In its latest quarterly earnings report, Cognizant recently guided to slower growth than they achieved last year. Although it is usual for Cognizant to be conservative in its guidance, it is still notable that it is sanguine about repeating last year’s strong performance in what most regard as an improving economy. Cognizant has been the bellwether in terms of fast market growth and the envy of every service provider in the marketplace in its ability to consistently growth faster than the market. So why is Cognizant guiding down on this year’s growth?
To be clear, Cognizant still expects to grow substantially faster than the rest of the industry and raised its guidance relative to past year. But with an economy expected to improve and discretionary spending on the rise why the recent indication of slower growth ahead?
It’s an important question. The answer: Cognizant always guides lower than it performs, and it knows that growth is becoming more difficult and more expensive in the maturing marketplace. This is especially true in its Horizon 1 offerings (application development and maintenance), which is core to Cognizant’s business.
Having said that, Cognizant is still well positioned for growth because of its Horizon 2 focus (BPO, IT infrastructure and consulting) and Horizon 3 offers in in cloud, mobile and next-gen solutions. Even so, Cognizant’s latest guidance to slower growth indicates it is guiding the market to a realistic perspective.
I believe this acts as a warning for the overall marketplace and supports Everest Group’s long-stated guidance for the last few years that the outsourcing space, especially the talent-based space, has moved into a more mature phase.
In a maturing marketplace, clients are more discriminating. They pressure service providers on price points. And they ask their providers to know more about the client’s industry and business. Those demands will likely result in slower growth and fiercer competition.
Photo credit: Cognizant Technology Solutions