technically sound but unfit for people management reside in client sites. Added to this there was lack of accountability and Employees are not treated as assets, Infact they fail to recognize the intrapreunership and map wrong people to critical designations. Infy is more inclined towards freshers and think they can quench the market thirst with them through their training.

      on Aug 18, 2012
  • PKC

    Get your spelling and grammar right...Deloite? What is that?

    on Aug 12, 2012
  • Benzihar

    Great analysis. Let us start our target on IBM

    on Aug 11, 2012
  • Akbar

    The Marothon has become interesting . i am sure the the 2nd Quater of 2013 will be throwing bigger suprises.

    on Aug 9, 2012
  • Nishad K

    Excellent one Ramnath...

    on Aug 9, 2012
  • Arun V

    Infy culture is profits........that is what Mr. Murthy has taught them for decades.....engine profits from their inception......Boldness, investment & Acquisition is totally a different meal to eat. We are not sure how gang of Kamath or current team can bring change........but 100% sure they have practiced same idea profits till date.

    on Aug 9, 2012
  • Satyameva Jayate

    Good Analysis Ram, but a couple of quick observations. 1) Infy does not have the cushion of lower margins. You see, so far, Infosys has been riding the tiger of highest profitability. It just cannot get down from that ride. Imagine, if Infosys tells the market that we will work at 20% net, the share price will come down to INR 1000 or even lower in which case it will make a very juicy target. The current problems of Infy are the accumulation of the sins (decisions) over the past two or three years where they lost a significant portion of market share of new clients. 2) The second is the total arrogance of the senior most management in Infosys. I have several friends in Infy who tell me that despite the new re-org etc, all deals routinely go to the office of the CFO for approval even though the unit heads are OK. Endless cycles of approval essentially stems from a lack of trust in the middle management cadre. You cannot be a USD 7 Billion company and have the mindset of a USD 50MM. You have got to delegate. This is where CTS has kicked everybody's butt. The account level teams have significant latitude to creatively structure deals. 3) My observation of the market is that so far the rising tide has lifted all ships. Now is the time to separate the men from the boys. You see, Churchill was considered the greatest war time leader ever but the English people threw him out because he might not have been the greatest peacetime leader. The Inverse holds true for Infosys. I think it needs younger leadership from within or from outside.

    on Aug 8, 2012
  • Parikshit

    Its an excellent comparison. Dont want to get into the details, but the comparison is done very well..!! Great work Mr NS Ramnath..!!

    on Aug 8, 2012
  • Raj

    Infy could have avoided this mishap if it had won the axon bid which later won by HCL. Infy identified a treasure, tried to catch it later HANDED OVER(thats what i can say) to HCL just to save couple of millions. Result, HCL AXON got more and more multi million, multi year contracts with its Q-Q results soaring. Seems, Infy not only stingy in term of employee's salary also wants acqusition in cheaper rate. Did infy learnt from this himalayan mistake ? How many agree or disagree?

    on Aug 8, 2012
  • Lakshmi Narayan

    I am working in this organisation , it is a fake report it seems

    on Aug 8, 2012
  • Devashish

    Darwin's law holds true everywhere - CTS has shown that it can adapt to the business uncertainities better and faster than Infy could. Infosys has also suffered from what can be called corporate arrogance - look at the attrition rate! A very well written article and the CTS story is worth watching!

    on Aug 8, 2012
  • Sreekumar

    Nice Article! Good Analysis!

    on Aug 8, 2012

    My 2 cents how CTS beat Wipro and then Infy. Wipro will focus only on 40%margins and lost all opportunities which make up for the 40%. It is a nightmare to get approvals every time to get the consultant at onsite due to operating margins whereas CTS was focussed on winning the client business and not operating margins. This helped them to upsell to the clients as the onsite presence increased and did whatever the customers wanted and tailored to the needs.

    on Aug 8, 2012
  • Sam

    I have been at Infy. The only reason CTS zoomed past was Infy is too sensitive and protective of its margins and wants to answer INDIAN shareholders! Infy does not have the margins cushion as mentioned above. If they try to let go of it, imagine the stock price! Hence they cannot compromise on their margins nor pay their people well. CTS has managed to do both and hence is and will leap ahead! As long as CTS is not listed in the indian markets they dont have the kind of pressures that INfy wipro have. Most people at CTS are from INfy and Wipro and hired at 30-40% premium, and along wth these people came the projects and clients. Infy just gave it on the platter to CTS ! Infy pays its people way below market prices, it was easy for CTS to knock it off!

    on Aug 7, 2012
    • jaggu

      That is not entirely true sam !! CTS has his own list of dedicated people. It is just that adaptability of this organization is good compared to indian companies.

      on Aug 9, 2012
      • gimmered

        i agree to Jaggu here, Sam...its not entirely true about people within CTS. Its a handful of people from Infy, constituting not more than 5% or so....most of the people are from GE, IBM, Satyam, Karvy, Genpact and so to name a few, as one of my friend is working here for the past 7 years, he's not willing to change as compared to myself where i have changed 3 within the same time-frame...that says it all.

        on Aug 11, 2012
  • S

    Nice article. Agree with most points. Low margin focus has been a key differentiator, but the other thing that is working for them is healthcare. No one among the IT services segment have this kind of focus. Again thanks to their acquisition. But I do not agree with the Consulting focus in your article. Cognizant, is in the same boat as others. Perhaps a slightly better position. If they would have been better they should break their revenue numbers or give growth percentage. The company does not give either. Having headcount of 3,000 is no justification for a better consulting led business. The only company that has managed to grow due to consulting is Accenture. What you didn't mention in your article is that Cognizant came late to the game and made sure that it does not make the same mistakes as its peers. But going ahead of Infy is not the will it sustain is key. And Cognizant is yet to make any significant effort in that space. Having said this, the company is an awesome story.

    on Aug 7, 2012
  • Vikas Bahar

    Wonderful article. Well Researched and Analyzed.

    on Aug 7, 2012
  • Pramil

    Quite an analysis I would say. In everything related to life and/or corporate world, intent is a big, big thing. Intent can also be considered as a vision. Ever since the evangelic founder Mr Murthy left his child, there has been a noticeable absence of a vision and hence a mission. And as been mentioned, Cognizant has it, it has the vision to be at the top and so it is trying everything to get there and do so as soon as possible. Infy might have the car but they dont have the desire to drive it up to greener pastures. No one at Infy would agree to this and the later they agree the more they are bound to self destruct.

    on Aug 7, 2012
  • vijay

    very well written.

    on Aug 7, 2012
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