When eWorld met up with Mark Livingston, Senior Vice-President, Cognizant Business Consulting, in late 2009, he was all excited about how it was a great time to be in the consulting business. If that was his mood at the end of what was among the world's worst recessions, now is a good time to take stock. The consulting arm has grown from 1,600 people to 2,600 since 2009. Edited excerpts from the chat with Livingston (Mark) and his India colleague Natarajan Radhakrishnan (Nat)
How much water has flowed under the bridge since 2009?
For me, getting introduced to Cognizant was complex. I came from a partnership firm (AT Kearney) with 2,500 people and I was one of the lead partners. But when I joined Cognizant, it was 60,000 people (and now in excess of one lakh). My job never existed in the organisation chart. I created my job. When I joined, I remember a VP said, “I didn't even know we had a global consulting position.” We effectively created a global consulting business. We created a lot of stuff that didn't exist.
Consulting and delivery are two different business models, two different cultures and operating models. So we really had to build the Consulting career track. These 2,600 heads we have now are pure consultants, people who work only in consulting and not in delivery. And we do not include systems integrators (functional folks who provide ERP, SCM, CRM services) as part of it. When people join the consulting practice, they have a consulting plan on what they would do for the year, we have a consulting evaluation process, separate promotion committees, a different bonus structure for senior consultants, and so on. In addition to trying to sell work and hire people, we have created the infrastructure behind the scene to run the business. Not that this capability did not exist before but it was sharpened. We have built the business, created an efficient consulting and training model.
The other area where I spend most of my time is in recruiting and interviewing. We built it both ways — hired a number of senior people and also built it bottom-up. We have the largest MBA recruitment programme in India. Nat drives that. We hired over 220 professionals from premier B-Schools with a 96 per cent joining ratio.
We hired 25 very senior people last year, at the level of Partners and Principals, from major consulting firms. That's a huge number in the consulting arena.
In my first nine months, we didn't hire anybody at such senior levels. First, because of the recession. People were hesitant to join anyone. We didn't have a strong value proposition to tell. Now when we interview, we have an exciting story to tell. We can talk about our great success, what we do and how we have been expanding, what we have done and we find people want to join us.
Any clients that Consulting brought in that Cognizant's delivery strengths alone would not have been able to get?
Mark : We made a contentious strategy in 2009 to focus on the current account base. We found in 2010 we were able to hire more senior people, and as we built new offerings and capabilities that we didn't have before, we are now able to sell consulting based on its own strengths and not just on delivery business.
Our consulting business opened 12 new logos for Cognizant last year. In the healthcare sector, with the regulatory changes around ICD- 10 (changes around product code sets), we sold about 18 of those consulting assignments which have the potential for downstream delivery.
Nat : Earlier the CIO organisation was our focus and over the last 12-24 months, we have been able to sell into CXO organisation. If you look at our service offerings, it's IT consulting, operations consulting, business consulting and a little bit of strategy consulting. We are still 98 per cent IT plus business plus operations consulting. We interact with CIOs, CMOs, CFOs, etc.
For the ICD-10 we interact with Chief Medical Officers. For a business transformation programme for a large publishing client in the US, the client is the CEO, which is fairly rare. Interestingly, for this customer, we have consulted on how to move away from just publishing hard-bound volumes to the entire media play.
We have an increasing number of projects that are in seven-digit revenues. Million dollar or more is the holy grail for a single consulting project. In some cases the project duration is extending from 8-12-16 weeks to 6-9 months. The business impact is significant in such projects. We have more referenceable customers today which is good for consulting.
Structurally, the benefits you have to pay to consultants will be different, and kind of work you deliver to client will be different. Will you start a stand-alone organisation? Or have a different company?
Nat : Part 1: yes, Part 2: No. Part 1, yes, because it's a different structure in terms of title, performance management, bonuses, compensation structure, KRAs ...etc. Part 2: No. The consulting arm will not be a different legal entity.
Mark : I believe you can't build a separate standalone consulting business in an IT services company. We get the advantages of a standalone business in having a separate consulting track and a different performance management structure. We have this full integration with delivery teams, and client partners are our channel and access to the market. I have seen from prior life that when consulting is a separate legal entity, the delivery teams tend to create a shadow consulting business inside of delivery. Then you have two internal groups.
I believe our matrix model can sometimes be complex but it's the only reason we've been successful so far. We're an integral part of the business. The Client Partners and business folks like us, as we are an integral part of their team. They have the client relationships, own the accounts and help us go to market. If you try to separate it, I am afraid we will alienate them. Look at our results; the model must be right.
If I were to be making a best practices presentation and advising people on how to do it, I will point to the way we're doing it today. We studied other models too that didn't work well.
One of the things that works well for us is I report directly into the CEO and that does signal to the rest of the company that it's very important work. Having consulting report to the CEO and not burying it two or three levels below is important. The whole matrix model, I think, is absolutely the way to organise, configure and go to the market.
Of the 2,600 consultants, there may be new, experienced hands not exposed to delivery earlier. How is the manpower attrition?
Mark : We have one of the lowest attritions in the firm. For our senior hires, we have had very few departures. At the time of recruiting, we look whether they have worked in the global delivery model and understand delivery. If not, we see if they can adapt to this model. We expect they should have worked in different geographies, if not exactly in the onsite-offshore model.
Five years from now, what are your goal posts?
Mark : First, we need to grow at least at the rate of Cognizant, which is substantial. It's very difficult for a consulting business. Scaling consulting as rapidly as we have done is somewhat unprecedented. If you want to hire 100 people in IT services with specific skill sets from the market place, you can do it in a day-and-a-half. For the same in consulting, it will take at least three months. Time to hire is substantially longer.
Second, we have to expand our geographical footprint. We have to become stronger in the UK and Continental Europe. We are looking to hire our pan-European leader. We are looking to grow organically, and supplement wherever we have to, through acquisitions. We have to establish a strong footprint in India and in the Asia-Pacific region. We have started doing consulting projects in India, Australia, Singapore, Japan and New Zealand. We need to build a broader footprint in APAC.
Nat : The difference in the APAC market is that it's highly product-centric, for example, in the financial services area. When decisions around build-versus-buy come up, consulting will be the first step. We are bringing global best practices to India. For example, with the large retailers coming to India, best-in-class technology is brought to this market and other Indian players need to compete on an equal footing. It's a great opportunity for us to bring consulting to India so that global best practices can be enshrined.
Next, our Future of Work initiative is an example of our innovative, creative work. It's strategic work we are doing and none of our competitors are talking about it the way we are doing it. The way work is performed is fundamentally changing. The dynamics around globalisation, virtualisation, the role of the millennials, and newer technologies such as the Cloud are impacting it. All of these are fundamentally reshaping the way companies work and the way they go to market. We have created Future of Work indexing, offering to help clients know where they stand in the new paradigm and help them take the journey by showing them what is best in class. Our ability to take forward-looking concepts I believe will distinguish us in what we do and make us more competitive.
We call this CiFR [Cognizant index for Future Readiness]. What this index does is to see how companies are readying themselves to embrace these forces of globalisation, virtualisation, millennials, and cloud. We have an index to measure companies on each of these parameters and present a composite index. This score will tell them where they are and the roadmap to plug the gaps. We got an expert to prepare this industry level benchmarking for us on 100 different performance metrics.
You said keeping pace with the growth of rest of Cognizant's difficult? Adding manpower is one way to do it. How else?
Nat: We still have some room to take up revenue per consultant. We can achieve a Cognizant level of growth without necessarily adding the same percentage of people, at least for a few years. It has happened in 2009-10, the revenue rates are higher than headcount growth rates in consulting, due to better operational efficiencies, better pricing, and so on.
When you recruit, there are probably 10 other resumes where all other things are equal. What do you look for when you hire these consultants?
I actually tell people, this is the toughest consulting job ever to sign-up for. Please ensure you are good as you won't last here otherwise. That's because we don't have a great consulting brand and we have to sell against competitors who've been doing it for 40-50 years. We don't have a big team or Intellectual Property that large consulting companies have. We have to fly the plane and build it at the same time. So unless you are very good, this is not a good place to be. We try to pick up those with an entrepreneurial spirit and those that can work in an unstructured environment. The prior firm that I worked for has been there for 80 years. Successful people in the other model will not necessarily be successful here.
The other important thing is the cultural fit. We have 2,600 consultants and a matrix model. If one cannot collaborate, can't work in teams, can't check your egos at the door, can't team up with the delivery experts, one can't last here even a few months. They may be good consultants, very bright people, but they will not last here. They will alienate the great delivery relationships we've built. That's the reason we are successful. We complement the delivery teams well and don't hurt their relationships. They get us into the market and we are delivering for them.
One of the things that was delightful to see was two weeks ago, at the recent analyst conference in New York, the delivery leaders from verticals such as retail and healthcare had the consulting leaders present along with them to make presentations partially or fully. The reason is they know we won't steal the show but share the stage and add more valuable discussion. We will have a better story to tell as we understand the industry well and add value. That was good news to me because we are working well, working effectively with the rest of the organisation that is substantially bigger piece than we are.
So much for recruitment? How about clients?
A consultant is not a consultant if he/she does not work with clients. In my first 12 months, I spent a lot of time working on building the practice, putting the infrastructure in place. For the past 12 months, I have spent more time with clients and doing presentations. First I want to see how these consultants we hired work and then see if we have a more productive selling process if I get involved in some of the bigger deals.
In the last three million-dollar deals, be it in the publishing or airlines industry, where we competed with the large consulting firms, I have personally been involved. Our competitors' global head of consulting did not join in these meetings as it was small for them. We show more serious commitment and we get clients comfortable. Our size is also an advantage and we show more senior level involvement.
How different are client requirements now, post recession?
In my pre-Cognizant days at AT Kearney, it was selling pure-play, stand-alone consulting without delivery. At Cognizant, I like the fact that we've got 110,000 people in the delivery group behind us who can be involved in deals and we can pull them into projects and provide us the depth of technology understanding needed in the consulting business. We are selling a full-service kind of model than a pure-play consulting company.
What we are offering is very different. The kind of work in my prior firm was more operations-intensive or supply chain-oriented or even strategic-sourcing or procurement-oriented. At Cognizant we are selling more CIO advisory services and business process improvement services outside of the IT organisation to the CXOs. In my firm we would have provided CEO advisory services; we do not do that in most cases. It's largely focused on CIOs or other CXOs. For instance, in Healthcare, it may very well be the Chief Medical Officer. In Retail, it may be the VP of Supply Chain or head of logistics. We do work for CEOs, but not often as its not our primary intended target market. A few years from now, may be. We think we have a tough agenda and we will try to stay focused on and not oversell the CEO agenda.
How do you price your services when they come integrated with delivery?
Mark : The real argument here is that consulting work is significantly different from delivery rate cards. We have to be very careful in differentiating between consulting and delivery. We have different teams with different people with different capabilities. We have a harder time, as Cognizant has a heritage of selling IT services. If we sell the rates that are three times higher, we have to show a different value proposition to justify the rate differences.
Nat : We don't give away consulting free of cost. That's the tendency when there is a large follow-on deal coming. We try and sell consulting on a fixed-bid mode. That's the industry standard. Only in rare cases major customers insist on profiling job codes and discuss rate cards. In those cases, we have a tight job description for those codes.
Are clients saying I value what you are telling me, but will pay only after I see the benefits of the implementation?
Nat : That's what we call outcome-based pricing. We're open to that or gain sharing model, but we have had only a small number of such cases at this point. The usual tendency is to operate on budget, as clients are not ready. More than the consulting firm, the mindset is an issue on the customer side as they want to fix the outgo on day one.
Mark : But that's a huge opportunity for us that we can capitalise on. We have 700 global accounts; we're doing consulting work for only 150 to 200 of those. We leverage consulting more by working with our existing account teams than on gain-sharing deals, as it's hard to structure them. It gets to be a difficult discussion but I think that's where the market is going and we have to be precise about our calculations. When we do gain sharing deals, and it works, the client sometimes resents the extra money that goes out to the vendor. We need to have some more creative work to package such work well.
Also remember that rates equal respect. If you give work away, you will never get respect. We have to figure out the fine balance. We are not trying to get the highest price but be respected for the consulting work and the value we bring to the company.
When your clients get ready, you have to be ready for gain sharing. Do you have the due diligence in place as it may impact your revenue?
Mark : No, that's the tough part. When we walk up to the client and say, here's your project savings, it also depends on the client's implementation. If they don't implement, we should not get penalised. Ideally, what we want to do is also drive the implementation.
Nat : Mentally, we are prepared and have the methodology. It's a question of making sure we have sufficient controls on the implementation. That's the key.
Cognizant went from two people in the selling team to three-in-a-box, including the consulting person. Any update on that?
The three-in-a-box concept is about an account focused strategy for consultants. At the time we talked, we had aligned to a smaller number, but now we have 5-6 times the number of accounts these senior people are assigned to, fully or partially. And now we have 25 more senior level partners and so they can be aligned to more accounts. That's the natural part of growing our consulting business. There is a greater sense of ownership and the consultants have to put in time to work with client partners to build and develop more accounts. That's the way we are expanding the three-in-the-box.
Will you add more people to make it four?
No, we will start confusing the client. Some people even argue the delivery and consultant roles in the 3-in-the-box can be confusing. But we don't have that problem with our model.
Who is your competition?
We primarily compete with IBM, Accenture, Deloitte and CapGemini. We do not see the pure-play Indian providers in many of these deals.
Have you gained market share?
The fact that we are seeing good growth and competing with consulting companies has given us greater credibility. The fact that competition is trying to recruit our folks is also a recognition for us.
What component of manpower is offshore?
Mark : We have 40 per cent of our consultants offshore. We think that's the real strength of our consulting model and different from what others are doing. Others say they are doing offshore. We believe the work of consultants in India/offshore is not back-office or research function. Our consultants help in executing projects in the US/Europe. So sometimes, a part of the work gets sold, they stay for x number of weeks. Where there is already some exposure, they could do it from offshore. Frankly, in doing that we are running an efficient blended rate. That is something that will be unique about what we are doing in consulting. We are truly building some of the key offshore consulting capabilities that will be clearly distinguishable.