Cognizant's strategic inorganic forays help it tide over sluggish economy

While growth slowed down, Cognizant Effectively synergised its competencies and delivery capabilities with strategic inorganic forays. With a multi-pronged client engagement model and with a blended strategy of traditional VS new service delivery, Cognizant managed yet another good year and secured its # 2 position in the DQ Top 20 Rankings for 2015

Looking at Cognizant’s performance in FY15, if we were to pick threads, the key ones that stand out relate to the significant slide in its growth which came down to 18% from the last year’s massive 34%. The slowing down of the growth is the reflection of the wider trends and the overall sluggish demand scenario. Notwithstanding, an 18% growth in itself is indeed impressive.

Let’s look at how verticals panned out for the company in FY15. In Q4 FY15, its BFSI revenues grew 3.6% sequentially and 13.4% YoY, driven primarily by continued strong growth in its insurance practice. What drove Cognizant’s revenues in the BFSI space related to client engagements on cost optimization and vendor consolidation, regulatory compliance, and cybersecurity. In addition, Cognizant saw an increased focus on newer technologies in digital and automation, particularly in areas to improve customer experience and drive digital customer self-service.

During the same quarter, its healthcare segment, which consists primarily of its payer, pharmaceutical, biotech, and medical device clients, grew 13.8% sequentially and 42.7% YoY. However, its payer clients continued to take a cautious approach to spending. Cost optimization is still a key driver, while clients are also looking to leverage analytics to drive profitability and improve customer  retention.

The company says that the payer sector is undergoing fundamental changes, driven by a changing regulatory environment, increasing focus on medical costs, and the consumerization of healthcare. The company believes these changes create longer-term opportunities. Q4 also assumed significance for Cognizant as it further synergized its TriZetto acquisition and went to market with combined offerings. To further leverage this asset, Cognizant moved aggressively to increase staffing. It added 500 consultants, who are either already deployed—or trained and ready to deploy—to assist in driving revenue synergies. In addition, the company added 300 people in its global delivery centers to accelerate product development on TriZetto platforms. The company says that this action is already paying off. In the Q4 alone, Cognizant was selected for synergy deals with a total contract value of $200 mn, with a number of additional deals in its pipeline. Meanwhile, in the pharmaceutical business, it continued to see a trend towards multi-service deals across infrastructure and IT services, leveraging cloud technologies and platforms.

Additionally, the company is seeing a steady demand driven by vendor consolidation and cost optimisation across many existing and new clients. The company saw good traction from its acquisition of Cadient, where it added nine new logos since closing the acquisition late last year.

Looking at other verticals, Cognizant in its retail and manufacturing segment secured a growth of 2.7% sequentially and 7.2% YoY in Q4 FY15. Here it saw good demand particularly in the areas of modernising supply chains as well as digital and eCommerce engagements. For a large retailer in Southeast Asia, Cognizant is in the process of implementing a digital eCommerce platform to deliver a seamless omni- channel shopping experience for their customers.

As we look at the year went by, Cognizant says that it was able to balance out its traditional service offerings more broadly and at the same time driving demand for integrated, multi-service deals—solutions that typically include a combination of consulting, IT services, BPS, and infrastructure services, while also exploring new frontiers of cost and operating efficiency through new asa- service utility or platform-based models. This helped the company create variable cost structures, enhance efficiency, and drive agility and time-to-market.

This trend, the company says, is creating significant opportunities for services firms such as Cognizant that have the right portfolio and hence are able to create a multi-tower engagement model.