How has your time with Cognizant been so far?
In the last three years or so it has been a fascinating time for Cognizant, and the economy and our clients. The reasons are the same for both us and our clients. There have been some fundamental shifts and the magnitude is so high you don't often see the history. We talk about the credit crisis and the fall of Lehman. There is certainly a big part of the story in the environment, but perhaps the less written story in the past three years is that we saw a tremendous change in the dynamics. Each of the industries we serve has in the past three years gone through profound changes which have nothing to do with the economy. These are secular changes driven by the four big forces; the four big forces that we at Cognizant have started to call the 'forces of the future of work', which will define how work is being done in the future… In 2007 when we saw that the economy was soft, we recognised that there was a tremendous opportunity to use the economic downturn to emerge as a stronger company as we come out of it. So we decided to continue to invest very-very heavily in the business.
Which are the areas where you thought it was important to invest for the long run?
In some senses we have to look at our opportunities in three groups. At Cognizant we have our traditional business which has done well and those are businesses we invested in extensively. And we thought of taking it to new areas, so we really focused on expanding our geographic footprint for our core services, because core services like app maintenance, development and testing are remarkably under-penetrated when you look around the world. We moved to continental Europe and then to building markets in the Middle East and Egypt. The second was a set of new services which we have been investing in for some time and which needed some push to reach critical mass. They were the BPO business where we did a few acquisitions, the IT infrastructure business, and the third, which I think is extremely significant, is the management consulting business which has been a tremendous success story for us.
Is there a something different about way you interact with clients?
First of all because we are in this period of dramatic change, clients are looking for a trusted advisor. They want somebody to come and sit at the table and work as a thought leader, to say how do these technologies, demographics impact my business. This is why our consulting team is so important. We have built our consulting team over the years. We have a team of 2,800 management consultants, who come from a consulting background who have MBA-type degrees. These are the folks sitting with our clients day to day and understanding what are the problems the clients are facing. Ten years ago we were very good technologists. Today there is a tremendous amount of effort to understand what the business problem is.
What differentiators do you bring to the table for the clients?
Top of the list is industry knowledge. Domain knowledge is not static, you have to drive towards increasingly deeper domain knowledge. It is not just something about someone who understands how banks work. We have people who are experts in how clients' businesses operate… The second differentiator is the discipline we have in our organisation of focus and customer centricity. This is important because we have taken the focus of doing a small number of things and doing them very well. I am often asked and sometimes criticised about the footprint of Cognizant. People will say, 'hey, you tend to serve small industries, you tend to have a smaller geographical footprint than your peers'. I understand the risk of that from a 50,000-feet perspective, but those are conscious choices. In our business we believe that we live and die by our reputation. Every client experience has to be an experience of delight.
Your EBITDA is somewhere between the Indian IT players and the multinationals. Is this pricing the new normal?
Pricing levels across our industry have been largely similar over time if you look at firms. There will be some under-lier who will under price. The difference in EBITDA shows because of the difference in the investment philosophy. There are two types of companies really. There are companies like ours which are maximising growth and there are companies which are maximising margins. From the time we went public, we told our investors we viewed the opportunity to do business at low EBITDA as a privilege. I think that is the privilege that the investor gives us and in return for that privilege what we deliver back to investors is faster growth than the peer set. The kind of investor that we attract is a growth-oriented investor. Since the pricing is the same, anything above the EBITDA translates into a greater ability to invest. It is purely a strategy that says we are maximising growth.
How much of your total revenues are influenced by your consultancy practice?
The indirect part is very hard to measure. Our 2,800 consultants broadly represent four to five per cent of our revenues. So you have got a significant contribution to our revenues, given that five years ago the contribution was fairly negligible. But that five per cent is a small part of the impact, which is the direct impact they are having. When you take that it is a fairly good case, that for every dollar that our consultants make they are probably influencing five to 10 dollars of additional revenues. We have got reasonable cases to show that.
What do you club under consulting?
It is really easy to call everything consulting. People do SAP implementation and call it consulting. We only look at management consulting. The profiles of the consultants are MBAs and what they are doing is business, technology or operation strategy work. Beyond that we take everything as implementation. Among the 2,800 consultants you will see nobody who is a technologist. The guy who came to run our consulting business is from AT Kearney. We are focused to keep that as a management consulting organisation.
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