Cognizant Top Deck Changes; Vodafone Executive Humphries Named CEO | In the News

By | In The News

Cognizant Technology Solutions said its president, Raj Mehta, would leave the company after the appointment of Brian Humphries as its chief executive effective April. It also loosened the non-compete clauses binding current CEO Francisco D’Souza, a move that could smooth the way for him to exit the IT company he helped found a quarter century ago.

US-listed Cognizant, which has most of its operations based out of India, named Humphries, currently the CEO at Vodafone Business, to replace D’Souza as the chief executive. A British national,Humphries will be the first non-South-Asian to take up the mantle.

“This change of leadership comes at a good time for Cognizant. Frank and Rajeev have done an outstanding job in bringing Cognizant to the forefront of the IT services industry. However, in the last several years, they have been derailed by Eliot, the activist hedge fund, into promising a number of value-destroying things including raising margins at a time when the industry is pivoting into digital,” said Peter Bendor-Samuel, chief executive of Everest Group, a global IT research and advisory firm. “This has resulted in constraining their growth and handcuffing their ability to pivot.”

Read more in ETtech

Activist investor Elliott exits CTS | In the News

By | In The News

Activist investor Elliott Management has sold its entire stake in tech major Cognizant. According to the latest holdings information filed by the fund with the US SEC (Securities and Exchange Commission) on May 15, Cognizant does not figure in the list. Elliott Management held 1.12 million shares at the end of Q4 (October-December).

Peter Bendor Samuel, CEO, Everest Research group, says an Elliott exit would be welcomed by Cognizant. “Elliott’s demands to raise (profit) margins have created an unhelpful constraint on Cognizant at a time where margin flexibility is necessary to invest in the new digital business models. However, the damage is already done and Cognizant has already committed to the street that it will raise margins and so must follow through on the promise,” he said.

Read more in The Times of India

Cognizant earns more per person as IT sector moves to tech-based digital model | In the News

By | In The News

Cognizant’s revenue grew 10% in 2017 even as its headcount fell by 200 from the previous year, for the first time in its history, a performance that experts said the rest of the IT sector is working hard to emulate.

IT companies, whose growth typically marches hand-in-hand with headcount growth, have been talking about decoupling the two for years but Cognizant is the first to show success over an entire reporting annual reporting period. The Teaneck, New Jersey-headquartered firm reports results for the calendar year, while Indian-listed IT services companies follow an April-March reporting period.

“As the industry moves from the labour arbitrage factory model to the technology-based digital model, the revenue per person rises and fewer people are needed,” said Peter Bendor-Samuel, CEO of IT consultancy Everest Research. “Cognizant is one of many firms which is driving hard into the new digital marketplace and this effort is showing results both in their increased growth and the improved revenue per person and falling headcount,” he said.

Read more in The Economic Times

Cognizant share surges on buy back | In the News

By | In The News

Cognizant’s share price has been surging in recent months, leading to a widening in the difference between its market capitalization and those of its peers Infosys and Wipro.

The company now has a $6 billion lead over Infosys in market capitalisation. Infosys had caught up with Cognizant and overtaken it in 2016, but it has not lost significant ground. Infosys’ share price has fallen in the past one year.

“My belief is that Cognizant is benefiting from the promise it has made to Elliot Management that it will raise margins and return cash to shareholders. The market may not have fully baked in that to do this Cognizant must reduce its sales expense and that this will slow down its growth,” said Peter Bendor-Samuel, CEO of Everest Group.

Read more in The Times of India

Orchestrating Quality: QA in the Digital Era | Webinar

By | Webinars

Wednesday, July 12 | 11:00 am – 12:00 pm EDT

Register for the webinar

Research Partner Chirajeet Sengupta will help lead a Cognizant-hosted webinar titled Orchestrating Quality: QA in the Digital Era.

Enterprises have for long leveraged Test Centers of Excellence (TCoEs) to improve application quality, bringing in efficiencies at scale. However, Digital has changed the notion of quality, broadening its ambit to include business processes, technology and customer experience. Also, the emphasis on speed is hard to miss.

How do enterprises build on the gains delivered by their TCoEs and yet drive the big shifts required to deliver to the [email protected] agenda for success with Digital?

Attendees will learn about:

  • The forces of Digital disrupting Quality Assurance approaches
  • The imminent shift from cost arbitrage to speed-to-value
  • Quality Orchestration – A vision for enterprise QA

Everest Group speaker

Chirajeet Sengupta
Partner, Research
Everest Group

Register for the webinar

How to Evaluate Your Service Providers in 2017 | Sherpas in Blue Shirts

By | Blog, Digital Transformation

In a video discussion, General Electric’s CEO Jeff Immelt discussed digital transformation and stated that companies must “either embrace the future or you’ll find yourself not able to satisfy your customers.” Third-party IT and business service providers also face a changing market and are taking steps to align themselves with the new business realities and new market opportunities — which is what brings me to the discussion in this blog post. You need to understand the current debate in the service industry and how the providers’ decisions can affect your company.  Read more at Peter’s CIO online blog.

The Cognizant Dilemma | Sherpas in Blue Shirts

By | Blog

A very public debate has been taking place between Cognizant and Elliot Management Corp – the activist investor that bought a $1.4 billion stake in Cognizant a year ago. Effectively, Elliot has actively sought to alter the course Cognizant’s board has taken for dealing with the changing situation in the IT services industry. As the leading providers in the services industry have accumulated a lot of cash, investors say it makes sense that they should return extra earnings to the shareholders. Let’s look at both positions.

The Debate Essentially Focuses on a Tradeoff

The legacy labor arbitrage market is mature and services providers can no longer maintain their high margins. However, if they transform to digital business models, they have an opportunity to achieve the same or even better margins.

Which vision is the right strategy for their future? As I explained in my recent post, “The Infosys Dilemma,” Cognizant faces the same tradeoff situation currently causing a noisy debate among the founders, board, CEO, and activist investors at Infosys as to which vision is right.

Providers with a legacy arbitrage-based book of business have two options for growth strategies:

  1. Arbitrage-First Vision. In this strategy, providers use their profitability to invest in mergers/acquisitions, consolidating the industry and becoming even bigger in the arbitrage market. This strategy offsets the declining growth of this market. It also drives shareholder value by returning cash to shareholders through repurchased shares and increased dividends.
  2. Digital-First Vision. In this strategy, providers use their profitability to invest in transforming into digital companies with new opportunities to compete and grow in the future. This is the path Accenture has taken to drive growth. This strategy is higher risk and involves actively cannibalizing a provider’s existing arbitrage business. Further, it doesn’t allow returning cash to shareholders, as providers need to invest in digital transformation including aggressive mergers/acquisitions to quickly gain digital talent and business.

Cognizant initially chose the second path. But in December 2016, Elliot sent a letter to Cognizant’s board stating the company should be managed differently to achieve a higher stock price. It also stated the firm should return some of its cash to its shareholders by buying back stock. Its opinion was, and is, that the firm has a strong enough balance sheet to undertake both growth strategies but that it needs to increase its margins.

Therein lies the dilemma: there is a tradeoff between margins and growth. The inconvenient truth is digital is less profitable right now, so a digital-first strategy means giving up profitability.

Cognizant’s management agreed to change its position to come into conformance with Elliot’s open letter to its shareholders, agreeing to a substantial return of cash to shareholders and committing to improving its margins. Cognizant is well positioned to execute on both these commitments; however, it is also clear that these commitments add difficulty to executing a digital-first strategy.

The commitment to improve margins is particularly risky at a time when the market is facing increasing competitive intensity resulting in downward pressure on margins. Cognizant’s plans to increase profit margins and drive stock valuations up by emphasizing its arbitrage business will inevitably deemphasize a digital-first strategy, which requires a willingness to trade margins for digital growth.

Nearly Half of All Sourcing Investments Leave Enterprises Unsatisfied | Press Release

By | Press Releases, Uncategorized

But in performance rankings, TCS, Cognizant, HCL, Accenture and L&T Infotech are honored for creating best ‘overall experience’ for clients

Despite large-scale investments by service providers, 48 percent of enterprises surveyed by Everest Group are not satisfied with their service provider’s performance. In particular, service providers are performing poorly as “strategic partners” for enterprises and score an average rating of five on a scale of one to ten.

There are also significant gaps in enterprises’ expectations and service providers’ performance with respect to innovation, creative engagement models and day-to-day project management.

“Most service providers are perceived to be technically competent, but technical expertise and domain expertise are considered ‘table stakes’ by enterprises across industries,” said Chirajeet Sengupta, partner at Everest Group.  “Enterprises now expect their service providers to move beyond day-to-day delivery and focus on larger strategic business issues. Unfortunately, service providers still have a long way to go to meaningfully engage clients and become strategic partners, and that is a significant concern for the industry. This research signals the wake-up call and offers service providers guidance on how to strategize their engagement approach and prioritize investments to meet mounting customer expectations.”

In general, enterprises believe that mid- and small-sized service providers bring considerably more innovation and engagement flexibility than their larger counterparts. In fact, enterprises believe some large service providers have become lethargic and complacent and are indifferent to client requirements.

In contrast to these sentiments, five predominantly large service providers received the honor of creating the best “overall experience” for clients, based on client commentary and weighted aggregate ratings given by interviewed enterprises on key assessment dimensions.

  • Accenture: Accenture is perceived to bring market-leading domain expertise to solve complex problems and drive business outcomes.
  • Cognizant: Clients appreciate Cognizant’s approach to becoming their strategic partner as well as its flexibility in commercial constructs.
  • HCL: HCL is perceived to be extremely flexible in commercial models and strong in retaining key talent in its client accounts.
  • L&T Infotech: L&T Infotech is perceived to provide strong commercial flexibility as well as domain competence in the specific industries it operates in.
  • Tata Consultancy Services: Enterprises appreciate TCS’s technical capabilities and initiatives to drive strategic partnership with clients.

These results and other findings are explored in a recently published Everest Group report: “Customer (Dis)Satisfaction: Why Are Enterprises Unhappy with Their Service Providers?” The research summarizes over 130 interviews conducted with enterprises across the globe regarding the capabilities of their service providers with respect to applications, digital, cloud and infrastructure services. The report also details the technology investment priorities of enterprises and opportunity areas for service providers.

***Download Complimentary High-Resolution Graphics***

Key takeaways from the research findings are summarized in a set of high-resolution graphics available for complimentary download here. The graphics may be included in news coverage, with attribution to Everest Group.

The graphics include:

  • (I Can’t Get No) Satisfaction: Nearly half of all enterprises are dissatisfied with their IT service providers
  • Enterprises’ technology investment priorities largely focused on innovation
  • IT service delivery: performance versus value
  • Size matters in selecting an IT services provider
  • The top 5 IT services providers