19 COGNIZANT TECHNOLOGY SOLUTIONS: E-Apps Transition

The

scorching pace that Cognizant had set in 1998-99 by notching up a 156% growth in

turnover could not be sustained. The last fiscal saw the company growing by only

43% to touch Rs 414 crore as compared to Rs 290 crore the previous year. The

transformation from an applications development, maintenance and Y2K solutions

company into an e-services application management company had a lot to do with

the slow growth. The company had to reposition, retrain and redeploy a large

section of its employees into the e-world. It focused on working with dotcoms

and ‘dot corps,’ and on making a successful transition into the web world.

The

other area of focus was to ‘verticalize’ the company’s offerings in the

applications management area, to create domain-specific skills and to build

relationships that would lead to higher value additions and long-term

partnerships with customers.

Cognizant set a target of bringing down

its Y2K revenue from 36% in 1998-99 to below 10% in 1999-00 and succeeded in

this endeavor,

with Y2K-related projects contributing

only 9.5%. On the other hand, the reduced revenues from this segment were to a

certain extent set off by the revenues that it garnered on the ecommerce front,

which raked in 7%. However, application management services in the healthcare

and financial services domains contributed the most to its kitty, with 80% of

the revenue coming from that segment.

The operating margin of the company,

though showed a marginal increase of 19% in the last fiscal as compared to 17%

in the previous fiscal, was low as compared to its counterparts in the software

industry.

The investments that the company made

in sales and marketing was one of the main reasons for the low operating margin.

However, the gross margin of 48% was close to the industry standard. The net

profit of the company also went up by 52%, touching Rs 52 crore as compared to

Rs 34 crore in 1998-99.

Cognizant followed a strategy of

transforming its services into e-services. Towards this end, the company

undertook massive training and re-orientation programs. Another initiative was

to maintain a sustainable and balanced growth with a long-term focus. And the

company was successful to a large extent in doing so.

The future strategy is to continue

expanding its e-services business, and verticalize its e-services offering, so

as to bring domain expertise to ‘dotcorps.’ Interestingly, if we look at the

segment-wise break-up, 53% of the revenues came from the telecom segment, while

banking and finance, which have been its traditional base, contributed 30%.

Services in hospitality, entertainment, health, courier and insurance, among

others, contributed 16%.

If we look at the revenue mix of the

company, about 61% of its export revenue came from onsite development and the

rest from offshore activities. The US continued to be the favorite destination

with 81% of the revenue coming from that region, with Europe, Japan and

Asia-Pacific making up the rest. However, Cognizant was not able to make much

impact in the European region this year, from where it had earned 15% of its

revenue in 1998-99.

It will be interesting to watch how this company

manages the transition to an e-services application management company. Industry

ratings show that Cognizant has been doing well on that front in the US, but how

its Indian operation proceeds to speed up the transformation from a development

and maintenance major to a dynamic player on the e-front amidst rising

competition is another matter. DQ