Cognizant's attrition woes are now beginning to hurt its revenue, as it was forced to let go of new business due to its inability to hire talent. It is now putting in place measures that include training, quarterly promotions, and job rotations to provide more opportunities for growth and stanch attrition.

"Although we executed well in the quarter and delivered against our expectations, revenue upside was limited by elevated attrition, reflecting the intensely competitive market for digital talent that we spoke about in our last earnings call. This put some pressure on salaries as rows were filled by lateral hires or contingent workforce. And in some cases, commercial opportunities were forgone due to an inability to source talent," Cognizant CEO Brian Humphries told analysts in a call after the software major's first-quarter earnings.

He added that in order to address retention challenges, it has been executing a multi-part plan that includes stepping up its internal engagement efforts, increasing investments in its people through training and job rotations to provide opportunities for career growth. It is also shifting to a quarterly promotion cycle for billable employees and will make 28,000 offers to freshers in India.

However, it anticipates further sequential increases in attrition in Q2 before a gradual recovery in the second half.

For the first quarter ended March, Cognizant reported revenue of USD 4.4 Billion, a growth of 2.4 percent year on year in constant currency. The company said its revenue growth could have been higher but lost out due to a shortage of talent.

It has raised its 2021 revenue guidance to 7.0-9.0 percent, or 5.6-7.6 percent in constant currency, in contrast to its peers such as TCS, Infosys, and Wipro, which are expected to grow in double digits this year due to higher demand. It has cut its EBIT margin guidance to 15.2 percent-15.7 percent, from 15.2 percent-16.2 percent. Its annualized quarterly attrition (including BPO) rose to 21 percent in March 2021, up from 19 percent in the previous quarter.

While Cognizant continues to see a high attrition rate, its Indian peers reported low attrition rates over the last few quarters, though it is likely to go up with market opening up and opportunities increasing. For instance, TCS, Infosys, Wipro, and HCL Tech reported attrition rates of 7.2 percent, 15 percent, 12 percent, and 9.9 percent respectively.

Since Humphries took over in April 2019, the company has seen exits across levels. He had indicated a deep surgery as part of an effort to restructure the company and make it more nimble.

Analysts at Kotak Institutional Equities have flagged three challenges for the company in the near term. It said Cognizant has lost market share to peers, due to insourcing, with a ransomware attack also impacting service delivery. So it may not benefit from vendor consolidation in financial services. It has also not announced large deals such as TCS, Infosys, or Wipro, missing out on large revenue opportunities.

"In addition, challenges in talent retention and sourcing of talent can create execution challenges which will not go unnoticed given shorter duration and frequent back-fill nature of digital projects," the note said.