At a time when the Indian information technology industry is going though a churn, Francisco D’Souza, CEO of IT giant Cognizant, believes there are good times ahead. Companies will need Cognizant’s services to keep pace with technology and avoid disruption, he says. Fortune India caught up with him during his recent visit to India. In a free-wheeling chat, D’Souza spoke on how Cognizant plans to retain its leadership position in the industry; what IT companies need to do to stay on the top of their game in a digital world; and the future of Indian IT talent. Edited excerpts:
Fortune India: With companies across sectors now describing themselves as “software companies”, what is your definition of an information technology company?
Francisco D’Souza: When industrial companies describe themselves as software players, you realise that businesses are becoming more and more technology intensive. In such an environment, the role that companies such as Cognizant play, and have always played, becomes more important because they are the ones who create the foundation for their clients to become technology intensive, to make the most of advances in tech, and apply them to gain competitive advantage. So how should the IT services business look like today and in the future? For that we need to build teams with the best and the most relevant skill sets. But since even those skill sets are changing dramatically, there is a need to have teams that cater to broader ranges of skills. If you look at Cognizant, we have doctors, engineers, MBAs, nurses, chartered accountants, data scientists, anthropologists, scientists, and behavioural economists. We need to have people who not only understand the industries that they serve, but are also thought leaders in their respective fields. Gone are the days when you could claim to have domain expertise and understanding of your industry. Today, clients are saying, ‘Tell me what is happening in my industry and guide me to become more efficient.’ Second, changes are happening at such an incredible speed that we have to provide pre-packaged solutions, customised around the edges, and integrate them with the ecosystem so that clients can derive value at the earliest. That means we have to develop solutions and build our partner’s intellectual property into that. When we acquired TriZetto in 2015, it was a traditional software company. We took its software and combined it with Cognizant’s services, calling it business process as service (BPAS). The client can buy a business process service from us for an end-to-end solution. Say, we go to an insurance company and sell claims as a service. We will provide the software, the technology, and the people, and send back adjudicated claims. More and more of the solutions that we are offering are integrations of intellectual property, which include software and services. On top of that we need a world-class client interface—the people on the ground working with the clients, consultant partners, and thought leaders. Plus, we need global scale because our clients are global.
A couple of years ago you had said that as technology becomes dominant, the role of traditional consultants such as McKinsey will diminish and opportunities for IT and ITES firms will grow. Do you see that happening?
Undoubtedly so. It happened in mid 2016 and continued in 2017. Prior to that, companies were dipping their toes in digital—everybody knew digital is important and we were doing small pilot projects. Then 16 of our clients said they had figured what digital meant for them and the industry, and wanted to digitise on scale. To do that, they would have to change their business model, operating model, and technology model. All these changes had to be done simultaneously and fast. What we bring to the table is end to-end capability to implement such transformation in a tightly integrated way. We observe whether the model is working or not, and then either scale up or change the model. This ability of ours—providing all these solutions [as a one-stop shop]—is truly remarkable.
“Gone are the days when you could claim to have domain expertise and understanding of your industry. Today, clients are saying, ‘Tell me what is happening in my industry and guide me to become more efficient’.”
Does that mean that if one is looking for a digital transformation, one is better off appointing an IT company rather than, say, a McKinsey?
If you are looking at end to end—business, operating, and technology model transformation to “digital at scale”— then you are better off having all the services under one roof. There will be far greater cohesion.
Earlier, most IT companies used to bid for the same project. Has that model changed and is domain knowledge playing a far more important role in bidding for a particular project?
Yes, but for us, it is more an outcome of our strategy. The services industry is a trillion-dollar industry globally. Cognizant was a $13.4 billion (Rs 84,648 core) company last year and is on its way to be $14 billion plus this year. We have to be very thoughtful about which battles we choose to fight. We want to pick up a small number of markets and cater to a small number of clients, but go very deep. Therefore, by definition, we will compete in areas where we are very strong. But the markets that we do not participate in—that’s by design. For instance, in health care, we are very strong, highly competitive, and bring together a strong set of people, assets, software, and a range of capabilities. But there are other areas where we do not bring value to the table and we won’t compete there. So, it is a combination of domain knowledge, expertise, and geography.
Why did you choose these industry verticals—financial services, health care, and manufacturing, which includes retail, logistics, and others?
We have been serving these industries for decades. If you look at the early history of the company, these were largely the industries that Dunn and Bradstreet, our parent at that time, had a strong presence in. As we served the D&B businesses, we learned from those industries. That was the genesis, and of course we built the company over a period of time.
Since 39.8% of your revenues come from the financial sector, how do you see the emergence of fintech (financial technology) companies that are disrupting the financial services space? Do they pose a threat to you?
They are largely our partners. We amplify their technologies. Many of them have great technologies but don’t have the reach or need a service provider to implement their software. They are our partners and not competitors because we do not have too many products. Except in health care, where we have a lot of products, we cooperate with them. The entire innovation space is now controlled by Amazon, Google, Microsoft, and Apple. Where does that leave IT services firms in terms of taking pole position when it comes to innovation? Fundamental innovation and creating enabling technologies have always been the work of other companies. That is not something new. SAP did it in enterprise resource planning and continues to do it. Oracle did it in the database days. We thrive in their wake—we use that innovation, and as more and more of it happens, the more our clients need us to integrate technologies and make them work in their respective contexts and ecosystems.
But the market attributes far greater value to these innovator companies and far greater amount of money starts flowing into these companies.
Just because there is a lot of innovation happening in the pure tech firms in Silicon Valley does not mean that innovations do not happen in the IT and ITES companies. Our innovations are in the models we create to make the fundamental technologies relevant to our clients. The ways in which we operate are very different from five or 10 years ago. Today, our teams work in physical spaces called collaboratories (or laboratories) with data scientists, designers, technologists, anthropologists, etc. I wouldn’t say that innovation exists only in one place at the expense of the other. We are all innovating because technology is changing rapidly. Everybody has to innovate to stay relevant. That’s not different from any other industry, because this is a period of great disruption. The disruption journey will continue for some more years. Our case has never been more important or stronger, so we are optimistic about the future.
Where are you placed in that value chain? Google is building a driverless car. Can you, for instance, say that you are trying to become an innovation lodestar in health care?
We already are. We bought TriZetto, a software company that provides software for health-care insurance and health-care providers. Cognizant Trizetto Software and Services manages the health insurance and health-care benefits of 160 million Americans. We are not talking about small numbers here. With the TMG Health acquisition that we just announced, our position becomes even stronger.
Is there a possibility of two Cognizants in the future—one, a classic IT services player, and another, a totally different company, say focussed on health care, to capture greater value?
Cognizant has a historically strong services business and an increasingly strong software business. The latter has many similarities with Google— cloud-based computing, lots of new technologies, etc. Under the Cognizant umbrella, you will see a services business and software capabilities. I use the words “software capability” because there is a synergy that comes from combining the two. A software business amplified by a services business, or a software business amplified with a services business is very strong. We can go to a health insurer and tell what are the best practices in each area, where it needs to transform its business model, and then provide them with the technology and the services to make that happen.
So there is no need for a separate business?
We have demonstrated that with TriZetto. Prior to our acquisition, it was a standalone software business. If you bring it into the services business and combine it with the talent we have, you can create incremental value, which neither could have created on their own. That is the fundamental thesis and that’s why TriZetto and Cognizant belong together. If you split it up you lose value. Our pipeline for BPAS is very strong. This synergy of software and services is very robust. But it is not a generic solution. You cannot just bring any software company into a services company and unlock tremendous value. It worked for us with TriZetto because of specific reasons—our respective market positions and services capabilities. I think there are specific instances where one plus one is equal to three or four.
In 2016, nearly 23% of your revenues came from digital. How much do you expect it to grow in the next five or 10 years?
That number had risen to over 25% in the second quarter of 2017. It can’t be compared to any other player because their definition of digital may be different. I was reluctant to disclose digital revenues only because there is no consistent definition of what is digital. But we have listened to investors and felt that it was important to create some marker for our investors to track our own progress as we make this transition. We have made our own definition of digital. Actually, we have three verticals—Cognizant Digital Business, Cognizant Digital Operations, and Digital Systems and Technology—and we went to each of those and picked out the digital parts. For instance, in Cognizant Digital Business, it is customer journey mapping. In Cognizant Digital Operations, it is artificial intelligence and robotic process automation. In the next five to 10 years, this conversation is going to be irrelevant because everything is going to be digital.
How does Cognizant plan to differentiate itself from the competition in these new technologies?
The differentiation has never been about technology or skill sets. The value comes from the ability to provide solutions. All services companies have world-class skills but it is solutions that create the difference. It is not enough to go to a bank and say that I understand blockchain, but to explain its importance in trade finance, and be able to provide pre-programmed and pre-packaged solutions. We have to explain to them that if they work with us, we can get it to the market faster than others. It is hard to implement such a project because you need trade finance experts, blockchain experts, and those who understand the technology. You have to put them all together, which is not easy. But that’s where the differentiation and value comes from.
What has been the impact of Brexit on your business?
We have not felt much of an impact because only a limited number of banks are leaving Britain. In the U.S., the business continues to be fine.
Will India continue to be your largest employee base even as the company transforms itself into the digital space?
I don’t see any change in the global distribution of our employees. It won’t change significantly at the higher level. We need to hire in our local markets. You will see us hire in the U.S. because of digital, particularly for design and data science. We have to do this hiring to be close to clients, but it is not going to impact hiring in India.
“India will be very strong in some parts of the value chain and those closer to the clients will be strong in some other part. I don’t think one happens at the expense of the other.”
Will the real intellectual capital in terms of people sit in the West?
The grey matter will be in both places. We have always had a globally distributed model. There is a shortage of talent in many parts of the world. To drive scale, we have to find talent across the globe. I don’t see the complexion of the workforce changing. India will be very strong in some parts of the value chain and those closer to the clients will be strong in some other part. I don’t think one happens at the expense of the other. The historical reasons why Indian technologists have been well regarded continue to be true.
Where do they (the Indian workforce) sit in the value chain?
Digital software does not get built by itself. Somebody needs to write the code to do that. Whatever has to be designed, needs to be built, delivered, and maintained. That ecosystem will continue. I don’t buy the argument that disruption will shift the gravity meaningfully around the world. Innovation has always had to be done close to the client. Five years ago, we did application development. How did we do it? We did the design close to the clients— we sat with them and tried to document what they wanted. We ran those sessions with an onsite team. Then we moved to a global team to do the development and brought the solution back to the client for the delivery. We may use different techniques in the digital world but the processes will continue.
Do you think that it is the best of times for IT companies like yours?
The best days are ahead. In the next two decades technology could solve some of the hardest problems of the world like health, agriculture, and transportation. Technology is going to fundamentally impact these areas. What better time than now to be in technology?
(The interview was originally published in the special issue of the magazine in October 2017.)