It’s a question that many an analyst, mediaperson and industry executive ha­ve pondered over since lo­ng. With the Big 3 — TCS, Infosys and Wipro — sitting pretty in their eyries, is there scope for any other Indian IT firm to perch beside them? Well, Cognizant Technology Solutions (CTS) has finally answered the question.

Riding on a strong grow­th in the previous two years, it has broken into the IT big league by ringing in a $1 billion quarterly revenue for the April-June period.

For several years, CTS was competing with the lik­es of HCL Technologies and Mahindra Satyam in its erstwhile avatar, virtually going unnoticed, even mo­re with the spotlight shifting almost exclusively to the triumvirate of the Indian IT space in the wake of the Sa­t­yam fiasco. But the times they are a changing. While HCL has seen revenue in the ra­nge of $500-700 million per quarter for the previous two ye­ars, CTS is sitting happy on the over $1 billion figure.

So, what is it that this company, headquartered in New Jersey, with over 74 per cent of its employees in India, did to manage the magic figure? More importantly, what can the aspiring firms learn from the Cognizant’s journey to the top? Also, where do the Big 3 go from here? Will it be the Big 4 ... or Big 5 ...?

But first, let’s take the the industry view on this. Cognizant is not your traditional Indian IT sweatshop out of Bangalore. It was launched as a captive of Dun & Bradstreet, and now is a more global company compared with the pucca desi firms. Several of its management, which includes quite a few non-Indians, sit in the US and Europe. This split personality is at the root of much of the industry’s and media’s reluctance to venerate Cognizant as the holy cow while its peers soak in divinity. Yet, few can contest that the company has arrived in the hallowed portals of Indian IT services industry, just by being smarter.

One of the key things, according to analysts, is that CTS is focused on growth against profit/mar­gins, a fact exemplified by the firm’s decision to tell investors early on that it will have lower and consistent operating margins (non-GAAP 19-20 per cent) relative to its peers TCS, Infy, Wipro, HCL and Mahindra, but will grow revenues faster.

As R Chandrasekaran, president and managing director, global delivery, and one of the four professional founding members of Cognizant puts it, “Our plan is to grow above industry average and faster than our comparable peers. The fact that we have posted industry-leading revenue growth for many years is validation that our differentiated business model is working well.”

It’s strategy is borne out by an internal study done by close rival HCL Technologies, and explained in a recent blog: Crystal gazing – Where is Indian IT going? by Krishnan Chatterjee, global head of marketing of HCL Technologies. “We went to the Bloomberg dat­a­base and discovered that 3,307 companies are listed globally in the technology space. We first applied a filter of 30 per cent CAGR over five years (2004-2009) and the number came to 302. We then looked at companies whose revenues are more than $2 billion and the number dramatically dropped to 11. Applying a final filter of market cap at $5 billion or more left only six companies out of the 3,307.

“Apple and Google make it to this list while the only two Indian IT companies are Cognizant and HCL Technologies. It is interesting that most tier-II Indian IT companies will not be able to hit momentum — they lack the scale. And mo­st tier-Is do not seem sufficiently focused on gro­wth,” Chatterjee wrote.

Executives at Mahindra Satyam refused to comm­ent on Cognizant’s achi­evement.

SG&A focus: CTS re-invests all profits above 19-20 per cent back into the company, especially in areas related to sales and marketing and relationship management, giving it a client-centric sheen. For instance, the company has about 800 client partners with domain expertise dealing with 600-plus customers and a ratio of one MBA graduate to every 20-25 software professionals.

According to Sudin Ap­te, senior analyst at Forrester Research, the firm’s ability to connect with cli­ents’ pain points and create solutions is very good, even as they are investing heavily into marketing, pre-sales, consulting and accounts management.

While other Indian pe­ers are also doing the same, it is still not on the scale CTS does at 22-24 per cent of its overall revenue. However, with the market seeing a positive shift on the demand side, expect to see more action on the client facing front.

Avinash Vashistha, CEO of strategic advisory firm Tholons said, “The scenario is changing with a pickup in business dema­nd, leading to more growth now for the Big 3. However, CTS has the advantage of being an India-centric co­m­pany along with being more client-centric. This will put pressure on TCS, Infosys and Wipro to look at transforming themselves to be more client-focused and offer end-to-end services.”

Partha Iyengar, VP and regional research director, Gartner India, said the str­ong message around Cognizant’s performance is the imperative transition of the Indian service providers from a technical/technol­ogy-focused mindset to a sales-oriented mindset.

“There are strong cultural factors at play in India that do not give the right status/value to the sales fu­n­ction (most Indian parents, even today, are still apologetic about their children taking up sales care­ers!) and this has to cha­nge. It may not need to swi­ng to the other end of the spectrum (like in the US where sales folks are the undisputed ‘rock stars’ in most enterprises), but the­re needs to be a stronger sales quality/sales development focus in the business model of the Indian prov­iders,” he added.

Rising competition: Taking the top 5 Indian firms including HCL Technologies and their revenues, CTS has managed to win the maximum incremental revenue of 36 per cent in April-June quarter, a significant rise from 23.3 per cent in the previous quarter, according to a Kotak Securities report.

Stating that growth is back for the IT industry and that all the top players have demonstrated good growth in the last three quarters, Infosys CEO Kris Gopala­krishnan said, “Different co­m­panies have different strategies. In our case, we are pursuing deals that give us profitable growth. We are increasing the value-add by creating solutions that address the changes and tran­sformations happening in our clients’ businesses."

Wipro’s joint CEO Sur­esh Vaswani said, “Cogniz­ant has had a very good qu­arter and kudos to them. We are seeing a positive demand momentum in the market place, and CTS results along with those of other IT services players further reinforce the fundamental strength of the India outsourcing story.”

However, CTS will also have to look to improvise strategies to sustain grow­th. A senior executive at an MNC IT firm, who did not wish to be named, suggested that compared to CTS, HCL and Wipro were more likely to go for big acquisitions which could add up to $500 million in revenue. “Also, Cognizant is not big in the rapidly growing Indian market — a must for any IT firm now. Unless it diversifies from its dependence on the US, it could have problems in the future.”

Lessons for also-rans: So, what does Cognizant’s rise mean for the contenders and mid-size firms in India?

Vashistha feels these companies, some of whom were bigger than Cognizant a few years ago, have to relook at their strategy and learn to be more client-centric and broadbased, but still focused.

Agrees industry veteran and managing director of e4e India Sridhar Mitta, who said that in a maturing market these firms have to change their business mo­del and go niche or specialise since there is no longer a space for general purpose IT firms, an area where the biggies have a monopoly.

Incidentally, Gartner’s Iyengar is confident that there will be more entrants to the $1 billion-a-quarter club from India soon. "Absolutely. I think 2011-12 will see more entrants into this club, with HCL Technologies and Mahindra Satyam being the most likely candidates for sure," he said.

Most of the other aspirants could have a tough time though. Except for firms such as MindTree and iGATE which have the advantage of management bandwidth and brand, others including the likes of KPIT, Mastek, NIIT, Sonata and Patni are most likely to be acquired, industry analysts point out. Many of the latter firms have been in the news for some years as either waiting to be bought out or for selling stake.

Asked about iGATE’s plans for notching up such big revenue numbers, Phaneesh Murthy, CEO of the company, said the firm’s differentiated offerings will help us grow organically and our M&A strategy will provide the inorganic growth, but we are still a long way from that number. He also has some words of advice for aspirants, "Don't let market analysts or statements of big boys worry you — saying that there is consolidation and no room at the top. Focus on your strategy and execute well.”