Kumar, 49, is a “people’s person” who is winning back competitiveness on large deals, is getting major talent back to CTS, has rationalised the company with real-estate as well as headcount consolidation.
However, results in terms of actual revenue growth and profits are yet to show in a tough market situation where tech spending has dwindled. It is also yet to be seen how CTS under Kumar navigates lawsuits and warnings by Wipro and Infosys over poaching of senior leadership.
Four of the experts ET spoke to, unanimously agreed that Kumar’s working style is much closer to the old Cognizant way and his management approach is different from his predecessor Brian Humphries, who led the firm for four years after being coming from outside of the traditional IT services space.
Kumar, joined the US-headquartered firm as its fifth CEO since it was founded in Chennai in 1994 as a unit of Dun & Bradstreet. Taking the hotseat at Cognizant on 16 January, 2023, Kumar came in at a time when Cognizant was struggling to remain relevant as a key services partner, unable to close large deals, facing high attrition amid unfavourable macro factors that have impacted the IT industry.
“While it’s still relatively early days, Ravi has helped bring Cognizant back into a host of client conversations and boost the firm’s large deal pipeline. Several clients are encouraged with the rapid progress Ravi has made and are willing to entertain what Cognizant has to offer with his go-forward plans,” said Phil Fersht, founder and CEO of HfS Research.
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Peter Bendor-Samuel, CEO of IT research firm Everest Group, said, “He has matched his competitors in fully funding the big deal team, however, the results are not particularly spectacular… Most of these moves have been simple execution moves and not big strategic changes.”Cognizant did not respond to ET’s queries seeking comments for this piece.
Also read | Cognizant plans to sell office assets in Hyderabad, Chennai
Hits
In Q3 (July to September), Cognizant reported a record trailing 12-month deal bookings growth of $26.9 billion, up 16% year-over-year (y-o-y), and a book-to-bill of 1.4x. Approximately 30% of these were large deals and three were over $100 million each.
The Nasdaq-listed software services exporter said its operating margin of 15.5% exceeded its expectations, mostly benefitting from its (NextGen) program, announced in Q2 aimed at savings worth $400 million. Further, Cognizant is training and reskilling its employees and also committed about $1 billion in its generative AI capabilities over the next three years.
The firm also claims to have hit a historic high in its annual client Net Promoter Score survey, that measures customer loyalty.
On the topline, Cognizant achieved 0.5% positive revenue growth in a difficult market condition where 60% of the larger competitors reported negative revenue growth, according to Gaurav Vasu, CEO & Founder of UnearthInsight, an IT market intelligence firm.
Vasu adds that Kumar had “razor sharp focus on execution of NextGen program and sustaining margins at or over 14.2% in line with larger peers while competitors with new CEOs & leadership changes have struggled to sustain margins… In fact, Tech Mahindra, Wipro, etc are witnessing dip in margins.”
For Q4 (Oct-Dec), Cognizant expects revenue between $4.69 billion and $4.82 billion, a y-o-y decline of 3.1% to 0.3% or dip of 4% to 1.2% in constant currency, with inorganic contribution of approximately 100 basis points (bps) (1%). In Q3, acquisitions contributed to 110 bps (1.1 per cent) to the revenue.
Since Kumar took charge, the IT firm announced two acquisitions in 2023, Mobica in January and Thirdera in December.
For 30-year old Cognizant, India market doesn’t generate revenue but is a delivery centre, focused on growing in Tier-II/III cities over last two years. This approach has aligned with its office space optimisation plans as selling real estate in tier-I cities has acted as both retention and margin improvement levers for the company.
Misses
While a lot of Kumar’s efforts are working, the CEO has his share of troubles.
As part of the rationalisation plans, in May last year Cognizant let go 3,500 employees or 1% of its workforce. Nevertheless, Cognizant has bucked the hiring trends with headcount increasing by 1000 employees from Q2 at 346,600. It also aggressively expanded its senior leadership, which has irked its domestic rivals, especially Wipro and Infosys, from which Cognizant hired about 15-20 senior executives including for the vice president and president level roles.
Wipro has filed lawsuits against at least two of its employees including Cognizant’s current chief financial officer Jatin Dalal (former Wipro CFO) who joined in December. Meanwhile, Infosys has alleged Cognizant of using “unethical poaching tactics” in a communication likely directed at Kumar.
In November, to an ET query in the post-results concall, Kumar exclaimed that Cognizant is “a magnet for talent”. “Now, leadership and talent in the market is confident to join Cognizant and the cycle is back for us to hire the talent we want to,” he said.
According to Unearthinsight’s Vasu, Kumar will have to remain focused on growth in North America/Emerging Markets and avoid hiring legal battles with competitors or compliance battles with authorities in both US/India as they “can derail both revenue and margin focus in the short-run”.
Amid a tough environment, Kumar will also have his task at hand to effectively integrate the acquisitions that saw investments worth around $2.2 billion since FY21.
In a confluence of a “period of uncertainty and period of change”, as Kumar called the current macro environment after the Q3 results, he still has promises to deliver. “It remains unclear if this level of performance will return Cognizant to the heady days when it was setting the world on fire, and disrupting the tech Services market place. We will have to see,” Bender-Samuel said.
