Cognizant rationalising costs to re-invest in talent, expand digital solutions portfolio

Cognizant is exercising "tighter control" over expenses through a slew of measures, including a slower pace of hiring and reduced travel overheads as the IT major looks to re-invest in talent and digital solutions to drive growth. The US-based company, which has a significant number of its headcount in India, said it took "targeted actions" at senior-level executives in the second quarter - a move that is expected to result in USD 65 million of annualized savings.

"...in the second quarter, we took targeted actions at the senior levels of our pyramid to simplify our organizational structure. These actions are expected to result in USD 65 million of annualized savings with approximately half of that to be realized in the remainder of 2019," Cognizant CFO Karen McLoughlin said at a recent earnings call. She added that in the next two quarters, the company expects to further reduce overall costs through a number of actions.

"...including aligning headcount growth with revenue growth by further slowing the pace of hiring and being thoughtful on where we backfill attrition. Headcount growth on a full-year basis will align to our full-year constant currency revenue guidance," she said. McLoughlin said Cognizant continues to focus on its workforce strategy and management and expects to incur an additional USD 48 million of compensation-related costs during the remainder of 2019 for its program to recognize and retain the best talent.

"...there are several areas that we can and will address in the second half of the year to allow us to reduce costs to reinvest in areas to drive growth, including attracting and retaining the best talent and expanding our portfolio of digital solutions," she said. Cognizant is also focussing on higher-value services like digital as it chases higher margins.

The executive pointed out that the company is looking at "greater discipline" on capturing improved pricing levers, further aligning promotions and wage increases with bill rate adjustments, and enhanced oversight on the use of subcontractors. "We will also have significantly tighter control of areas within SG&A such as disciplined hiring of non-billable resources, further rationalization of our real estate portfolio, tighter control over T&E (travel and expense) including significantly reduced travel for internal and other non-client-facing meetings, limiting business-class travels, relocations, etc..." she said.

The company intends to hire over 500 revenue-generating associates over the coming quarters, a combination of customer-facing and sales support professionals. During the April-June 2019 quarter, the company added 2,400 people (net) to take its total headcount to 2,88,200 people. Cognizant, which competes with Indian IT majors like Tata Consultancy Services and Infosys, had posted 11.6 percent increase in net profit to USD 509 million for June 2019 quarter, while its revenue grew 3.4 percent to USD 4.14 billion over the year-ago period. It expects its annual revenue to grow by 3.9-4.9 percent this year.