Ask him what problems in his company keep him awake at night and Gordon Coburn , President at the software services firm Cognizant tells you, “Actually, I sleep quite well!” He refers to his company’s strategy as rock-solid, and its employees as ‘incredibly motivated’. “We have been successful in establishing ourselves as a trusted advisor to our clients and in serving the dual mandate that they often face – run better and run different. Financially, we are stable. So I sleep quite well.”
‘Run better and run different’ is a recurring theme in conversations with Cognizant’s leadership these days. Last month, the company said its revenues for 2015 stood at $ 12.42 Billion growing 21 per cent over the previous year. What left industry watchers disappointed was the lower end of its estimates for this year – in the range of 9.9 per cent to 14.3 per cent. In the call, Cognizant cited a slowdown in the healthcare and banking & financial services and insurance (BFSI) verticals and Mr Coburn is quick to remind us that despite these and foreign exchange-related challenges, the company is able to set out healthy growth estimates for the year. It is also betting big on digital technologies, what Cognizant calls the SMAC stack, including Social, Mobile, Analytics and the Cloud. Snippets from his conversation with The Hindu :
The industry is talking ‘disruptive transformation’. What does it mean to the IT services industry?
Digital technologies have become a priority area for clients. The business discussion occurs before technology comes in; how a client is going to its customers, engaging with its employees, and using its supply chain. That has very little to do with technology, but has to do with how you fundamentally change your business process, show differentiation and use your competitive advantage in the market. This has to include its CIO, yes, but it also includes entire leadership in the C-Suite, including Operations and Marketing. To have that discussion, you need deep industry knowledge, process knowledge and a sense of the competitive and regulatory environments. We have invested heavily into our consulting business to help us do this..
We have traditionally kept our Operating Margins lower than that of our competitors – consistent at19-20 per cent. This has enabled us to invest in consulting. Earlier, clients opted for a niche provider for that upfront business discussion on the ‘art of the possible’ and are now coming to the likes of Cognizant when they need the integrated solutions. We help figure out their digital strategy and then start to refine that with product design work and then go build it. The last piece is where we get a majority of the revenue. But to get that portion of work, it is a tremendous advantage to start with consulting. We now have 5000 consultants in the team.
What proportion of your manpower is trained in digital tech now and what is the way forward?
People ask us “How Much of your revenue is from digital?”. The honest answer is it’s a very wide range. How do you define it? A majority of our projects have digital components in them. In our typical digital projects, the digital components would be connecting to legacy backend systems – so would you count the whole revenue of that project or only that from the digital part? The line is blurred between traditional and digital projects.
For our workforce being digitally trained, what is as important is we have them trained in digital technologies through a business lens. I want everyone in the company to be trained in thinking about how to make a client run his business better, and different.
A lot of our people were retrained – moving from application maintenance towards application development. This was driven by a shift in clients’ motivation from run-the-business to change-the-business, ie where clients move away from traditional, ‘reduce cost’ goals in operations, towards how they grow their top-line.
Clients typically have a dual mandate nowadays – run better and run different at the same time. You make the current business more efficient; take those savings and spend it in ‘run different’ – that drives a lot of application development. That was the reason for the re-skilling.
The IT industry has talked about building platforms and moving to outcome-based pricing for a while now.
The momentum has picked up. The shift is towards output-based, which is really managed services, and that has been going on for a while. Acceptance of outcome-based models is evolving. We are seeing some traction.
Let me give you two examples – one is in the commercial operations in the pharmaceutical industry – we are doing a broad range of work on sales force management using our platform, involving our IT and BPO folks. The client is buying the outcome of our management of the pharmaceutical sales force territory alignment, sales force compensation and all that. They will be charged per sales person per month.
Among healthcare payers, we offer business process as a service, where we take over the member administration of a healthcare client - member enrolment, member enquiries, claims processing or adjudication, running the call centre, doing the intake for claims processing… There the model is per member, per month irrespective of what volumes come from each member.
For the newer offerings, the margin is starting to brace up now. This allows us to break the linearity between revenue and headcount.
Is the client ready for this?
I think there have been several catalysts for clients to focus on process changes. Several clients look at what they do as core to their business. That has been driven by regulatory changes and their continued costs to compliance in both healthcare and financial services; driven by pressure to reduce administrative costs in the healthcare industry, and by the crises and the fundamental structural changes in the financial services industry. The challenges in the drug pipeline are driving this trend in the pharmaceutical industry.
So, (CXOs in) these three industries wish to be as efficient as possible and are willing to change some of their business processes. That is helping them move towards the outcome-based model.
In your investor call, you referred to BFSI and healthcare verticals causing some concern. How different is today from the 2008-09 crisis?
Very different. Back then, clients were unable to make decisions since they didn’t know what the playing field looked like. Today, clients understand that there are short-term challenges, because of the volatility of the stock markets and because of regulatory issues. They are making decisions. Some of the decisions are to pull back on spending. The BFSI segment is tightening the belt now because of the volatility, interest rate and regulatory issues. We are seeing some slowdown in our healthcare vertical due to the consolidation in the industry. We remain optimistic about the long-term opportunities within the payer segment and are quite encouraged by the large deal pipeline in this area for 2016. The financial crisis a few years ago was far more volatile and created a difficult environment. Would I take this situation any day over 2008-09? Absolutely.
