Non-linearity is important, but it will not happen overnight

—R Chandrasekaran

Executive Vice Chairman, Cognizant India

With the emergence of the new style of IT as some vendors call it, the IT outsourcing space is in the cusp. It’s today very difficult for IT services providers to differentiate with one another—given that how are they aligning their competencies in order to address the new normal economy IT demands (eg, SMAC ). Today enterprise IT decision makers need and demand clear tangible (RoI) deliverables from IT service providers as they are told by the top management to closely align IT with business. Given this backdrop how are service providers taking on to the changed market dynamics? Here R Chandrasekaran, Executive Vice Chairman, Cognizant India in an exclusive interveiw to Dataquest provdies the state of outsourcing now and what has changed. Excerpts.

How Cognizant looks at the market right now—what has changed?

With secular shifts in the economy, business and technology enterprises are re-examining how they operate, moving from merely incremental levels of performance efficiency to building new digital business capabilities. We are seeing a significant technology shift and a business model change, driven by the ongoing volatility in major economies and the advent of new digital technologies. The only way for businesses to adapt in this new era is to simultaneously improve efficiency and scale with existing systems, while driving business innovation through newer SMAC (social, mobile, analytics, cloud) and sensor technologies.

Clearly, traditional outsourcing models have passed their prime—do you agree?

Well beyond cost-containment and efficiency, the C-Suite agenda today involves addressing the dual mandate of driving efficiency while focusing on innovation from one global platform.

Take healthcare, for example. Healthcare, especially in the US, is seeing significant disruption on account of regulatory reforms, aging populations, new technologies, greater need for transparency, and increasing price competition. As a result, healthcare clients are increasingly demanding end-to-end solutions that help them drive efficient operations, while investing for future growth to deal with the challenges faced by healthcare industry today. We see the effects of the dual mandate playing across industries and geographies.

Do you think bringing in more non-linearity is the answer for innovative services?

While non-linearity is important, it will not happen overnight. The trend is growing. Clients are increasingly looking to engage with a service provider who can demonstrate value. Many are evincing growing interest in pricing models that go beyond input-based pricing so as to align price with what is really important to the core business. Client interest in outcome-based sourcing models is based on having real evidence that the service provider can deliver the services and value. In essence, it is more about building a demonstrable foundation of excellence.

Newer delivery models like platform-based, business outcome-driven, and IP-leveraged solutions are also driving this trend. Platform-based solutions reduce clients’ capital exposure to IT assets and the costly associated maintenance in exchange for variable outcome-based pricing. We see progress in platform-based services that break linearity between revenue and headcount. In our new technologies area, clients are accelerating towards new business and operating models, leveraging SMAC infrastructure and applications.

How are you aligning your competencies in line with changed market conditions?

We introduced the three horizon model a few years ago to manage reinvestment in our services portfolio. Horizon 3 is a class of emerging offerings in three areas—new markets, new delivery models, and new technologies—what we call the Emerging Business Accelerators (EBA). A critical goal of new delivery models, which form a key focus area of EBA, is to break the linearity between revenue growth and headcount growth, or, in other words, to drive non-linear revenues. We are doing this with solutions that address the changing dynamics in our clients’ industries. To that end, our portfolio of Cognizant BusinessCloud Solutions enables clients to quickly deploy a range of on-demand business and IT solutions without the larger capital outlays and longer implementation timelines that are sometimes associated with traditional on-premise solutions.

The portfolio includes offerings that leverage two models: One is Software-as-a-Service delivery model (SaaS), which centrally hosts software and associated data on the cloud, and the other is Business Process-as-a-Service (BPaaS), which integrates a SaaS platform together with people and process capabilities to deliver an end-to-end business or technology outcome for a client. Our investment in BusinessCloud addresses the increasing client demand for business models that deliver outcomes with a cost mix that is increasingly variable rather than fixed. We have successfully deployed our 18 SaaS/BPaaS platforms under Cognizant BusinessCloud Solutions at well over 150 clients.

On the Capablities

We continue to invest aggressively to strengthen our capabilities in this area, as underscored by some of our recent acquisitions. For example, our definitive agreement to acquire Trizetto helps us bring together TriZetto’s world-class products with Cognizant’s consulting, IT and business process services, and brings new markets, new technologies and new delivery models to our portfolio. It moves us very significantly in the direction of adding non-linear, IP-based revenue.

In October 2014, we acquired Cadient Group, a full-service digital marketing agency that serves a broad spectrum of life sciences companies in the pharmaceutical, biotechnology, consumer health, and medical device industries. In addition to Cadient’s digital specialists with expertise across brand strategy and planning, content development, user-centered design, multi-channel analytics, and digital, social and mobile marketing, Cognizant also acquired intellectual property including Reveal, an insights and analytics platform; Immerse, an experiential marketing platform; and OneVoice, an advocacy campaign management platform.

Our latest Odecee acquisition expands Cognizant’s digital business transformation expertise, portfolio of tools and services, and digital consulting and delivery capabilities to help clients across industries create digital enterprises. As part of this deal, Cognizant has acquired Odecee’s local capabilities and insights, strategic business relationships, and intellectual property such as Velocedee, a platform that enables rapid implementation of core business processes across a wide range of mobile devices.