'Cognizant on a good strategic path, will continue to invest in it'

Cognizant reported a dream quarter on Tuesday evening. In the three months to September, the company led the top-tier IT services pack with a growth of 6.7 per cent sequentially and beat Tata Consultancy Services (TCS) in North America - Indian IT's bread and butter geography. While TCS had revenues of $1,775 million from the geography in the September quarter, Cognizant pulled in revenues of $1,783 million. Malcolm Frank, Executive Vice President of Strategy at Cognizant, spoke to Business Today on what is working for India's second largest IT exporter.

Q. Do you see the current momentum continuing?

A. The overall demand environment looks quite healthy. I say that through several lenses. One is in terms of the technology shifts, the move to the SMAC (Social, Mobile, Analytics and Cloud) stack. We think it is certainly going to continue. There is renewed health in the outsourcing market overall. We see good demand across geographies in Europe, North America and also in AsiaPacific. At least from what we see now, things look relatively stable and quite good.

Q. Would it be fair to assume that most of the demand today is SMAC-led?

A. Certainly, a lot of it. I wouldn't say at this point, most. If you look at our results and anecdotally in the marketplace, it is growing very quickly and is continuing to build momentum although I am not sure yet if it is showing up as majority of the volume. But when you look at what's important for the client, SMAC initiatives are becoming very important.

Q. There was a comment about the return of discretionary spending. Surely, your peer group said that too. What kind of spending is back there? Is there a huge momentum in the consulting and package implementation business?

A. That is clearly SMAC-led. We are seeing SMAC as the driver for discretionary spend. And this is happening at three levels. One level is the technology basis. How can I move certain assets to the cloud or as-a-service business model? How do I mobile enable my application infrastructure? How do I consolidate around big data and analytics? So there will be a technology driver for discretionary spend. Then there will be business solution, meaning how do I interact with my customer in new ways with these technologies? How can I manage my operations in a new way? How can I manage my supply-chain differently? So we are seeing SMAC technologies being applied to certain business process areas. Then there is the third, which is driving the consulting business. Clients are thinking about how they can innovate their business model or innovate the core processes based on these technologies. The IT function itself is starting to re-think their capabilities, their budgets, their priorities based on the technology shift. That is driving consulting revenues as well. So discretionary spending is in three areas - technology, business solutions and management consulting.

Q. What could we expect from Cognizant from a strategy perspective going ahead?

A. At this point, it is more of the same. We are on a good strategic path. We will continue to invest and execute behind that. It is our view of the future of work where business models and technology models are shifting. We will have to help clients drive new levels of efficiency in core operations and also help them innovate on top of that platform. If you view it through that lens, you are going to see many of our strategic moves continuing against that dual mandate.

Q. You are now the leaders in North America. Is there a specific strategy for Europe? Are acquisitions the way forward in continental Europe or Scandinavia?

A. We have followed a strategy in Europe that has served us well. We have seen good growth there in the past five-six years and anticipate growth to continue. We have gone country by country. We feel quite good about where we are in the United Kingdom. Switzerland has been an area of focus for us for years and we have market leadership there. Same is true of Benelux. We had good growth in Scandinavia recently as well. We are now concentrating on Germany and France. In Germany, we acquired the C1 Group companies and similarly, recently, we acquired Equinox Consulting in the French market. I think you are going to see us continuing to focus on these countries, keeping our momentum in Switzerland, Benelux, the U.K. and then pushing quite hard in Scandinavia, Germany and France.

Q. There is still a divergence in growth between TCS-Cognizant and rest of the Indian peers. Why is that happening? Everybody has a SMAC strategy and they all went into it at the same time.

A. I have seen this for the last three decades in our industry. Services companies are run by smart people. We are all in the market, we are all talking to clients and vendors and spend time in the Silicon Valley. So we all see the same trend, but in our industry, the issue is what do you do about that. Do you have a business model where you can turn that into market solutions for your clients to deal with some of the changes those technologies bring, not only to the client but to our own operating model. That is specifically why we moved to a three horizon strategy. [('Horizon 3' comprises newer technology architectures (SMAC), newer markets and industries (such as public sector business and Latin America as a market), and newer delivery models (utility or non-linear models such as Cognizant BusinessCloud)] We felt that SMAC was important in the marketplace. But we have a different operating rhythm, enterprise applications for example - different methodologies, different price points, different delivery models. So to try to get somebody who is running a scale business in enterprise applications to then get them to do that with some SMAC approaches, you start to get into the Innovator's Dilemma. At least for us, the three horizon model helped us through that. We can continue to deliver on more traditional outsourcing and yet bring that innovation to the marketplace. That has been our construct - seeing this opportunity but then truly operationalising that with scale.