What helped CTS to clock better growth rate compared to its India-based peers?

Thomas George

Cognizant(CTS) revised its guidance for the second time and that looks to me as a sign of confidence despite of losing USD 100M business from Health net.

The company's Q2 2015 results is more noteworthy as its peers listed in India are still grappling to get back their normal growth rates. There seems to be a caution and worry among the Indian IT services industry in terms of future growth rate which is going to be in single digit mostly along with some downside risks over the next couple of years.

The second quarter performance places CTS right on top in terms of QoQ revenue growth of 6 percent compared to its tier-1 peer in India, Infosys, which has recorded a growth rate of 4.4 percent. It grew 22 percent in revenue YoY and 13 percent in net profit compared to the same quarter in 2014.

Consulting business grew by 8 percent, where are outsourcing could clock only 3 percent growth in the quarter, which confirms the fact that it was more a share gain rather than an effect of increasing spend on offshore IT Service demand and it maintained a ratio of 53:47 between consulting and outsourcing business. While, management highlighted that outsourcing will continue to grow at a decent in some of the under-served geographies such as Continental Europe and under-penetrated service lines such as IMS and BPS.

They also had very low exposure to industry verticals like telecom and energy compared to its peers and traditional services.

Five trump cards of Cognizant:

CTS gained from vendor consolidation exercise, as it rode on its “know how” of addressing digital technologies opportunities with more suitable consulting framework, where many of its Indian peers are yet to scale out of their build-up stage.

The good results can be attributed to its well thought out and early investments in their

Consulting capabilities - Consulting is deeply integrated with its technology capability and business process services and helps them to deliver IT, business and digital strategy, operational improvement and process redesign.

Building stronger digital capabilities - Investment in new capabilities to drive ‘digital transformation at scale’. Their integrated digital approach in combining design, strategy, technology and industry expertise coupled with physical space for co-innovation today makes it stand out from its peers. In Digital, Cognizant indicated three key elements which probably helped it win business. It has created ‘Digital works’ laboratories where:

-It works with clients to create framework to imagine the digital future of a business process or a customer experience;

-It works with clients to bind designers, strategists, and technologists to visualize, plan, and prototype new digital initiatives;

-It works towards scaling up digital initiatives by re-architecting legacy environments, connecting new solutions to existing systems.

Sales and Marketing - The company kept its sales and marketing expenses flat at 20 percent, which has been pretty consistent for last 60 quarters.

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Enhancement of industry capabilities and platforms by acquisitions - Extending portfolio of platform-based solutions and industry utilities that help improve efficiency and help deploy digital technologies more quickly. Sustained focus on their healthcare and life science vertical proved right and boosted their revenue from it.

Reworking delivery model - Reworking on newer delivery models like shared services and industry utilities to achieve even better operational efficiency in their traditional services.

They are also exploring ways to simplify and automate their clients’ core processes, IT infrastructure and IT applications as all other IT Services players are doing today.

While CTS might look to garner more market share at its peers' expense, we got to see how the other players will protect their share in the slow growth market and simultaneously build capabilities to convert the new digital opportunities.

With the right direction and core capabilities and required resources in its hand, CTS can be interpreted as 'Cognizant Tuned to Succeed' for the next two years.