Will continue focus on organic growth
Feb 06 2014
Almost all IT majors are talking about US getting back on to the growth path and increase in discrete spending. Can you elaborate on this growth picture and what opportunities it provides for Cognizant in 2014?
We are in the midst of a once-in-a-decade shift in the technology landscape. This shift, we are experiencing, is propelled by a confluence of technologies — social, mobile, analytics and cloud or “SMAC”. In addition, developments in areas such as sensor technologies, the internet of things, machine learning and 3D printing will further disrupt the status quo in many industries.
These technologies are enabling our clients to reimagine and redesign part or all of their business models and become digital businesses. While our clients clearly realise the tremendous potential of these new technologies, they are also mindful of the continued volatility in markets and demand around the world. As a result, they are grappling with the dual mandate of improving current business performance, while investing in technology-based innovation for future growth.
In 2013, our “run better, run different” approach helped clients address this dual mandate and was central to many of our digital transformation engagements with clients. Going forward, in continuing to work with clients to design, build and operate digital businesses, our range of integrated capabilities across advisory and consulting services, industry-specific business processes, and at-scale technology and service operations, together with our culture of innovation and agility, positions us well as a strong transformation partner to our clients in 2014 and beyond.
In the same breath, the companies also discuss Europe to be back on the growth trajectory. With European companies looking to cut cost, this provides ample opportunities for Indian IT majors. Your views on Europe and how well Cognizant has geared up to tap this opportunity?
During the quarter, Europe grew 3.5 per cent sequentially, performing better than the company average. While sequential growth in the UK was flat this quarter, Continental Europe saw a solid 8.8 per cent sequential growth. Overall, Europe grew 31.5 per cent year-on-year, including our revenue from the acquisitions of the six companies of the C1 Group and Equinox Consulting.
The overall European IT services market is roughly the same size as the North American IT services market, yet the penetration of the global-delivery model in Europe is currently a fraction of that in North America. As such, Europe merits our continued focus and investment. We continue to focus on building local teams on the ground across key markets in Europe to address the specific needs of European clients. We are also systematically ensuring that we have the capability to deliver the full range of Cognizant service offerings in discrete European markets to meet client demand.
The success of this approach is corroborated by the fact that Cognizant has ranked high in customer satisfaction studies conducted by sourcing advisors in the region. For example, in 2012, Cognizant topped the client satisfaction and relationship rankings in KPMG’s Outsourcing 2012 study of service provider performance across Europe. Cognizant topped the rankings in general satisfaction and relationship management — both strategic and operational — with scores significantly higher than the industry average.
Can you throw some more light on the way ahead and how the company is gearing itself up for the future?
During the past two decades, we have successfully navigated several economic and business cycles and seamlessly transitioned between several technology shifts. We have done this through an expansion of our services and geographical footprint, but more importantly by developing enduring characteristics and values such as our client-first approach, empowered teams, and an ability to keep challenging the status quo by reinvesting and reinventing for the future. The capabilities that we have worked hard to build at Cognizant over the past two decades — business consulting, deep industry knowledge, large-scale program delivery and leadership in SMAC technologies — have come together to position us uniquely to meet the demand in the marketplace. We are confident that these capabilities, coupled with our rapidly expanding global footprint and our three-horizon approach to innovation will continue to position us as a strong transformation partner to our clients in the years ahead.
From our performance, it is clear that our three horizon model is working well — it is enabling us to optimise our core Horizon 1 IT businesses, build momentum and scale in our newer Horizon 2 offerings, and incubate new technologies, markets and delivery models through our Horizon 3 initiatives.
During the fourth quarter, our core Horizon 1 services — including enterprise application services, enterprise information management and testing — did quite well. Our Horizon 2 services that consists of management consulting, Business Process Services and IT Infrastructure Services, continued to grow faster than the company average.
Within Horizon 3, we are extremely pleased with the accelerated growth we experienced in 2013 across the three sub-segments — new technology architectures driven by SMAC, new industry and markets such as public sector and Latin America, and new delivery models that drive non-linearity.
In spite of giving industry leading revenue growth, it has been sometime since Cognizant was in the news for any major or significant acquisition. Is the company settled towards an organic growth phase or is something on the radar around the corner to have a parallel focus on in-organic growth too?
We shall continue to focus on organic growth and do strategic tuck-under acquisitions to help expand our geographic footprint (such as the recent acquisitions of Equinox in France and the six companies of the C1 Group in Germany), complement and enhance our solutions spectrum (such as the recent acquisition of MediCall in the medical management area), and strengthen our domain, consulting or analytics capability (such as PIPC in programme management).
Our strategy is to acquire for “capability” and not capacity, because at our size and with our proven recruitment and talent management programmes, we can deliver to almost any client need at scale and grow fast organically. While our definition of tuck-under is up to $200 million in target company revenue, the sweet spot is between $20 million and $80 million. The idea is to enhance our depth and sophistication in key markets, while preserving our unique culture that both clients and associates expect of us.