Despite tough times which have forced certain sectors to go soft on discretionary spending, Cognizant is running home with multi-million-dollar deals. Speaking at CNBC-TV18's New York City edition of 'On The Record' with Shereen Bhan, Cognizant's recently appointed CEO Ravi Kumar explains how he has kept his foot on the accelerator.

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Besides identifying key growth areas and initiating cost-saving measures, such as moving to tier-2 cities, Ravi Kumar emphasised Cognizant's intention to pursue acquisitions that would address capability and geographic gaps. Fighting attrition with measures to attract high-skill talent, he also outlined a three-pronged strategy for Cognizant's future.

Below are the excerpts of the interview:

Q: Take me through what the last four months have been like for you?

A: I joined in January 2023 and it has been a great time. I have gone back to the archives of the company, the history of the company. You can learn a lot out of it.

There are three things that kind of resonated about what Cognizant is. Cognizant is a very young company. It is only 25 years old and has deep roots in India. We are the second largest employer in India in tech services space and probably the most invested American firm in India. We have 2,60,000 employees in India.

The three things which struck me as I curated my insights are, Cognizant has a growth mindset and so I want to make sure that we accelerate and create growth momentum inside the firm. The second is it has a founder's mentality and an entrepreneurial spirit and that is the reason why Cognizant has been so fast growing. The third, I would say, is client centricity, flexibility and the ability to co-create with clients.

When Cognizant was born in 1996-1998, it was the tail end of the Y2K boom and the start of the dotcom bust. At that time, as it was getting built, it was built for the next generation of technology coming in, which is application outsourcing. The dotcom bust was important because it left a lot of telecom infrastructure freely available, and so you could do more things beyond Y2K. So Cognizant built the entire value proposition on a confluence of technology and industry, flexibility and co-creation with clients and a huge entrepreneurial spirit. These three if I can curate it and I can catalyse the heritage, I think we have a winning combination.

Q: Speaking of catalysing the heritage to ensure that it is a winning combination, what is it going to mean in terms of tangible next steps now? You have already started to address that — the expectation is that with some of the measures that you have taken you will be able to arrest the market share decline as well as grow market share. You are also in the market to add to your large deals, we have started to see some movement on that front, but what is the winning strategy going to look like in terms of tangible next steps?

A: The first quarter, which is the first earnings for me, we had a 28 percent increase in bookings year on year (YoY). 30 percent of those bookings came from large deals. We have created a lot of outreach on large deals and we have created a lot of infrastructure inside the company to cater to those large deals. So I am very confident that that runway is going to work.

Q: $100 million kind of deals — what could the pipeline look like potentially?

A: More than $50 million TCV (total contract value) is what a large deal is, and 30 percent of our bookings last quarter was that. Whatever bookings we do now will give us opportunities with back loaded revenues.

Secondly, we want to be an employer of choice. We are a big employer in India. Our attrition rates have started to fall, and so, the trend is looking good. The quarter is still on, so I'm tracking that number very effectively. We deeply believe that we could be an employer of choice, and there are multiple things we do well. We create global mobility for our employees in India. In fact, we are one of the biggest platforms for global mobility in India. We hire from schools and build careers with inward mobility — internal mobility for our employees who can traverse the capability value chain and get global opportunities. We have a big learning infrastructure — 25 million hours of learning happened on our platform last year. We are also a very purposeful platform. In India, about 40,000 of our associates spent almost 2 lakh hours on community work, on re-skilling. So there are a whole bunch of exceptionally good employee value proposition levers which actually hold for Cognizant as a company.

We are very entrepreneurial, that gives the ability for our employees to explore more. In fact, I launched an initiative called Blue Bolt, which is an initiative around grassroots innovation. And we want the employees of Cognizant to incrementally explore more things beyond doing project work.

The third, which is what I did in my earnings, is to have operational discipline and simplify our operations. So what I did was I announced a program called Next Generation where I am taking out costs and I am actually transitioning my real estate to tier two cities in India so that structurally I can transfer those savings back to growth infrastructure and catalyse growth. Growth is the panacea for all problems. I think it will have an operating impact on my margins as well. So I kind of created the whole playbook.

Of course, the market is very uncertain. Some sectors are continuing to be very soft, discretionary spend is very soft.

Q: Is it looking worse than May? In May, you said that you were seeing clients holding back, you were seeing clients holding back on discretionary spends, the environment was looking soft, do you continue to see that revenue softness?

A: There's no change in my narrative since what I said in May. Some sectors are impacted on discretionary spend and it's also falling off the cliff in some places — financial services is (one such) sector. Of course, we have a huge presence in healthcare. In fact, our healthcare economy is one of the largest in the world. Between healthcare, health equipment devices, life sciences, we are the biggest provider and that is resilient to economic cycles. So that's an advantage we have.

But overall, I am seeing a lot of large deals. Large deals come in two swimlanes. One is cost takeout out efficiencies and vendor consolidation, those deals are actually more active, when the economic cycles are soft, and we are seeing more of that. Then there are transformational deals which come with discretionary spend. They are much more softer. We are seeing less of them. Hopefully, we can transition to them over a period of time. The smaller deals which have a discretionary spend are very soft. So I think this is how the market is evolving. And I'm hoping that the progress we made so far, as well as what we are planning to do for the future, I am very hopeful that we could bring back the growth mindset of Cognizant.

Q: By when do you believe that you will be able to get closer to your peers, if not on par with your peers in terms of growth?

A: It's hard to say when it would be but what I am certain is bookings momentum, as I said in the first quarter with a healthy pipeline, is looking good. I think it's a virtuous, self-reinforcing cycle of employees and clients. I mean we all think demand is what is needed, but you need a self-reinforcing virtuous cycle of employees and clients. If your employees stay with you, your clients come to you, if your clients stay with you, your employees continue. If you're on that cycle, it's easy business, if you're not on that cycle, it's a hard business.

Q: As part of your winning strategy, are acquisitions likely to be a big driver as well? You have done about four recently. How big of an emphasis is that going to be?

A: Our capital allocation policy has been stated to do acquisitions. In fact, 50 percent of my free cash we use for acquisitions, that's the stated policy. I have not changed that policy. I think acquisitions have contributed well to digital capabilities and gaps which we had. And we have always used that as a way to fill the gaps. I am going to continue to look for meaningful, purposeful acquisitions, which will continue to give us acceleration. The last one I did was a mobility asset.

Cognizant built its value proposition on a confluence of industry technology and I told you how their heritage is. We also actually are a big platform player. Our healthcare platform TriZetto has two thirds of the insured population of the United States on the platform. So I am going to look for M&A activity either on platforms, industry domains, or gaps in geographies where we don't have a presence. We are a little more dominant in the US — 75 percent of our revenue comes from the US. So I am under-indexed in other parts of the world. So we could fill the gaps using that. Equally, we have a huge presence in healthcare and financial services, and we have a lesser presence in other industries, we could fill the gaps using that as well. So it's a strategic tool. I am going to use it as needed.

Q: You talked about the cost saving that you hope to accrue on account of downsizing your real estate as well as the layoffs that had been announced, about 3,500 that you announced in May? Are you done with that? Or do you believe given the environment more will need to be done in order to protect margins?

A: So we made that announcement last quarter, we made some progress this quarter and that will continue for this year. I made a conscious call to only look for structural shifts. Structural shifts of cost hopefully won't come back.

So, there are two things impacting — one is the 1 percent of the workforce, the 3,500 people we spoke about, that is related to non-billable roles and we are also ride shoring some of those roles to places like India, and these are roles which are not on projects. This is not people who are on bench, these are non-billable roles.

The second is, my own personal belief has been that in India 40 to 50 percent of the IT workforce has moved to tier-II cities during the pandemic. And the social fabric of India is designed in a way that people who have families, actually live with parents. So they have gone and lived with parents; it's a convenient model, and they have not come back to tier-I cities. And looking at the aspect, that flexibility cannot be at odds to productivity, we think we can move work to where people are. So we are actually going to move a lot of that work to tier-II cities. And hopefully we can tap into the pool, retain more, gain more talent, and in the process also save costs.

I also believe that 100 percent of my workforce is not going to come back to work. So a combination of moving to tier-II cities and not going back to work, we are shrinking 80,000 seats. I think we will have enough to continue our work. And as that savings is ploughed back, there is elasticity in the way we do work. Our SG&A costs don't go up along with revenues linearly, they don't go down linearly with revenue. So I am hopeful that some of that I can use for growth.

I have only announced that we are only going to do 20-40 basis points on a margin expansion. So I have a lot of cushion to keep that kitty with me to use it to invest in growth. So that's my endeavour.

Q: Speaking of investing in growth, the artificial intelligence (AI) bet — and I know that you have started work on that over the last few months that you have taken over. What is that potentially going to mean for you? How do you intend to sort of absorb this opportunity at this point in time? And the second, which is the challenge that the board has thrown your way, which is to diversify and bring more women across the ranks and file of the organisation? How do you intend to deliver on both?

A: I fully agree with my board that growth lies in heterogeneity, and heterogeneity will come with a diverse workforce. So I am fully committed to making Cognizant a very diverse, inclusive. We are otherwise a diverse, inclusive workforce, but we want to do more. We want to make that a differentiator for our employees and for our clients.

There are a variety of ways to do that, our hybrid work is going to embrace more women at work. We do believe flexibility is not at odds to productivity. So giving that flexibility will allow women to be in the workforce more. We have a large pool of women at the bottom of the pyramid. How do we actually traverse them through the journey and don't lose them on the way?

There are a variety of techniques which we are applying on our workplace top down. We have metrics for our leadership, including the board and including myself. We have metrics for the board that our executive leadership team has to have a percentage increase in women. And that is not just me, the next 300-400 leaders in the company have those goals. We are also looking at ways to go to the adjacencies of our industry to bring women back. One of the things I am very fascinated about is women who have left and who want to come back. We are almost opening up a green channel for them. So there are a variety of ways to do that.

So we are very committed to it, we think it is going to help us significantly in the products and services we build in the market. We do believe that we have the infrastructure, the mindset and the culture to do it. And that could be a differentiator for us.

Coming to AI, it's a fascinating conversation. The narrative has gone all the way from what AI can do to AI will save the world to AI will destroy the world. I do believe AI is going to be the biggest discontinuity in the technology space, it's going to amplify human potential. It's going to take away jobs of the past but it will create significantly more jobs of the future. And that bridge can only be built through reskilling. And we are at the cusp of it as a company and we could completely capitalise on this opportunity.

Q: What will it mean in terms of things like pricing for instance, does it help?

A: I will quickly dissect this into two parts. In our business model, we have a pyramid with the bottom of the pyramid doing a lot of repetitive tasks. So when AI comes in, it is this notion that the pyramid will break. What happens to people who have lesser skills? My own philosophy is, a smart engineer will always use the tooling and instrumentation even if we don't subscribe to it or we don't consult with them. An average engineer wants the organisational infrastructure to have the tooling for them to be very productive.

30 percent of the code even today is written by AI. So we think as we make engineers productive, we can create upward mobility in the jobs and take the non-productive jobs and take the repetitive jobs to machines. So we make more productivity and as we make more productivity, I am hoping that we could create more prosperity and more upward mobility for our employees.

The second shift I would believe is, if AI is going to take problem solving — and problem solving is how workplaces were built since the industrial revolution. Problem finding – the new big endeavour for humans will come from cognitive diversity. We think we should hire disciplines much beyond Stem, like liberal arts, design, anthropology, sociology, psychology disciplines, which will allow us to create that amplification of machines and humans working together. That's what happens to our business.

Our clients, businesses, we have a wonderful number of opportunities. The large language models are the foundation models which are run by big tech companies. They are not production grade. You need a lot of heavy lift, that heavy lift will come from fine tuning the model. And that heavy lift will come from adding judgement to the prediction of the models.

I will give you an example, if you are asking an AI model to predict the percentage of rain based on data, it will probably predict the percentage of rain based on data, it is not going to tell you whether you should carry an umbrella. That will only happen if you are able to feed context with a set of human specialists or specialists who can train the model. I call them the reward function engineers or prompt engineers as some call it. So that whole heavy lift will be done by companies like us. The use case discovery, the heavy lift, making AI more responsible so that it becomes production grade, so that it can amplify human potential.

I am excited about the productivity lever it is going to give to our clients. I believe our clients will go through a reengineering. Large enterprises will go through reengineering and that wave of reengineering will be powered by AI and we will handhold, orchestrate and partner with our clients to do that. So the opportunity is only more than before and therefore I am excited about what it does to tech services companies. We have taken a head start on it. We made the announcement of Neuro AI a couple of weeks ago. So I am excited about what it does to my model, as well as what it does to our clients.

(Edited by : Pradeep John)

First Published:Jun 16, 2023 10:30 PM IST