Making short-term margin trade-offs to accelerate growth: Cognizant CEO

Strong performing employees will be rewarded for what they have done, he says

IT services major Cognizant posted a 30 per cent decline in net profit in the quarter ended September (Q3) at $348 million even though the Nasdaq-listed company’s revenue remained largely flat at $4.2 billion on year-on-year basis. BRIAN HUMPHRIES, CEO of the Nasdaq-listed firm tells Sai Ishwar & Bibhu Ranjan Mishrathat the firm would have shown an uptick in terms of revenue in Q3 if not for the exit from certain non-strategic content services business. He also talks about why the firm has rolled out selective salary hikes and promotions from this month. Edited excerpts: 

How do you look into the financial numbers? Margins look a bit disappointing... 
 

In terms of top line, we have grown in every segment if you see on a constant currency YoY basis, ahead of Wall Street’s expectations. We have had six upgrades in the past four months and shareholder returns year-to-date is up 15-20 per cent. With regards to margins, it's actually a really good story. We are making some short-term margin trade-offs to invest in the business to once again accelerate growth. And, those investments include talents. Our bonuses are being included at substantially higher levels in 2019. We are implementing merit-based promotions and raises in Q4. We are also investing into digital where we are conducting mergers and acquisitions and building out our digital capabilities. The other investments include things like rebuilding our bench with key skills, accelerating our investments in marketing, and commercial hiring. 

Do you think the worst phase of Covid-related impact is over for the industry?
 

What we feel good about is the momentum we have seen. Our bookings were up over 25 per cent in the quarter, which tells you that behind each booking is a customer win. We think there is momentum in the market. There is also a trend of vendor consolidation, which will certainly benefit Cognizant. Our portfolio is less exposed to the more troubled segments than some of the rest in the industry. And, most importantly, we have a lot of momentum in digital. Covid-19 has widened the digital divide between the digital natives and the legacy-economy companies have struggled to shift to a fully-digital operating model. We are well-positioned to benefit from that and to accelerate our digital portfolio even more in the year ahead.

Are you going for a selective salary hike?
 

We have certain cultural values. We launched Cognizant Agenda last year. It contains our purpose, vision, goals and our moves and values. And, one of our values is about creating conditions for everyone to thrive. But we always want to strive and never settle. And, that speaks to a desire to drive meritocracy. We will roll out merit-based promotions and compensation raises. So, the strong performing employees will be rewarded for what they have done. 

Was meritocracy not the case earlier as well?
 

It wasn't always that case in the past. We are driving the performance culture nowadays. 

What is the impact of ransomware on Q3? You said the maximum impact would be seen in Q2.
 

What we said in our previous position remains. We have a lot of momentum in our business and are well-positioned for the future. No major news on ransomware. We are continuing to remediate and modernise our environment. 

Q4 is said to be a seasonally weak quarter due to holidays and furloughs, while US elections are adding on it this year. Will it impact business?
 

At this moment, we are investing in growth. This is along the lines of talent, digital, IT modernisation and overall brand. We are confident we have momentum as we entered the latter part of the year. Cognizant is delighted about the strength of our leadership team and we are now starting to get our mojo back.

You have recently appointed a new chairman and MD for India. What does it mean for your people here?
 

We are delighted to welcome Rajesh Nambiar to the team. I see his role in two ways — it is a much more senior and elevated role and, for the first time, the India MD is reporting directly to the CEO. About his responsibilities, they are a little bit external, which will help with our brand position in India and enhance our relationships with the media, universities, chambers of commerce and governments. The internal role will be effectively enabling it to be the voice of our nearly 200,000 associates in India. India remains a critical hub and having Nambiar based in India will be a very strong statement of our commitment to India.