Wednesday, December 7, 2011

Two in a box – Cognizant

Cognizant Technology Solution Corp. is an American global provider of custom information technology, consulting and business process outsourcing. Cognizant has been named to Fortune magazine's 100 Fastest-Growing Companies list for nine consecutive years, including 2011 when it was ranked first in the "All-Stars" list of 16 companies that appear on the fastest-growing list year after year[1].
  • Founded in 1994 as an IT development and maintenance services arm of The Dun & Bradstreet Corporation, Cognizant was spun off as an independent organization two years later and has been listed on Nasdaq since 1998.

    Headquarters: Teaneck, N.J.
    Employees: 64,000 associates
    Geographic reach: 50 global delivery centers in 15 cities and in five countries around the world
    Revenue: $2.8 billion in 2008, an increase of 32 percent over the prior year
    Customers: 569 active clients, including 46 of the Fortune 100 companies
Cognizant has put up past EPS growth rates of 35.6%. Meanwhile, Wall Street's analysts expect future growth rates of 18.7%.Here's how Cognizant compares to its peers for trailing five-year growth:


In India, Cognizant is ready to over take Wipro to become the third largest software-consulting firm in terms of quarterly revenue. So, what is really behind Cognizant’s growth? Back in 1998, the company decided to spend any margin in excess of 20% into the business to establish what was called two-in-a-box structure.            

Traditionally, IT companies operate in a fixed manner. Once contracted, planning meeting is held with the client to gather the requirement, project goals, milestones etc. and is passed on to the offshore team. In case of any problem, the client directly contacts the service provider’s account manager. The answer to the client manager lies offshore and thus require after hours or pre-work conference call to resolve. Delays and communication gap results in insoluble challenges and missed opportunities.

Cognizant’s two in a box model helps it to distinguish itself from the traditional mentality as well as helps it to manage its accelerating growth. A senior leader manages the customer relationship in the US while another senior manager oversees services delivery from India. This helped the company to[3]:

1.     Build exceptionally close relationship with the client.
2.     Maintain tight strategic alignment with the client’s business goals and IT strategy to ensure exceptional satisfaction.
3.     Regularly transfer knowledge.
4.     Measure results continuously.
5.     Enforce strict accountability and governance.

This model helps Cognizant to save cost, as it does not have to dedicate specific resources for client. Also it helps in providing a high level of customer satisfaction. This model has evolved since its existence but still revolves around client needs.  

But Cognizant is facing two major challenges currently. One is its over dependence on the US market which contributes 79% of its business[4] and second is high attrition rate. It will be interesting to see whether Congnizant takes over Wipro and Infosys to become the second largest software service provider in India or these two factors will become major obstacles.

[3] Cognizant White Paper : Two-in-a-box.  Relationship Model: Cognizant’s Global IT Services      Delivery Edge

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