For the year 2012, New Jersey-based technology outsourcing company Cognizant reported earnings that beat analysts’ expectations in an “uncertain” market. Over the last few years, the company has overtaken rivals Wipro and Infosys in quarterly revenue and is within striking distance of overtaking TCS. In a free-wheeling interview withThe Hindu,
R. Chandrasekaran, Group Chief Executive, Technology & Operations, Cognizant details the need to move on to newer pastures while shedding India’s image as a low-cost services provider. Excerpts:
How should we read your latest quarterly results? You have lowered your revenue guidance to 17 per cent this year, from 20 per cent last year.
I met some people from the manufacturing sector. They are saying that they are all bleeding. They are asking me: “How can you grow at 17 per cent?” They are just dreaming that they could report that kind of growth.
We feel 17 per cent will be the industry-leading growth. We are growing faster in terms of incremental revenue. The unfortunate thing is that we still feel apologetic! We still feel the need to justify that! However, still things are not all that rosy from a macro-economic standpoint. We have been able to report that type of growth mainly because we feel we have a very unique proposition that customers will jump at. By any stretch of imagination, any growth is good in the current environment.
Which numbers are you worried more about, though? Indian or European?
When I ask my clients how the European economy is doing, they says its sort of going sideways. One day you see good news, the other day you see bad. It’s like describing the Indian democracy. They aren’t able to move forward because some country has elections at any point, and, because of it, they aren’t able to act. They aren’t able to take bold decisions. The U.S is doing well relatively, compared to most other countries. A-PAC is still doing really well.
How do you see the geographic mix getting distributed this year?
We will still grow very well in the U.S. And, we are making a lot more investments in Europe, as there could be some short-term ups and downs. Last year, for example, in the first two quarters, we were down in Europe. In the second-half, we picked up though. In the long-term, it is still a very attractive market. We are very bullish about Europe in the long-term. We continue to make good investments in A-PAC, as it grew nearly 40 per cent last year. The U.S., however, will continue to be the mainstay for Cognizant for the foreseeable future.
Does India still retain its cost advantage ?
India continues to play significant role from a cost point of view even now. But that has become a table-stay. Continuous relying on cost alone is not going to help our long-term cause. We need to move on as an industry and find newer pastures which will help us to continue to maintain our growth trajectory. The differentiation comes in the form of the investment that you invest in capabilities. This involves moving to a model that guarantees output. It is about value rather than the cost at which you deliver.
What are the newer pastures? Are the days of building huge legacy systems over?
Those days are over. Nobody is embarking on a project which will be deployed three-four years from now. Those days are gone. If you are talking about a new business model, say the Internet, you don’t wait for two years to roll out a new online application. You develop something quickly, deploy it, and incrementally enhance that platform. That’s how systems are being deployed today. Nobody does any mega projects anymore.
So, we need to create those kinds of practices that incrementally deploy systems. Traditional outsourcing will continue because of the cost advantage. But we see a lot more opportunities in newer pastures such as consulting, infrastructure and BPO – what we call ‘horizon 2’ within Cognizant. What they say is – if application outsourcing is ‘x’ billion dollars, BPO is 1.5x and infrastructure is 1.7x. And these are all in the early stages of the global outsourcing model. So, there is a lot of room to grow if you develop capabilities in those areas, which is what we have done in the last five years. Consulting is a big differentiator for Cognizant. We help customers look at newer ways of doing business. Because of that we are able to capture the minds of our customers, or mind-share. That helps in capturing projects along the way.
But we aren’t losing sight of what is in store for the future – the future is all about millennials coming into our workforce. Their expectations from partners are very different. Consumers are going to demand applications on mobile platforms. Customers will want to know what their customers are thinking about their products. So, these insights into the customer psyche come through analytics, which has become a big play for us.
Has Cognizant not thought about taking the Infosys route – building more products and intellectual property?
We are doing it, but in a different way. Breaking the linearity between headcount and revenue was something that was vital forus – so we are investing in creating intellectual property. We don’t call them products, as they are still platforms or building blocks that we will reuse across multiple client situations. Overlay services on top of these building blocks, and thereby offer a unique proposition. We are seeing early success in some of those platforms.That is how the whole paradigm is shifting – we don’t have products, but we have platforms and IPs which we will leverage upon.
Will shifting to an outcome-based model result in a different type of outsourcing, where you will outsource to others?
I won’t rule that out as a possibility in the future. But right now we don’t sub-contract work to others. That typically happens in manufacturing. But I always say that IT service is still not as perfected like manufacturing, where there is a lot more engineering discipline. IT is still not a science, it is still an art. But, by having these process disciplines, we are getting there. It will become a science.
Time was when entry-level salaries were so high. Is that situation gone now?
The campus salary has been very stable of late. Earlier it used to grow by 10-15 per cent year over year. Now it’s stable. I would say it’s partly because of the general environment. It’s also due to general discipline that is present now across the industry. We don’t want to get into a rat race – if Cognizant raises the salary, others will have to follow soon. There is an un-said rule or discipline in the industry to not hike the salaries.
What is the biggest challenge facing IT as a whole?
As an industry, we can’t rest on our past laurels. We have to move on. We can’t focus just on the cost alone. We need to focus a lot more on value. Secondly, a lot of customers are pushing us hard now. They are asking us to lead them from front now, rather than just executing in the back. Therefore, from a services industry, we really need to move into a knowledge industry. It is not just about deploying a lot of people on a lot of projects. There is a need to build domain capability, and work on the leading edge of technology and offer superior services. The industry has to go through that transformation. The number of IP patents filed in India is abysmally low. I think it is high-time that we developed our own IP, and start filing patents. The whole world should look up to the industry in India as one with a lot more thought-leadership, rather than as a low-cost provider.
Will 2013 be a better year?
From a demand standpoint, we find the environment to be a lot more stable. From a Cognizant point of view, we see the investment made in all these new horizons gaining good traction. That makes us a lot more optimistic about 2013.
How has Chinese competition been, both inside China and in the global market?
China presents a very interesting business proposition . It is interesting because as a market, it is growing well. At the same time, it is very difficult to penetrate. You need to have some local powers to do any sort of business in China. Every multi-national has a presence there. So, if you have a global relationship, you can easily tap into that relationship, and start doing some work. That is what we are doing. One really needs to have a local partner. I would say no Indian company has cracked the code, when it comes to doing business in China. China is also a very good talent pool base, but acceptance of China as a delivery location by global companies is still not very widespread. It isn’t like India mainly because of the language, culture and a fear of intellectual property theft, and so on. It will take time to overcome that mindset. One thing we need to be worried from an India point of view is that the skill development is happening really rapidly there. Just as they focused on manufacturing, now they really want to focus on the services industry. When they set their mind to it, they will go about doing it very aggressively and methodically. We need to be on guard about China.
What are your thoughts on the recent split in NASSCOM?
Frankly, I don’t want to call it a split. NASSCOM is also talking about –they already have special interest groups and forums. NASSCOM is also slowly morphing into many of these smaller entities. Therefore, iSpirit, which is being talked about now, is just saying they want to help support these kind of product companies. It isn’t a separate association; they will still work with NASSCOM. Even big companies have products and platforms. I really don’t see the need for a separate forum.
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