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We are In the midst of a Once-In-A-Decade shift in the Technology Landscape

R. Chandrasekaran, Executive Vice Chairman, Cognizant India in an in depth exclusive interview to DATAQUEST talks about the state of outsourcing right now, the market forces and Cognizant’s play in this space.

What are some of the leading trends you observed in IT Outsourcing in 2014? How have these trends impacted Cognizant’s strategy?

We are in the midst of a once-in-a-decade shift in the technology landscape. More than ever, clients are grappling with the dual mandate to drive not just better efficiencies, but also greater innovation for the needs of tomorrow. In doing so, clients are reconsidering how they manage their traditional investments in technology and business processes.

On one side of the dual mandate, the shift towards digital is front and center for clients. On the other side of the dual mandate, clients continue to drive down costs in their core operations. Within client budgets, we are seeing accelerated focus on addressing the dual mandate by driving operational efficiency and using the dollars thus freed to fund digital transformation and innovation.

Clients are adopting our traditional service offerings more broadly and driving demand for integrated, multi service deals—solutions that typically include a combination of consulting, IT services, BPS, and infrastructure services—while also exploring new frontiers of cost and operating efficiency through new as-a-service utility or platform-based models, which help them create variable cost structures, enhance efficiency, and drive agility and time-to-market.

We had seen this coming many years ago and embedded in the company a systematic capability, in the form of our three-horizon model, to manage reinvestment in our services portfolio by rapidly identifying changing market demands and capitalizing on them.

Increasingly, traditional GDM offering plain vanilla ADM services is fading out. How are companies like Cognizant innovating to the new normal?

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. 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 technologies.

As a result of our three horizon model, we now have a solid, comprehensive portfolio of services for the current needs of our clients as well as a robust mechanism to ensure that we have the organizational agility to make the right investments to remain relevant to clients going forward.

For example, our Horizon 3 class of emerging offerings is focused on new markets, new delivery models, and new technologies. A critical goal of new delivery models 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 and are enabling 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. Our investment in these solutions addresses the increasing client demand for business models that deliver outcomes with a cost mix that is increasingly variable rather than fixed.

On the digital front, our differentiated approach that we call Digital Works has seen great traction. Having worked with clients on hundreds of digital projects, it’s very clear to us that winning in the new digital era requires a new engagement model. Clients need a partner who can bring new capabilities in design, data science and digital technology in addition to a deep understanding of their business, operating model and technology landscape. Clients recognize that they often do not have in-house capabilities in all these areas and are looking to deepen relationships with partners such as Cognizant who have invested for the digital landscape.

On the European market?

Our European operations continue to record strong growth, when viewed from a local currency perspective. We expect solid growth in Europe, especially the Continent, over the coming years, as we increasingly benefit from the structural shift toward larger, multi-year outsourcing programs that are driving expanded opportunities.

Europe remains an attractive long-term market for us. We continue to focus on building local teams on the ground across key markets in Europe to address the specific needs of European clients. We are also systematically ensuring that we have the capability to deliver the full range of Cognizant service offerings in discrete European markets to meet client demand.

The overall European IT services market is roughly the same size as the North American IT services market, yet the penetration of the global-delivery model in Europe is currently a fraction of that in North America. As such, we believe Europe merits our continued focus and investment.

Vertical wise outlook- if you look at ones like BFSI- do you see continued momentum?

In the March 2015 quarter, our Banking and Financial Services segment grew 3.6% sequentially and 13.4% year-over-year, driven primarily by continued strong growth in our insurance practice. Within banking, clients remain focused on cost optimization and vendor consolidation, regulatory compliance, and cyber security. In addition, there is an increased focus on newer technologies in digital and automation, particularly in areas to improve customer experience and drive digital customer self-service.

For example, for a leading bank in the U.S., we are helping build the branch of the future, by providing a seamless multichannel integration and in-lobby digital applications, so it can provide customers with a compelling, real-time personalized experience.

During the March quarter, our Healthcare segment, which consists primarily of our payer, pharmaceutical, biotech, and medical device clients, grew 13.8% sequentially and 42.7% year-over-year, including the impact of TriZetto. Our payer clients continue to take a cautious approach to spending. Cost optimization is still a key driver, while clients are also looking to leverage analytics to drive profitability and improve customer retention. The payer sector is undergoing fundamental changes, driven by a changing regulatory environment, increasing focus on medical costs, and the consumerization of healthcare. We believe these changes create longer-term opportunities that we are well positioned to capture.

The integration of TriZetto is on track and our combined offerings are clearly resonating with clients. We have moved aggressively to increase staffing. We have added 500 consultants, who are either already deployed—or trained and ready to deploy—to assist in driving revenue synergies. In addition, we have added 300 people in our global delivery centers to accelerate product development on TriZetto platforms. This action is already paying off. In the first quarter alone, we were selected for synergy deals with a total contract value of $200 million, with a number of additional deals in our pipeline. We are in active discussions with a number of payers about integrated solutions, leveraging TriZetto platforms and our services capabilities. We are well on our way to generating the $1.5 billion of revenue synergies that we spoke about at time of acquisition.

In other verticals like Retail and Manufacturing, Pharma and Media and Entertainment also we saw good tarction in 2014.

Most services cos have good deal of vertical dependence—like 1 or 2 verticals contributing for bulk of revenues—Cognizant how are you de-risking yourself here?

Our addressable market of IT Services and BPO is large, worth over $1 trillion, growing and highly fragmented. A large, fragmented market creates significant opportunity for us to take share. Additionally, we are going through a once-in-a-decade shift in technology, which is providing more opportunity.

We are confident in our reinvestment strategy and our ability to produce sustained industry-leading growth over the long-term. We continue to invest significantly to build out capabilities, service mix, geographies, allowing us to stay relevant to our clients. These ongoing investments position us well to meet our clients’ dual mandate to meet the secular challenges that they face today.

What are your priorities for the ongoing year?

For the full year 2015, we expect to deliver at least $12.24 billion of revenue, which represents full year growth of at least 19.3%. This guidance reflects strong revenue growth in our underlying business.

We are witnessing a once-in-a-decade shift, driven by digital technologies that are putting industries and businesses at a crossroads. Further, innovation cycles have compressed dramatically. On the one hand, we have to help our clients conserve capital by providing efficiencies and productivity, while also helping them build variable cost structures so they are better able to match their costs with revenues and demand. On the other hand, we have to help them re-invent and re-imagine their businesses and build the skills and capabilities required to make digital come alive. Clients need a partner who has the ability to integrate and execute end-to-end transformations driving both efficiency and innovation.

In continuing to further strengthen our capabilities and value proposition to help our clients on both sides of the dual mandate, we are focusing on quite a few areas.

The first thing we are working on is driving best-in-class delivery across all of our service lines. We are continually improving each our services to bring capital and operating efficiencies to our clients. We have a relentless focus on bringing in tools and techniques to measure and improve delivery across the lifecycle so clients can benefit from best-in-class operations. And we continue to drive efficiencies by investing in our delivery network, tapping new sources of talent, and also driving process automation by applying advanced technologies across our lines of service.

The second area in which we are focused is the end-to-end productivity achieved by bringing multiple service capabilities together. For example, we are increasingly packaging application and infrastructure services together to take advantage of the synergies from managing these layers of the stack in combination. Another example of the work we are doing to drive end-to-end productivity is our work in developing shared industry platforms. We are increasingly bringing together applications, cloud, and business process services to create industry “utilities” benefitting multiple customers in an industry. In this process we have created new commercial models where we can charge clients on the outcome or output we deliver to them.

Third, where best-in-class delivery and multi-service integration and industry platforms help us drive efficiency for our clients, on the innovation front, we are making significant investments in and seeing good traction for digital solutions. Business transformation at scale in the digital era requires approaches, skills and capabilities that are different from traditional IT services. For several years we have been working with clients on new solutions driven by social, mobile, analytics and cloud technologies.

Any India update? 

India is a high-growth market for us and is as attractive today as any other market. Our clients span industries such as banking and financial services, insurance, healthcare and life-sciences, manufacturing, retail, communications, media and entertainment. We currently service over 50 clients in India—more than half of them are large Indian companies and the remaining are global MNCs having operations in India. Our clients include marquee names such as the Future Group, mJunction, TAFE, Max Life, Cholamandalam Investment and Finance Company Limited (Chola) and ING Vysya Bank.

For Future Group, India’s largest multi-format retail group, Cognizant is providing end-to-end IT infrastructure services for all group companies to sustain the group’s high-velocity growth and drive business transformation. Cognizant is a consulting partner to TAFE or Tractors and Farm Equipment limited—the third largest tractor manufacturer in the world and the second largest in India by volumes—and is working closely with TAFE in selecting a core application, developing mobility strategy, and building a customer-facing mobile application in line with their growth strategy. Cognizant has been associated with ING Vysya Bank for over five years, providing end-to-end support for all applications including core banking, treasury, wholesale, and retail banking. Over the years, Cognizant has stabilized the bank’s application portfolio and shown continuous improvements.

Max Life Insurance, one of India’s leading life insurance companies, has licensed Cognizant’s TruMobi™ suite as its enterprise mobility platform to help transform the way thousands of its agent advisors conduct business and engage with customers. TruMobi will facilitate Max Life to seamlessly transition to the digital world of tablets and smartphones, and help distribute and manage mobile applications effectively. Max Life agent advisors will have the most current information on their mobile devices and be able to offer products that best suit customer needs, thereby boosting distribution effectiveness and conversion rates, while reducing the risk of errors. At the same time, Max Life will have better control over enterprise applications and data access by agent advisors.

 

Cognizant has engaged with Chola, a leading financial services provider in India, to digitally transform its vehicle finance business operations, from loan origination through recovery, in order to reduce costs, improve business agility, and deliver an integrated customer experience. Cognizant is bringing together its consulting, digital strategy, industry and technology expertise to re-engineer business processes and digitize workflows across systems. Cognizant is developing multi-channel applications across mobile, tablets and web for Chola field staff and customers in order to drive real-time decision-making and improve productivity. Through this digital transformation program, Chola will be able to improve customer turnaround time, enhance operational efficiencies, and reduce costs

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