Brian Humphries took over as the CEO Of Cognizant when the IT services’ company was going through a crisis. Six months after taking over the post, Humphries is confident that the company will return to being a bellwether in the near future. In an interview with BusinessLine , he said he is putting several strategies in place to drive growth.
Excerpts from the interview:
There is talk about the impending global recession. Where does the IT industry figure in such a scenario?
To be honest, I don’t feel fully qualified to comment on the macro environment because I really look at the B2B world, not at the consumer world. I have actually never heard the recession word mentioned in any customer meeting in six months. So, sometimes I worry if we are talking ourselves into a recession. Having said that, even if there was a recession, services companies over the years tend to do well during such times because people tighten their belts and actually offload certain things to companies like Cognizant to do to work on their behalf.
So, at this moment of time, I look at the landscape in which we play and the opportunities ahead and I think digitisation will drive good growth for services’ companies in the years ahead. I expect Cognizant’s growth rate to accelerate in the years ahead.
...accelerate in spite of the lag in Cognizant’s North American Business?
That is obviously something I am very focussed on addressing. North America contributes three-fourth of our revenues. So, we have to turn around North America to get Cognizant to the growth rate that I need. So, while we will target 20 per cent growth rate internationally, North America has to return to stronger growth for us. There are two very big verticals over there: healthcare and life sciences and banking and financial services. We have changed the head of our healthcare and we will soon announce a new head for banking in North America. We believe that what we are trying to do as a company will also benefit North America as well by shifting sales compensation to be more variable and spending more time and money on digitisation.
Cognizant has revised its overall revenue guidance twice this year. So, how do you plan to make the company more robust?
We have not hit our stride in recent years and we need to get back to being the bellwether. I have inherited a fantastic company from Frank (former CEO and vice-chairman, Francisco D’Souza). We need to restart the engine but we can’t turn it on overnight. It takes six quarters to do that and we have to hire more people. I have just approved the hiring of 500 salespeople to get them in front of customers to build relationships eventually leading to pipeline and to total contract value which eventually shows up in revenue. On the other hand, I have been blown away by the customer loyalty to Cognizant. I have told colleagues that you are putting me in front of happy customers every time. But the fact is that customers are extremely happy with us and especially those who have been working with us for the past five, 10 years. There is this winning spirit among employees here and that spirit is not something you can create overnight. It is on the back of 25 years of success.
The employees want to win and they are used to winning and there is a bit of frustration as well because we have not been hitting our full potential in the last two, three years. So, they want to see us back in a growth trajectory. Then, there are opportunities for us in Europe and Asia. We are nowhere close to penetrating those markets yet. So, I want to go on the attack and see what we can do there. The good news about digital is that we are going faster than the market. The bad news is that our digital mix isn’t where it should be.
So, how do you plan to correct that?
It is just that we do not have enough of our mix that is digital. I am one of those general managers who believe that if something is not perfect, it is actually exciting for me because if you can fix it then amazing things can happen. I mean it is the classic dilemma that there is a portion of the market that is growing in double digits (11-12 per cent) and there is a portion of the market that is flat to declining to 1 or 2 per cent. The portion of our mix that is in the high growth is about a third of Cognizant. As that portion becomes 50-60 per cent in the years ahead, our overall growth rate will expand as well. I am putting several measures to make that happen as quickly as possible. Simultaneously, I have identified four key battlegrounds in digital that we need to be successful in — cloud, data, digital engineering and IoT. I am firm of the opinion that 5G technology will unlock the power of the Internet of Things.
Traditionally, Cognizant always had lower operating margins compared to TCS or Infosys, while surpassing their growth rates. So, are you going to re-look at that particular strategy or you will stick to the same 19-20 percent operating margins model?
I am going to look at everything. We will leave no stone unturned and that is just my style but, to be very honest, if you read any of the memos and some of you unfortunately for me, get access to our internal memos, you will see that the overarching theme of my notes is all about growth. It is all about returning to growth and being a bellwether. It is about customer-centricity and it is about managing change and I wake up in the morning and I think about customer solutions and how do we spend time in front of customers.
Because if I am with you as a customer, my competitor is not with you. What are your pain points? Customers fuel revenue. Our overarching priority is to get back to revenue growth and margin rates will take care of itself because I will be efficient from a cost structure point of view. I firmly believe cost and growth are the same things. You cannot be aggressive in terms of driving innovation...in terms of fulfilling customer demands...in terms of investing in coverage for customers, sales and marketing and international expansion unless you have a low-cost base to fuel those investments. So, costs and growth for me are part of the same sentence. Now I do distinguish between cost versus investment. If I paint a wall, that is cost. Now if I train you, re-skill you, if I do a marketing campaign or if I hire 500 salespeople, yes it costs me money, but it is actually an investment because it pays back in the future.
So that is how I distinguish around things. But absolutely, my focus is on revenue growth. If you take this to a ludicrous extreme, you could have an individual say look, I have an opportunity that is $5 million, but my margin rate is too low. Would you rather have a 100 per cent margin on zero revenue?
We hear about how Cognizant is carrying out some aggressive cost-cutting to the extent of cafeteria bills….
See, I don’t have a cost-cutting strategy, but a growth strategy. It is just like I say to people that M&A is not a strategy but it is a means to an end. Cost is a means to an end and it is not a strategy.
One can see that your attrition levels are quite high…
It is about 23-24 per cent which is the same level as the last year. I want to use big data analytics to help me bring down attrition levels. We hired 75,000 employees last year on a gross basis. But our intention is to hire more people. We want to grow Cognizant and I want to be the bellwether again. We will try to recover as quickly as possible. But we are working around the clock, building out a set of suppositions, freeing up money for investments, spending a huge amount of time with clients and it starts with me as a CEO because my team knows I am with customers all the time, going to countries all the time. Therefore, they feel compelled to go themselves.
Nomura says that the pace of IT growth is slowing down for quite a few Indian IT services’ companies.
The IT sector growth will remain robust in the coming years and will be driven by the fact that more of the market is shifting to digital and digital is a higher growth category. Therefore, the overall numbers are changing and within those pillars, the traditional business is either flat to slightly declining while the digital business is growing 10 to 12 per cent. So, I don’t concur with those facts. The facts as I see is that this should be a growth market. We think our addressable market opportunity to spend is 4.9 per cent. It is the market growth rate in the markets which we play. I would be very disappointed if that is all we achieve over time.
There are reports that employees of IT companies are planning to form unions. How do you view such a scenario emerging?
I think the industry has not found a need given that the attrition levels are high. Even though it is a fundamental right to form a union, the phenomenon has not caught up because employees realise that their organisations take care of them exceptionally well. The entry-level compensation for our employees has remained stagnant for the last several years. So, we realised that if we have to capitalize on the best talent in these educational institutions, our productivity will go up. So, we increased the number of hires by 18 per cent. All of these are enablers of outperformance. The question is how do we get back to being the bellwether of the industry? And how do we steal a march in a competition? We brought in 30 per cent more freshers this year and we gave them an 18 per cent salary increase that hopefully is symbolic of a company that wants to go on the attack and wants to win.
What are you telling your sales team?
We have something called a client partner, which is the quarterback on the account and a client partner then is surrounded by specialists and pre-sales, people solution architects and consultants. First of all, we are trying to re-skill even better than ever before. We are going to make substantial investments in reskilling in the coming quarters because I actually believe there is a huge cost to attrition and we are trying to use big data now to get the lower attrition rates.
We know our attrition rate in Kolkata is lower than Delhi as an example. We know that if we do training and development or re-skilling our employee to attrition rate will be 5 points lower than if we don’t. So, we can actually use a lot of these data points now to hone in on some problems now with regards to sales.
First of all, I want to make the sales team more leveraged. It provides the sales team with the opportunity to make a lot more money per year. So, instead of having 90 per cent of your salary fixed and 10 per cent variable, we are saying let us make it 70:30. If you get past your target, you get into accelerator (mode) and therefore, you can have a lot of salespeople driving nice cars, earning a lot more money than I have historically but, that also leads to meritocracy. If you miss your numbers, you are penalized, but if you beat your numbers, you gain materially. We are spending a lot of time with the sales teams talking to them about the importance of understanding digital and understanding how to articulate digital and not just be the classic CIO organisation but in different lines of service. It means it requires you to speak differently to different people, to follow up differently with different collaterals.
We have big sales kickoff events, one in North America on December 1 and in Europe in January. We sell business outcomes and are consultancy led. It is no longer an input time and materials body shop. It is a business output and that is actually a knee-jerk conversation to have with the C-suite then trying to sell you big data analytics in isolation. So, we are really trying to get the sales force evolved.
What are the clients telling you?
Our customers would like to see us have a stronger point of view around certain industry trends, which is one of the reasons I am building a more industry vertical experience because I need to be able to speak to them in their jargon, in their nomenclature, their lexicon. I need to understand the regulatory environment in their world, the undercurrents and their pain points. This allows me to bring solutions to any given industry from a different industry.
At the end of my first week, I told my leaders that enough of you keep putting me in in front of happy customers. I might be of help to you when customers are also difficult and I can also knock the door and help us get into new customers and they did not really understand what I was saying. But maybe that was because I was new to the organisation. But six months later, I must tell you that I have never been in a company where customer satisfaction is this high. It is also true that we need more customers. But what gives me more confidence is that the customers we have like us. It allows us to sell more projects on the back of excellence in delivery and strong solutioning.
So what I am trying to do is make sure we are bringing new methodologies in our sales’ teams. In a most simple form, you can call it as a hunter versus farmer approach, but there is a more technical term of a model I am implementing, what is called RAD: retention, acquisition and development and that tiers our customers in terms of Tier 1, 2 or 3 in terms of potential spend.
It also tiers them as to whether they are an acquisition customer or a development or retention customer that we already have. At the same time, we are trying to develop a relationship and sell more, cross-sell or up-sell or simply retain because we already have a high share of their wallet and we are implementing that in our new sales policies in Q1 in January for the new fiscal year.
Are you also looking at growing India business, which has traditionally never been the company’s strong point?
It was one of the surprises (India business) I had when I joined Cognizant. I assumed that India would be bigger for us domestically. We have two lakh employees here. We were building solutions for some of the biggest companies in the world and deploying those globally. So, why wouldn’t we have a bigger business in India; not necessarily just with the public sector but also with the private sector. Yeah, we can learn and leverage all of the lessons we have deployed elsewhere for local purposes. We also have so much talent here that we could actually put them to work. So I have asked the team to explore how we can accelerate it. I am planning to review it again in the next month or so to see what we can do.