'We see global, offshore outsourcing converging'

Q&A/ Francisco D'Souza

Francisco D'Souza

Among the youngest chief operating officers of a global IT company, Francisco D'Souza (35) has played a key role in steering Cognizant Technology Solutions to more than a degree of success "" in less than 10 years.

The Nasdaq-listed company, which has a market capitalisation of $3 billion-plus, continues to set faster rates of growth than its Indian peers and has been rated by Forbes as the number one in the Forbes Top 200 Hot Shot list of companies in the world to watch out for.

A co-founding member of Cognizant and a Carnegie Mellon management graduate, D'Souza leads Cognizant's global client management platform and delivery organisation, built on the fourth-generation offshore outsourcing model.

Business Standard caught up with D'Souza to understand what makes Cognizant different and the challenges that lie ahead of him to take the company to the next generation of global sourcing.
Excerpts:

Cognizant has been positioning itself as a pioneer in fourth-generation offshore outsourcing. What do you see as the next generation of outsourcing, and how is Cognizant preparing for it?

I see a convergence of global and offshore outsourcing. Historically, customers viewed both these differently. But today, they are seen as synonymous, and it's hard to talk about outsourcing without talking about global sourcing.

In preparation for this convergence, we are seeing the offshore players trying to get global and the global players trying to get offshore. But we have the unique advantage of having the best of both worlds, and this foundation gives us a significant advantage to play an even more dominant role.

Isn't Cognizant's customer experience easy to replicate?

It's no one thing and it's definitely not easy to replicate. If it were just one thing that Cognizant did better than anyone else, then it would be relatively easier for competition to replicate. But it's an eco-system of the investments we have made and how we serve our customers that makes Cognizant unique.

It, of course, starts with our unique, customer-centric business model. It's also the investments we've made over the years in selling, general and administrative expenses (SG&A).

Traditionally, we have over-invested in SG&A "" about 25 to 26 per cent "" almost twice than that of our offshore competitors. This has helped us build a formidable sales and marketing infrastructure and invest in local practice leaders, client partners, relationship managers and so on.

Our early verticalisation has today gained significant depth, which is another reason for richer customer experience. Our domains experts can have conversations with customers at a domain level and identify business pressure points and provide solutions that are much more relevant to their businesses.

We don't measure our managerial professionals on merely individual account- or project-level profitability. We measure them on the customer experience delivered (measured through our customer satisfaction survey).

Is this model becoming similar to the consulting model?

Exactly. The next generation of outsourcing will also see the building out of a truly global delivery model with local relationship touch points. Cognizant has already started its expansion outside India into other low-cost locations like China.

In the coming decade, it will be quite normal for us to be delivering to customers from multiple locations in the world. A single customer will be serviced from multiple development centres across low-cost centres across countries.

But aren't companies like Accenture and TCS already doing it?

A few companies like Accenture have multiple development centres around the world. The difference is in not in merely having multiple centres around the world, but how you serve a single client out of multiple centres for a single solution.

How we take a project, disaggregate logical portions of it, and distribute it to multiple centres in the world "" that's something that nobody has quite done yet and that may become a reality in a true global delivery model.

But aren't Cognizant and others already doing it in India? Don't you take a project and distribute it across the country, based on skill-sets available? Is replicating this model across the globe so tough?

Yes, we are doing it and that's where enterprise-wide quality assessments are so critical for us "" to deliver consistent quality through standardised processes.

But this global distribution brings in additional complexities of time zone and culture. Within India, you are in the same time zone and high cultural similarities. When you start apportioning logical components of a project across the globe, these two additional layers of complexity emerge.

While starting to service a client from multiple locations across the globe, would the work farmed out be only low-end type of work that could be learnt fast and have no cultural issues?

It would be an evolutionary process. Currently, we are still learning about capabilities and gaining experience in China. As we get more operating experience on the ground in China, we should be able to make our own assessment of the unique competencies that we can find in there and, based on that, we'll service. We are not going to China with the pre-conceived notion that the entry-point work will be low-end work.

The initial feedback is that clients are interested in piloting work in China. Our experience on the ground in China is that we've been able to find talented individuals with reasonable English-language capabilities. But, definitely, finding people with English-language capabilities has been a greater challenge in China than in India.

When will you look outside China? Is eastern Europe an opportunity?

Currently, only India and China represent the potential to scale up volumes. This may well continue for another decade. Beyond that, eastern Europe and other places, like the Philippines, may emerge.

We are already on that map now. Recently, we acquired a company, Infopulse, in the Netherlands. Infopulse has had business relationships with companies in Romania and the Ukraine. We believe we can leverage these locations later as some of these have advantages from a language perspective, outside of English.

Would building a brand in campus and attracting the best talent in China be an issue?

We are just beginning the process of entering China. As I said, we have started work with a couple of our global clients. We are in the process of beginning to hire people in China and have hired a senior person with international experience to run our China operations. Hiring of locals would be an ongoing process. We are confident of building a unique brand in China just as we have done in other locations.

How has the business situation changed over the past 12 months after the offshoring unrest? Has the competitive landscape changed now with the Accentures and IBMs of the world embracing offshoring? Who are Cognizant's main competitors?

There has not been any material change in past one year. One clear trend that started 12 months ago "" of the bulk of the large orders going to the top three or four offshore players "" has been further strengthened. Today, in most of the large orders, the final shortlist invariably has Cognizant, Infosys, Wipro and TCS.

The second trend is that IBM and Accenture have entered the offshore market place and are beginning to be active. The challenge they have is their credibility the offshore space "" the ability to execute from offshore as a unified entity, tying in the onsite and offshore pieces together.

Interestingly, in the past 12 months, the bigger change has been in the context of customers rather than the competitive context. Customers have become more educated about offshoring. They know what type of granular questions to ask. As a result, IBM and Accenture are having trouble demonstrating to customers a credible offshore capability.

Cognizant has been over-investing in sales and marketing (S&M). Is this sustainable? Would Cognizant look at capping its S&M investment after some time and increase its operating margins "" currently managed at 18 to 20 per cent?

Our over-investment is not necessarily just in S&M but in overall SG&A. We do not see this being reduced or capped to manage a higher operating margin. It's this investment that is helping us post industry-leading revenue growth year on year. And it's this investment that gives us the not-so-easily-replicable differentiation in deep verticalisation.

This year onwards, we have increased our investment in hiring practice leaders, domain experts, business-technology consulting professionals and high-end technical architects. This is important for us to maximise our share of the business by establishing the next tier of relationships in customer organisations.