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