Cognizant chasing top 100 clients to up digital services revenue

Firm appoints chief digital officers for each of its verticals

In its bid to garner higher revenues from digital services offerings, IT services major Cognizant has sharpened its focus on the segment through a new client service model.

Under the new model, the company has embedded client service specialists to its 100 large clients apart from appointing chief digital officers for each of its industry verticals, Cognizant's Chief Executive Officer and Vice Chairman Francisco D'Souza has said.

“In our client service model, we have substantially intensified our focus on 100 large clients, who contribute 50 per cent of our annual revenues. To deliver value to them, we have sharpened our account structure with three senior level roles — the client partner, the engagement partner, and the delivery partner,” D’Souza had said at the company's investor day meet last week.

While the client partner focuses on maintaining relationship with the top management of the firm, engagement partner coordinates between client and delivery team. Delivery partners complement the efforts of engagement team by ensuring seamless delivery, the company said.

Apart from these initiatives, the Nasdaq-listed firm with a substantial Indian presence has also appointed chief digital officers at each of its industry verticals along with specialised client service executives. The US-headquartered company has four industry verticals -- financial services, healthcare, products and resources and communications, and media and technology. “This new client service model has been a significant area of investment over the past couple of years,” D’Souza said.

In Q2, Cognizant’s digital revenue grew 20 per cent on a year-on-year basis as compared with 8.3 per cent growth in its total revenue that stood at $4.08 billion during this period. Digital revenue accounted for around 30 per cent of the company’s total revenues in the September quarter.

Cognizant is also betting big on acquisitions to strengthen its digital capabilities. Over the last three years, the IT services firm had invested over $1.6 billion for acquiring 14 companies in its bid to bolster its digital offerings. “Given the way technology is evolving, we are increasing our pace of M&A activity,” D’Souza said.

Cognizant, which has a strong presence in financial services and healthcare segments, has witnessed good traction in other verticals as well. The company, for instance, serves top 30 pharmaceutical clients, nine out of big 10 biotechnology companies, eight out of top 15 industrial manufacturers, and four of five top online companies. “Our market opportunities are going to be larger as digital penetration grows in every sector,” the Cognizant CEO said.

The New Jersey-headquartered firm is also hopeful of improving its operating margin by 10 basis points every year over the medium-term. For 2019, the company expects its operating margin to be around 22 per cent. In the September quarter of 2018, the company's operating margin stood at 21.1 per cent.

Karen McLoughlin, chief financial officer of Cognizant, said the company was expecting its revenues to grow at a compounded annual growth rate (CAGR) of 7-11 per cent in the medium-term. "While organic revenue growth would be in the range of 6-9 per cent (CAGR), acquisitions would contribute another 1-2 per cent on CAGR basis,” she said.

She said the firm would also utilise 50 per cent of its free cash flow in share repurchases and dividend payout over the coming years.