Cognizant: Fixing It Before Itís Broke

At first look, there seemed to be no need to change the winning formula perfected by Cognizant Technology Solutions. But Francisco DíSouza decided to take a second look

Published: Jan 25, 2010 08:46:59 AM IST
Updated: Jan 29, 2010 01:21:25 PM IST

One day in January 2009, Francisco D’Souza flew from London to Mumbai for a visit that lasted just eight hours. He was meeting Ulf Henriksson, CEO of Invensys, a leading supplier of automation systems, to strike a research and development partnership with Cognizant Technology Solutions.

Halfway through the presentation, D’Souza felt he would lose the deal. A few yards away, Cognizant’s vice chairman, Lakshmi Narayanan, was keenly watching D’Souza, his boyish successor. “I could see what was going on in Frank’s mind,” he recalls. D’Souza, was looking at everything from Invensys’ point of view. Narayanan was convinced D’Souza would win the deal.

Francisco DíSouza, CEO, Cognizant Technology Solutions
Image: Don Emmert/ AFP for Forbes India
Francisco DíSouza, CEO, Cognizant Technology Solutions
A few months later, Invensys decided to partner with Cognizant.

The partnership was to carry out research and development for its operations management division and Invensys later extended its scope to cover its rail division. Narayanan had no doubt about what clinched the deal for Cognizant — D’Souza’s absolute empathy with the other side. “It’s a unique ability,” he says, “That‘s something I won’t be able to do.”

When a 38-year-old D’Souza took over as CEO from Narayanan in 2007, he knew he had inherited a machine that was designed to grow fast. Under Narayanan, Cognizant had evolved a simple strategy. It did not go after higher and higher operating profit as its rivals did, but capped it at a sustainable level. Any extra dollars were spent on building a strong customer facing team. It also followed a unique delivery system. Every business line was headed by two people, one to serve as the single-point contact for the customer and the other to ensure delivery. This operating model had even become a Harvard case study.

Though Cognizant had been slow to jump into some growth opportunities, this model helped it catch up fast whenever it did. “If you ask me what Cognizant missed, it missed every opportunity,” says Viju George, Vice President, Edelweiss Capital, citing enterprise resource planning, business process outsourcing and infrastructure management as examples. “But the beauty of Cognizant is they play the catch up game very well,” he says.

In sum, Narayanan had put the company on a high growth path. The new CEO had the option of simply carrying on that legacy.

But D’Souza wouldn’t accept the status quo. Before he took over, he had several long chats with Narayanan: He wanted to know how he could take the company to the next level of growth, achieve higher revenues without increasing the staff size in the same proportion.

D’Souza wasn’t satisfied with playing catch-up. He wanted the company to explore new opportunities. “Winning with a new idea is what makes him tick. If somebody says he can’t do it, that is when he gets excited,” says Narayanan.

Son of a career diplomat, D’Souza did his MBA at Carnegie Mellon and landed a job at Dun & Bradstreet, which was then setting up a captive software unit (which would later become Cognizant). He learned his trade from his predecessors, Narayanan and Kumar Mahadeva.

His mentors were quite different from each other. Mahadeva was a McKinsey-trained strategist; numbers-driven and a little aloof with people. Narayanan is a people person; the sort of manager who would throw a highly cited survey into the dust bin and listen to real people.

D’Souza has been imprinting his own stamp on Cognizant in the last three years. He has dragged the company away from its comfort zone. It would no longer be just a faithful stenographer to its customer, listen to their script with all attention, and type it all out for a low price. It would tell the customer how to improve the script and charge for it.

The organisation is changing in some profound ways. In the banking, financial services and insurance (BFSI) business segment, which brings 42 percent of revenues, D’Souza has added one layer of senior management to be able to follow the big shifts in the sector and catch opportunities early. He moved up Debashis Chatterjee, one of the two managers in charge of BFSI in the company’s time-tested two-in-a-box structure, to this new role.

As D’Souza takes Cognizant to new markets, he has also stepped up the focus on building partnerships. Earlier, the company would enter a new business opportunity by hiring people or acquiring a company in that segment. But under D’Souza, it ties up with partners, and sometimes even competitors, to get access to fresh business. This has saved marketing dollars for the company, but more importantly, given it scale in markets like Europe.

Above all, the way D’Souza is building consulting capability at Cognizant marks the biggest change happening within the organisation. His prescription for Cognizant Business Consulting (CBC) has been quite different from the traditional model pursued by Indian software companies.

And he has been doing all this in the midst of the worst economic crisis in living memwory. Think of it like changing the wheels on a car that’s going uphill. If D’Souza’s gamble pays off, then Cognizant could come out of the recession stronger; if not, it could disrupt one of the last decade’s biggest success stories in the offshore industry.

A Changing Landscape
In 2007, D’Souza surveyed the scene around him. The period between 2002 and 2006 had been one of relative stability. Economies were growing. There was no major technological disruption that was forcing the clients to fundamentally change their business models. Bob Weissmann, who sits on Cognizant’s board, says he made it a point to tell Narayanan and D’Souza that “today is a part of good old days.” That you are successful right now does not mean that you will be successful tomorrow.
D’Souza knew things were going to be different and more difficult. Multinationals such as IBM and Accenture were stepping on the gas. Customers were demanding more from their IT vendors. Technologies like Web 2.0 threatened to disrupt business models. And for the software services sector, demand and supply were becoming more global.

As if these weren’t enough, the first tremors of the credit crisis were felt the next year. There was no precedence and there was no one to go to for advice. “So, we went back to the fundamentals,” he says. He asked his customers what was happening, and found out that along with the economic crisis, there was also structural changes in the industries that his customers were in. Media companies were talking about digitisation. Those in life sciences and pharmaceuticals were talking about the absence of blockbuster drugs. His clients businesses were also changing in a big way.

The message was simple: In the new scheme of things, you can’t do more of the same to succeed. You have to do something different.

Image: Raju Patil for Forbes India
PUSH FACTOR "If somebody says he can't do it, that is when he gets excited. "That's how Cognizant's vice chairman, Lakshmi Narayanan, describes Francisco DíSouza
Chinks in the Armour
Cognizant’s competitors and analysts say that the company is a machine that runs fast but has many limitations as well.

Some say the company was just lucky to be born with a silver spoon and get the initial push from its parent D&B that helped it win some good business from financial clients. It was again lucky during the recent crisis — most of its banking clients turned out to be acquirers rather than the ones that were bought. “They happened to be on the right side of the equation. There is an element of luck associated with that, as opposed to by design,” says Frances Karamouzis, VP, Research at Gartner.

Others point to its inefficiencies. One indicator is its low staff utilisation rates, which was as low as 52 percent to 55 percent in 2005, while its Indian competitors average around 70 percent. Inefficiencies show in other ways too.

The two-in-a-box model confuses people about who really is in charge. A senior manager in one of the top three Indian IT firms says that the heads two different business lines were simultaneously interviewing him for a job.

While critics see all this as inefficiency, Cognizant insists it is only the sign of an empowered organisation. “For us to maintain the customer intimacy we need to run our business in a way that is very responsive to our client needs. TCS will be super duper in organisational efficiency but
we are more customer responsive,” says R. Chandrasekaran, president and managing director.

This customer responsiveness comes at a price. Cognizant spends more on its clients than any of its rivals. Its sales and general administration expenses are 23 percent of its sales. Infosys spends about 12 percent. While this higher investment results in faster growth, it has not translated into better pricing. Its gross profit margins are a little lower than Infosys.

The Tweak
That is why D’Souza is making changes to the company’s winning formula. His first task has been to isolate parts of the business that are getting commoditised (where the scope for differentiation and thus raising prices is rather low) and improve margins there by reducing costs. The second is to finetune the organisation to deliver higher value services that can bring the big bucks.

In 2005, T. Sridhar, then a senior vice president, piloted a new operating model in Coimbatore to deliver run-of-the-mill application maintenance work more efficiently. Taking lessons from manufacturing companies, Sridhar established a factory model with two shifts for delivering routine tasks like running the payroll application of a client. Running two shifts helped Cognizant save on infrastructure costs like office space, computers and software licences while delivering twice the work. Sridhar says that the pilot was a success and starting with just 400 people three years ago, the Coimbatore facility has grown to about 2,400 people today.


Illustration: Minal Shetty and Malay karmakar

D’Souza has given this model a much wider play. He has asked Sridhar to extend it to other services like infrastructure management, testing and BPO.

Years ago, Cognizant figured that the best way to improve customer service is to put two people in charge of a project: A client manager who would sit close to the customer and be his single point of contact and an offshore delivery head to deliver projects on time. The two managers would share the responsibility of increasing revenues from the account and managing its profitability.

With the help of Mark Livingston, a consultant hired from A T Kearney, D’Souza is adding a third facet to this model: Consultant who would advise clients on business and IT strategy. Cognizant has 1,700 consultants, but instead of running consulting as a separate business unit as Infosys did five years ago, D’Souza placed them in the existing business lines called verticals. These consultants get their pay from the profits of these verticals.

It is not an easy trick to pull off given that in many cases, the consultants could be earning more than the vertical heads. It could also destabilise the carefully constructed chemistry between the client manager and the delivery head.

But D’Souza and Livingston are convinced that an embedded model is the only way for an outsourcing company to move into consulting. Even though it takes more time convincing the client partners and delivery heads. This way it’s easier to tap existing relationships and the client still sees only one organisation. Cognizant has 500-600 accounts, served by 750 client managers and 70 sales people. The best way to penetrate these accounts, says Livingston, is by integrating consulting completely — from the initial stages of request for proposal through the delivery — to this structure. While a consultant’s designation, compensation structure and career paths are decided by CBC, the work is delivered in tandem with the vertical heads. So far, these consultants have been embedded in at least a dozen accounts. The company says the customer response has been encouraging.

If D’Souza can pull this one off, he could create a new Cognizant that would have shed its image as a smart follower, adept at playing catch up but not good at expanding the frontiers of industry.

He’s not the first to think of consulting, but the difference is, the old Cognizant would have put such a plan in deep freeze, waited for others to crack the market and then smartly followed. Srini Raju, the first CEO of the company, recalls the many conversations he had with Kumar Mahadeva of the need to get into ERP. “But Mahadeva [the then CEO] was not interested in investing in anything that wouldn’t give results now,” says Raju. Raju went on to found an ERP company.

It’s too early to tell if D’Souza’s approach is working. Neither D’Souza nor Livingston will say how much Cognizant has earned from its consulting practice so far. But they both point to Cognizant’s faster than industry growth last year to say that consultants have managed to position Cognizant well in the market and increase its share of customer wallets. As for building a consulting brand, “it is a 10-year process,” says Natarajan Radhakrishnan, VP for business consulting, and Cognizant is only in the third year of this journey.

The Partnership Play

While D’Souza is ready to take a longer term view for building up the consulting side of the business, he is a man in a hurry when it comes to other market expansions.

Instead of entering new markets all by himself, which could take him many years to succeed, he has cut short the process by making acquisitions (he acquired marketRx in October 2007 for $135 million to jumpstart its analytics practice), luring away talent from competitors to start a new service line (in June 2007, he hired A.N. Rao from Wipro to start the Infrastructure management practice) and by striking alliances with strong partners.

Among all these, it is the partnership model that D’Souza has really worked hard at. If five years back, Cognizant had two partnerships and alliances, now it has 20. It’s a mindset change, says Narayanan. The earlier mindset was that if you want some capability, build or acquire — or let the opportunity pass. The new mindset is, you don’t need to own talent, as long as you are able to access it.

“Francisco removed the rough edges that Cognizant had in accepting partnership as a way to grow,” Narayanan says.

Unlike some of the other larger players, Cognizant is strong only in two or three verticals. It came late and it preferred to focus on one or two things at a time. “I am not sure if that’s a good long-term strategy,” says Bhavtosh Vajpayee, Head of Technology Research at CLSA. To this day, it does not have a strong story to tell in other large areas like manufacturing, telecom, energy and utilities. For instance, Cognizant is the only top tier IT company that has not worked with GE, one of the largest outsourcers to India. It earns only about 15 percent of its revenue from manufacturing, retail and logistics put together, while Infosys gets about a fifth from manufacturing alone. Engineering and R&D services are an opportunity (estimated at $200-220 billion by 2020 by Nasscom) that it can’t afford to miss.

Which explains why D’Souza was so eager to win the Invensys deal. It supplies automation tools to over 40,000 clients. It is a smart go-to-market strategy for Cognizant, especially in the process manufacturing industry, where there is still scope for companies of its size to make a mark.
Even within its core business segments of BFSI and health care, Cognizant is mainly focussed on North America and Europe. This is a disadvantage when competing with bigger companies like TCS and Wipro who have a much stronger footprint in markets like the Middle East and India. D’Souza has once again used the partnership model to pry open these markets. Unlike the US, where a lot of banks run legacy technology systems, many new banks in the Middle East are going in for modern core banking software. Since Cognizant does not have a banking product software (unlike Infosys that sells Finacle), it has tied up with Temenos to go to market jointly. Cognizant is the only global partner of Temenos.

Cognizant is a company full of energy today. “Cognizant is like an athlete who wakes up everyday and says, ‘I have to compete,’” says Venetia Kontogouris, who has been observing Cognizant right from the beginning and for a good part of the time as a board member. But the finishing line will not be reached easily. D’Souza has taken upon himself tasks that signify a cultural change at Cognizant. The execution of his plan will be watched keenly.

Analysts like Frances Karamouzis of Gartner say that Cognizant’s next level of leadership is not yet visible. “Cognizant had four strong leaders when it was a 30 million dollar company - Kumar, Lakshmi, D’Souza and Chandra. Now, it’s a multi billion dollar company, and it has only two leaders at the top,” says Frances. “If you take the top 100 people in TCS and take the top 100 people in Cognizant, you will find Cognizant is not in the same league” she adds.

This will be D’Souza’s biggest challenge. As he steps up the ante, he needs a strong second tier leadership to deliver on that. Ten years ago, his predecessors simply lured away some of the best talent from TCS to build the company. It will be interesting to watch how D’Souz betters that.


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(This story appears in the 05 February, 2010 issue of Forbes India. You can buy our tablet version from To visit our Archives, click here.)

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  • Dhanush

    Really impressive... Feeling proud, having Frank as our boss.

    on Aug 24, 2013
  • Rajesh Rao Chillara

    I really am baffled at the media's mollycoddling of Cognizant. In fact, I feel some of this relentless praise of Cognizant could be the result of paid journalism. This is just another outsourcing company with high paid managers and poorly paid workers.

    on Mar 5, 2011
  • Lakshya

    Great article. So aptly put: "Cognizant is one of the last decade's biggest success stories in the offshore industry."<br /> <br /> A couple of other areas where Francisco and Cognizant have done exceptionally well in the last few years is in aggressively growing Europe and in investing in a highly differentiating platform called Cognizant 2.0 which can change the way outsourcing is done globally. It truly reflects the "future of work" and this platform is a killer differentiator, if you will, for Cognizant.<br /> <br /> Makes compelling reading.

    on Jan 25, 2010
  • Harry Gonsalves

    This is a truly ‚ÄúIndianised‚ÄĚ version of Forbes. I just read the article in print and there are several spelling and preposition mistakes. The datelines in the graphic are also incorrect. The magazine could do with better proofing. Unless, this is a way of affirming its Indianness.

    on Jan 25, 2010
  • Jeannette McDermott

    The article says some nice things about Cognizant and then someone from Gartner says that the leadership of the company is not comparable with another company. Can this analyst even name the top 100 in both the companies? Why would a publication carry such a sweeping, unsubstantiated statement? It is public knowledge that Cognizant is the fastest growing company in the industry. Their numbers are for all to see. Last heard, the company had guided for revenue well upwards of 3 billion dollars and would be adding more revenue this year than TCS, Infosys and Wipro. What else does it take for a company to be in the big league? And if the magazine is not sure yet if Cognizant is indeed in the big league, as its choice of the Gartner quote implies, why has it devoted so many pages to an article about the company? It is ridiculous to see the magazine contradict itself so dimwittedly in order to appear balanced.

    on Jan 25, 2010
  • Deepak

    Great article. The graph image depicting Cognizant absolute revenues in each quarter in 2008-09 seems to have an error. The last 3 sets of bar should be shown for 09 and not 08 as is shown currently.

    on Jan 25, 2010
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