Cognizant shines in Indian IT sector

Positioning in the market benefits group

Francisco D’Souza, the chief executive of Cognizant Technology Solutions, exudes confidence at a time of heightened global uncertainty and as most Indian information technology companies are underperforming expectations.

The 42-year-old is not one for bragging, but is fully aware that the group he helped found is considered IT’s rising star by most sector analysts.

The Nasdaq-listed group, headquartered in the US but which operates predominantly from India, saw revenue grow 40 per cent in 2010 and expects 32 per cent growth in sales this year to $6.06bn. That compares with 2011-12 growth estimates for the entire sector of about 15 per cent, according to Nasscom, the body representing the $70bn-plus Indian IT industry.

In the last quarter, Cognizant, which was spun off from US business intelligence group Dun & Bradstreet in 1996, overtook Wipro to become India’s third-largest software exporter by sales. Industry experts expect the fast-growing group to eventually surpass number two Infosys and challenge the dominance of Tata Consultancy Services, the sector’s top player with revenues of about $8bn.

Mr D’Souza tells the Financial Times that the secret to the company’s success has been its positioning in the IT market as partly low-cost Indian IT outsourcer and partly high-end western consultancy.

“Clients had two views of the market,” says Mr D’Souza. “[They] viewed Indian companies on one side as being very good for low-end mechanical work, and they viewed [consultancy] companies as having higher-end skills: deeper industry knowledge, better onsite project management and the ability to drive change.”

Cognizant tried to position themselves in the middle to differentiate their offering, he says.

TCS, Infosys and Wipro are facing stiff competition from companies such as Accenture, IBM and Capgemini and are battling above-inflation increases in wages that could eventually erode their cost benefits. Jitters in developed markets – where most of the IT companies’ clients are based – also remain a matter of concern.

To keep growing, Cognizant came up with its own “secret sauce”, as Mr D’Souza puts it. The group has focused on investing more than its peers on innovation – resulting in generating lower margins – and deepening its relationships with existing clients.

“We made a decision to set operating margins at a target level of 19 to 20 per cent, lower than our key offshore competitors, to give us the room to reinvest everything above that into the business,” says Mr D’Souza.

Its other strength has been that about 90 per cent of its annual growth comes from existing clients.

Cognizant began offering simple back-office services. Today it spends most of its money on developing high-end IT services, as well as working closely with its clients to build a presence on social networks.

Analysts say its success comes from its focus on developing ideas to help companies boost revenues rather than on cutting costs.

“Cognizant prepared better to grow faster in the pack,” says Sudin Apte, principal IT analyst at Offshore Insights. “The company [also] took a bold step and increased its spend in a tough economy on activities such as R&D and innovation, account management, building new offerings and solutions, and continued recruiting at senior and middle management level when arguably many others cut their budgets.”

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