The secret behind Cognizant's AMAZING success

A glimpse into what Cognizant Technology Solutions was up to at the dawn of the last severe global recession in 2007 will give you a good sense of why this company has outstripped Wipro in terms of revenues this last quarter.

Back then, the spectre of the recession began forcing technology services companies to resort to severe austerity measures including freezing of recruitments, wide-scale layoffs and salary cuts.

Cognizant, however, in an inspired moment of counter-intuitive thinking was doing something different.

"One of the key decisions we took when we entered the downturn was to attract exceptional people from the market who were otherwise not available during buoyant times," says Francisco D'Souza, President and CEO, Cognizant.

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"While we continued to be active in campuses, we were quite aggressive in the lateral market (hiring of experienced professionals) as well.

"During this period, we also further strengthened our relationship management with customers by adding significantly to our team of Client Partners and Account Managers," he adds.

The recession turned out to be an unusual event for companies globally.

Sure, hunkering down and paring costs to bare minimum was of paramount importance.

For some though, it was also an opportunity, to re-align and re-invent themselves.

Cognizant was fortunate to have clients who realised this.

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"Many of our clients realised that their businesses and supporting technology environments had to be rethought and changed dramatically in order to navigate through this period," said D'Souza, president and CEO, Cognizant.

Soon, in this brave new world, clients increasingly began looking for partners who could bring deep vertical, consulting and business knowledge other than just technical knowhow of the project.

Consequently, the more nimble-thinking companies began looking for better ways to organise teams, cultivate innovation, allocate resources and reinvent knowledge process.

Cognizant was one of them.

In a move to further strengthen its account management, Cognizant enhanced its 'Two-in-a-Box' client engagement model which necessitate that two people - one onsite and another offshore - are jointly responsible for the account at every level of client management.

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Despite the recessionary market, Cognizant stayed invested in enlarging the circle of its offerings, expanding geographic footprint and strengthening its domain competence to harness the best of the opportunities at that time.

In some ways, Cognizant was perfectly placed to weather economic seas and come out ahead if you consider its origins.

This was a company that never openly claimed to be a high margin player in the IT services space.

It started out as the captive IT arm of Dun & Bradstreet, and then grew independent wings in 1994 when there were a number of established players in the IT outsourcing arena.

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The company realised that it had to lock horns with two sets of competitors - global heavyweights like IBM and Accenture as well as Indian firms like TCS, Infosys and Wipro.

Therefore, it quickly decided to carve out its own identity that straddled the "best of both worlds".

The firm brought in the deep domain and consulting capabilities of its western competitors and the high quality but low cost model of the Indian ones and tried offering these with a margin that clients did not consider too high.

Consequently, in the last 12-13 years since it went public, there is not a single year where the company has not posted 19-20 per cent operating margins, and has always managed to reinvest a chunk of its profits in expanding the business.

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"What we said to our shareholders is that in return for that privilege of having a lower margin, our goal and our commitment is to grow faster on an organic basis than our peers in the market," says D'Souza.

"The reinvestment strategy has worked consistently and delivered results. Throughout one of the most difficult phases in the history of global economy, we have grown substantially faster than others," he adds.

Cognizant gets its business from four industry clusters - financial services, healthcare, manufacturing and retail, and communications, media and entertainment and tries to be a leader in every vertical that it enters.

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In healthcare, for instance, Cognizant provides solutions to 27 of the top 30 pharmaceutical companies; nine out of the top 10 biotech companies; nine out of the top 10 US health plans and 12 of the top 20 medical devices companies.

The US continues to dominate its client base with a 77.8 per cent revenue share while the contribution of Europe is less than 20 per cent but growing faster.

Most importantly, Cognizant derives more than 95 per cent of its revenues from existing customers which reaffirms the company's commitment for long-term partnerships.

"In every decision we make, the one question we always ask is, 'Is this in the best interest of our clients?'

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All strategic decisions we have taken to date - reinvestment philosophy, high-touch relationship structure, early verticalisation of our business, and focus on limited industries and geographies -were all a result of asking this one question, says R Chandrasekaran, president and MD, Global Delivery, Cognizant.

Another big reason for Cognizant's capacity to win businesses: It's ability to empower senior executives with the freedom of acting like entrepreneurs by allowing them to take charge of a part of the firm's business to sustain its customer-centric model.

This helps in ideation and execution.

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"One of the key hallmarks of our organisation is its open environment. It means having easy access to people. But more importantly, it also means having easy access to knowledge and expertise, and the freedom of doing things that one feels are right, in accordance with the organisation's business interest and aligned with the overall growth of the company," said Chandrasekaran.

Sometimes, you don't even have to do much to keep pace or outstrip your rivals. They do a lot of the work for you.

"Cognizant becoming number three has more to do with their other two Indian competitors who were busy with their internal reorganisation," said Sudin Apte, principal analyst and CEO of advisory firm Offshore Insights.

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In fact, the top leadership at Cognizant has remained stable since its inception.

All the four key people - Kumar Mahadeva, Lakshmi Narayanan, Francisco D'Souza and R Chandrasekaran - helped the company grow.

Mahadeva left the company as the chairman and CEO in 2003 after leading it in its early phase of growth.

He handed over the baton to Lakshmi Narayanan who was the president at the time.

Narayanan continued in the hot seat till 2007 when the company was still on a strong growth path.

Then, the CEO post was handed over to D'Souza. (Narayanan is still with the company as vice-chairman.)

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All in all, smooth transitions and clear paths to succession which help keep a company focused on its priorities.

This is not to say that there haven't been chinks in Cognizant's armour.

If Cognizant hopes to stay abreast of Wirpo and perhaps even try and catch up with Infosys, it needs to improve its BPO capabilities, where it lags its competitors.

Cognizant has augmented the practice with two key acquisitions - UBS' BPO unit in India in 2009 and the recent acquisition of CoreLogic India operations.

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BPO contributes about 5-6 per cent of its overall revenues.

The company however says that much of its BPO capabilities were acquired in an organic way as it wanted to focus on high-end BPO and transaction processing.

Despite all the hoopla surrounding Cognizant by passing Wipro in the last quarter revenue figures, the company claims that it is not in race with other Indian IT services providers to be number one.

"Our goal is simple. We want to be the Number 1 in the minds of all our clients and employees," said Chandrasekaran.

If it continues to perform the way it has, it may just become number one, period.