Brian Humphries took over as the Chief Executive Officer of Cognizant in April this year. He has taken charge at an interesting time, when new areas of business such as cloud and digital are become mainstream, while competition is increasing, even as trade protectionism around the world has come to stay. He says that his priorities are to do get growth rolling at the earliest and to accelerate company's digital play.
You've met clients, partners and colleagues across geographies in the last six months. You have also carried out dozens of reviews of the company. What have you learnt from this about Cognizant?
After first week of meeting customers, I took some of my sales leadership team aside and said “Stop doing this, I know what you're trying to do, you're trying to introduce me to your friendly customers. But please get me in front of all customers, because sometimes, out of chaos comes opportunity and my task is also to open the door for new customers first.”
Now, six months later, to be honest, [I find] customers really do love us. It’s remarkable and the number of meetings I've been in when I ask customers to appoint interviews, they say ``Brian, we've worked with you for 5 to 10 years, we love your guys, you're humble, reliable, you deliver with good quality" so that has been really encouraging.
In the same vein, when I ask these customers if they've worked with us on the digital side, not enough of them know our digital story; that's not their fault, that's our fault. That is an opportunity for us to actually go deeper with customers, to show up in their digital transformation agenda to help them out there. Of course sometimes it is different work, different buying centres in customer enterprises, but it’s an important pivot for us to make.
What is going to be your strategy for digital and how are you going to accelerate this piece of business?
The good news and bad news in digital are one and the same for us. The good news is we are actually growing in the digital arena, as an industry as a whole; of course, there are some companies that you could argue are faster in digital. But as a category, the digital market is growing 10 - 12%; we're growing 19%. The opportunity for us is to make that portion of our business bigger. It's about 30%, or slightly less than a third of our business, today. North America is 76% of our business and our international business is therefore only 24%; that needs to be bigger. Now I am not going to make it bigger by not growing North America, we have to grow North America faster than we have been growing in recent years. But we have to have outside growth in international markets as well.
Isn’t offering a digital solution to your legacy clients just a one step more for you? Why has it not grown as fast as you would liked it to?
That was the first question I asked and the board was asking me the same when they interviewed me too. The first thing I had to do was to change my digital leader. It's one of the most exciting jobs in Cognizant and you would expect that leader to wake up every day, be on planes around the world evangelizing. Now Malcolm Frank heads the business; you've seen Malcolm in Cognizant for about 15 years; high energy, great with customers, very compelling, highly strategic. Similarly, as we grow in digital, we need to do M&A and Malcolm will play a big role in that regard by motivating and attracting people to stay with us.
But despite the gap, your growth seems faster than the rest of the industry, here.
The first thing was to change the leader. The second thing is to go with the push and pull. In theory, the central leader should be showing up to accounts, someone working with client partners, more visible in front of customers. Historically, the fixed component of the compensation for our sales force is 85-90%, and only 10 or 15 % is variable. And within the portion of business that is variable, no real parameters were set.
We needed to evolve our sales compensation which will be addressed in the coming months. On top of that, while I still argue that the Cognizant brand is very strong, in North America and India, the brand attributes, in my mind, are not necessarily digital per se; we tend to think of Cognizant as something really strong on operations, in testing, in application development and maintenance. I actually hired a new CMO in the last two months, who can help me drive our digital brand attributes better and help us get ahead.
We have the right play in digital. As I think about markets that we should be in, the question we ask ourselves is, is it worth winning? Is it winnable by Cognizant?
So we are leveraging our history, and I made a decision a few months ago to aggregate all of our digital engineering and application modernisation capabilities together under one team. This will give us an overwhelming force to conquer this in our areas of focus.
You have been vocal about M&A to push up digital. Will we see a few acquisitions soon?
M&A is not a strategy, it is an enabler. In the last few months, we spent a huge amount of time thinking where we are strategically, and that culminated last week with a Board of Directors presentation, which is a once-per-year session on our strategy. The presentation was very much along the lines of where we are in our legacy to our traditional businesses, how we ought to optimise and protect that. It includes sub-categories like growing more internationally, really being more aggressive and competitive, being more efficient and optimising delivery.
The second portion of our strategy was around the key digital battle grounds that we need to win. We have identified four areas in particular that are central to us: Internet of Things, I believe that 5G will unlock the power of IoT; the second is Cloud (consultancy and migration); Data; and Digital Engineering. I will do M&A in areas that supplement my strategic direction.
The geographic dimension is also interesting, because we would like to penetrate more in Europe and Asia. Once in a while you get M&A targets that facilitate multiple things at once. For instance, we closed Zenith Technologies, which is a Life Sciences acquisition, a few months ago. The value there is around IoT and making more of a smart manufacturing push. We will continue to use our balance sheet to support our M&A activities.
Your key verticals healthcare and BFSI have been under stress. Can give us a brief commentary on expected challenges and opportunities?
It takes time to turn these things around. The new healthcare leader joined probably three months ago. The banking leader we haven't yet announced, but will be announced in the next week. There is no quick fix to things. We have to get back to focus. The good news is that with one of our biggest banking clients, we are growing our revenue close to 10% year on year, because we really changed the leadership team on the accounts. The new leadership team that joined has much more of an angle in digital, and the confidence and gravitas to approach the young CIO organisation and now we're selling a lot of product engineering or digital engineering to the bank and accelerating our proposition in digital. So there's a lot that we need to go do, to turn those businesses around.
Healthcare was interesting last year because we had four of our major customers that merged into two, that had a one-time impact that will last for a year because they stalled revenue growth for us, they held their purchase decisions for a period of time. Add to that the rate concessions that had to be granted at the time of renewals. You know we will round that corner as we go there by 2020. But my view is that, growth rate of banking and health care will increase by 2020.