FRIDAYs are for flying to frankfurt. In early 2008, a conference room in Sheraton Frankfurt Airport Hotel was a logical place to assemble 20 senior managers of Cognizant Technology Solutions. The German airport served as a midway point for the heads of industry and technology units from North America, Europe, and Asia. Francisco D’Souza, aged 38 then, had barely completed his first year as CEO of the IT firm based in Teaneck, New Jersey. Everybody in Cognizant sensed the clouds of a recession gathering, especially since it derived nearly 50% revenue from financial services, the industry at the heart of the meltdown. The previous year, Cognizant had crossed $2 billion (Rs 9,040 crore) in sales. D’Souza (fondly called Frank by his colleagues) believed Cognizant’s market intelligence of the gathering storm had to be deeper and more detailed. It had to be based on continuous conversations with those who mattered—even if that didn’t translate into business immediately.

“In preparation for the first Frankfurt meeting, I asked everyone to spend a lot of time and understand what was going on with their clients—individual by individual—and then come to Frankfurt to report what they were hearing out there,” he recalls.

So for one weekend of the first four months or so in 2008, his senior team checked into the hotel on Saturday morning, brainstormed, and lived there for two days. Come Sunday evening, they returned. That was how Cognizant, ranked 484 in the Fortune 500, built a body of client intelligence.

All conversations confirmed that technology overhauls would prevail during and after the cyclical downslide. “The message of the first trend [the recession] was so strong that it obscured the second: Almost all industries we served were going through structural changes that had nothing to do with the economy,” says D’Souza. The second trend was driven by things such as cloud computing, mobile, and social media, apart from new regulations in financial services, and health care, all of which would outlive the meltdown.

The ability to spot the second trend convinced Cognizant to accelerate when most peer companies, especially in India, turned defensive. It was a long bet. If companies such as Infosys and Wipro Technologies cut back on growth, Cognizant’s trajectory would stand out and it could bridge the gap with the two Indian peers that had traditionally thrived on maintenance and support. For instance, Infosys maintained strong cash and cash equivalents of 50% to 67% of total assets from April 2006 until April 2010, even with operating margins of over 32%. In the same period, Cognizant refined its reinvestment philosophy. Its cash as a percentage of total assets was between 20% and 33%, and it was content with operating margins in the 18% region.

By then Cognizant had also begun investing in ‘point solutions’. This meant understanding the needs of a potential client based on the industry, and creating solutions before bidding for the business. As ex-CEO, now vice chairman, Lakshmi Narayanan says, they kept showcasing these point solutions to potential clients, without ever pressurising them for business because Cognizant was willing to trade margins for growth. “We had deep pockets and our strategy of keeping our operating profits at manageable and defensible levels came into play. And it worked.”

Meanwhile, whenever it spotted an opportunity, Cognizant snacked on a small outfit. For example, in May 2010, it bought London-based PIPC, a global programme and project management consultancy, for £23 million (Rs 168.3 crore). This gave Cognizant 200 professionals, along with insights from some 800 client engagements in project management services. (Infopulse, another $5 million buyout in the Benelux region in late 2003, has matured into relationships with the top 10 banks in Continental Europe.) These threw up client accounts to mine or use as reference for new business. Such moves have deepened Cognizant’s presence in health care (26%), and manufacturing, retail and logistics (19%), and mildly de-risked financial services (now at 42%).

Between 2007 and 2011, a period of recession, Cognizant grew at a compounded rate of 21%. The top three Indian IT companies in order, Tata Consultancy Services (TCS), Infosys, and Wipro grew at 9% to 10%. While the top two are still bigger, Cognizant may just overtake Wipro this year. In April 2009, Wipro’s annual revenues were $4.3 billion against Cognizant’s $2.8 billion in the 12 months ending December 2008. Two years later (fiscal 2010-11) Wipro is at $5.2 billion and Cognizant at $4.6 billion (calendar year 2010). “We continue to be attracted to Cognizant’s secret sauce of reinvesting everything over a specific margin level to drive growth,” said Joseph Foresi, an equity analyst from Janney Montgomery Scott in Philadelphia, in a report early this year.

Yet, this evolution was unfathomable five years ago, when the company could just as well have passed off as a billion-dollar, desi born, American company.

COGNIZANT’S ROOTS ARE IN INDIA, going back to 1994, when it was incubated in Chennai with Satyam Software, then owned by the now infamous B. Ramalinga Raju. Cognizant was the captive arm of Dun & Bradstreet (D&B), a global company that provides commercial information. D&B held a 76% stake, and Satyam, the rest. By 1997, Cognizant became a wholly-owned D&B company. It went public on the Nasdaq the next year. “We learnt to think big and think long term from D&B, which is clearly not in the Indian psyche,” says Narayanan. “The Indian psyche is more incremental; D&B taught us to build trusted relationships and business values.”

But while over 70% of its 111,000-strong workforce is still in India (mainly Chennai), Cognizant is keen to assert its American identity. North America accounts for 78% of its revenues. It expanded a delivery centre in Phoenix, Arizona, when there was the looming threat of an anti-offshore sentiment in the U.S. In August 2009, it built this centre to employ 500 employees over the following year. This January, it doubled the headcount to 1,000 to underscore its role as an American corporate citizen.

Recently, it set up a government affairs office in Washington D.C. to engage with legislators in times when immigration and green cards are sensitive subjects. Cognizant has highlighted the dearth of science and math talent in the U.S., participating in public-private forums and non-profit initiatives to promote such talent. This has given it a substantive lever to discuss immigration, as it is the second-largest sponsor of green cards after Microsoft. “There aren’t enough scientists and engineers in the U.S., so when we talk immigration we also have to talk about how to create skills here,” D’Souza says. Cognizant engages 100 recruiters in the U.S. to find local talent. Analysts say this behaviour positions it as more American than Indian.

BUT IT IS COGNIZANT’S STEADY CLIMB during the recession that has done the most to change perceptions. “It has been a simple and tactical move of how they have positioned themselves,” says Vikash Jain, partner, Everest Group, a client advisory. “A lot of consultants, MBAs, and domain specialists (in auto, media, etc.) would join Cognizant to bag a good role, and not because it was a techie firm.” Unlike most Indian players, who position themselves as organisations that support and maintain IT systems primarily in North America, Cognizant sees itself as a strategy consultancy company. Technology is merely means to an end.

“Ultimately, we’re here to solve a customer’s business problem,” says R. Chandrasekaran, president of Cognizant’s global delivery. “Sure, we will use technology to solve problems but we’re not just about providing a technology service. We want to solve their business problem and appreciate the customer’s business.”

D’Souza himself is the face of that approach: He has a child-like fascination for gadgets, but is described by Chandrasekaran as the “ideal crossover of the legacy and the modern”. Even while he is playing with gizmos he never loses sight of the broad picture, he adds.

Until 2006, most outsiders saw two broad sets of Cognizant employees at the top: the TCS alumni, such as Narayanan and Chandrasekaran from India, and the D&B alumni, notably D’Souza and Gordon Coburn, Cognizant’s chief financial officer. Both groups had emerged from Cognizant’s early days. Since 2005, there has been a third set, from Nervewire and Cambridge Technology Partners, such as Malcolm Frank, co-founder in both Boston-based consulting companies, along with a stream of hires from Booz Allen Hamilton, A.T. Kearney, and McKinsey.

“Cognizant always had people from diverse backgrounds in senior leadership. That’s why it’s been differentiated,” says Jan Erik Aase, principal analyst of Forrester Research. Chandrasekaran adds that even designations help lower down the order. Cognizant doesn’t just hire engineers and programmers; it hires ‘associates’. “If I brand them as mainframe engineer, it doesn’t enhance their aspirations. They’re likely to leave.” Associates, he adds, stick to a group such as insurance or banking, and specialise there across technologies. “It provides a lot of motivation.”

These associates in offshore locations also draw on what they learn with one client to develop solutions for another. It’s about understanding and applying best-practices, says Chandrasekaran. “When customers want to launch an online platform for policy enrolment, we already have 60% to 70% of the building blocks from previous experiences.” The 40% customisation is based on the client’s requirement. It saves time and money for clients as well as vendors.

This has helped Cognizant stand out from TCS. The latter’s banking and financial services segment is the best (it has also been around the longest in the Indian IT space). Still, it has mastered the offshore delivery model, and is renowned for its operational excellence on the back of mass hires—60,000 planned for fiscal 2012 alone.

In 2000, Cognizant decided to wage a different battle. It had to compete for support and maintenance businesses where TCS had an established leadership. Cognizant decided to try the departmentalised consulting route, with a deeper focus on building relationships with clients. It would acquire client accounts and geographic access by buying out boutique firms and using their industry prowess, and the acquired entity’s clients, as references to build business. This is a shift from the TCS model of vying for big outsourcing projects on the time-and-material model.

In November 2007, Cognizant bought marketRx, an analytics firm in the life sciences industry with clients in U.S. and Europe, for $135 million. D’Souza says the purchase not only deepened its competency, but also helped Cognizant bag a multi-year contract with Eli Lilly this January to improve sales force productivity—it was a coming together of the expertise and clientele of marketRx, and Cognizant’s strength in health care.

This has its flip side. An industry analyst based overseas, who did not wish to be identified, still pegs TCS and Infosys above Cognizant in offshore delivery. He says the two Indian IT majors have demonstrated better processes, scale, and implementation than Cognizant since the early 1990s. Essentially, they have mastered the time-and-material model. So, as Cognizant, a younger company, moves up the value chain and away from talk of labour arbitrage, its delivery approach throws up other questions. “I am aware of things Cognizant has done recently—where in the past they had said ‘no’, they’re now saying ‘yes’,” he says, declining to cite examples for confidentiality reasons. “These [engagements] are big initiatives, and they should have been smarter to know what they were good at. The big projects are very tempting, and they have to get better at (offshore) delivery.”

Cognizant historically has been more willing to say ‘no’ than anyone else in the industry. “Where they have said ‘yes,’ they’re willing to be less risk-averse than Indian vendors who never say ‘no’ but also never take risks,” the analyst says. “But as Cognizant becomes bigger, it will be harder to say ‘no’. That’s where they could be in trouble.” In chasing growth, Cognizant could spread itself too thin.
But Narayanan believes the structural focus by industry will ensure this doesn’t happen. “There are people in each industry who see the demand, and apply the filters—they would see the appeal of profitable growth, and also whether it’s sticky in the long-term,” he says.

FOR THIS REASON, COGNIZANT has arduously developed its cadre of business analysts to interpret technology to business and vice-versa, and to premeditate client demand across industries. Competitors such as Wipro are now catching up on the business-advisory and consulting fronts, with centres of excellence that are distinct from the offshore operations. The Bangalore-based company has client serving arms in India, London, and New Jersey that are powered by hires from the Big Four consulting firms. This is then complemented by centres of excellence in Bangalore that are repositories of case studies from previous interactions; half the headcount is in the overseas arms, and the rest at the centres of excellence.

“We are trying to be project-based or outcome-based,” says Kirk Strawser, managing partner of Wipro Consulting Services. “Starting with that, we want to see the client’s total investment in Wipro rise to $100 million. Plus we offer a blended rate,” he says, suggesting a price point below what an IBM, Accenture or Deloitte charges but more than what outsourcing companies have traditionally billed. “We have had lateral hires from McKinsey, Accenture, IBM, and Booz Allen. We won’t hire someone who has spent a career at these companies, but those who have understood the consulting business with experience of handling accounts, and then gone to work in client businesses. The DNA must be entrepreneurial.”

Cognizant’s impact is exemplified by the change within peer companies. TCS, for instance, now looks to give more autonomy to department heads. Infosys has unified its consulting group with Infosys Technologies to move up the value chain. And Wipro is aggressively shopping for competencies, like SAIC’s oil and gas practice, this April. It is also gathering its clients and teams by business segments.

Where Cognizant is still peerless is in client intelligence. D’Souza pins it down to the Frankfurt Airport meetings, which have almost come to define Cognizant. They are now held on a quarterly basis—people meeting in the age of telepresence. The team that meets is called the Frankfurt team, though two such meetings have taken place in India and one in Boston. They don’t have to be on weekends any more. Only one rule remains the same: Keep the client conversations going.

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