Cognizant: New Technology 'Horizons' Are Driving Growth

On The Call

Cognizant posted healthy earnings for its first quarter, reporting $2.42 billion in revenue, up 19.9 percent over the same quarter last year, and hired 7,200 employees. While the solution provider, No. 10 on CRN's Solution Provider 500 list, saw some headwinds in North America due to weather, seasonality and the Affordable Care Act, the company said that it doesn't expect those changes to continue into upcoming quarters. After the earnings call, Cognizant CEO of IT Services Rajeev Mehta sat down with CRN to discuss the factors that are driving growth and what opportunities and challenges lie ahead.

What's the most exciting thing for you from the last quarter?

I think the most exciting thing, obviously, is overall healthy growth. I think we started out the gate a little bit slow in North America and very slow in the other sectors of Europe. I think the most exciting thing for us really as we look at our businesses now, Cognizant in the past has obviously had a strong North American financial services, health-care business but what you're starting to see now is a good diversification in terms of other service lines. You saw Europe grow really strong for us; you saw products and resource business really kick in.

Can you elaborate on why there was slower growth in North America? Will that change?

When we had a little softness in terms of startup with North America and, especially, you had the whole seasonality with some of the weather-related stuff that we had in the beginning of the year, where everyone was just trying to get into meetings to try to figure out what the budgets are going to be. ... Yes, we totally do [expect a turnaround]. We totally expect that and we saw that with a lot of the deal closures that happened late Q1. I think those are little seasonality things that happen, but we do expect North America to continue to drive growth for us.

How did you balance out your portfolio with more growth in Europe?

I think that’s really what we've been focusing on over the last couple years, diversifying. We've made a lot of investments in Europe, as you saw a couple years ago things were slow with the economic crisis but they've come back. We've seen our European business really kick in. New services offerings -- our [Horizon 2] business and [business process outsourcing] and consulting are really starting to develop into large-scale businesses for us. The diversity of the business, I think we're very excited about that.

Can you dig into how you're evolving your go-to-market strategy?

For the last three years now we've really looked at the company along what we call these three 'Horizon' models. We have the [Horizon 1] side of the business, which today represents almost 80 percent of our business. That's really focused on your application development, maintenance side of the business. ... It's growing very healthy for us and a lot of demand still exists in that business. ...Then we have the [Horizon 2] side of the business, which is our [business process outsourcing], infrastructure and consulting. These businesses are driving very high growth because these are industries that are just starting to embrace a global delivery model. They're starting to embrace it in a much larger capacity. ... Then our Horizon 3 offerings are really the offerings that we think are best for our future, so that's your social, mobility analytics and cloud. Last year we drove about a half a billion dollars in revenue in those areas.

What do you expect for growth across those three Horizons?

We're significantly investing in these businesses and we think that over a period of time, our [Horizon 2] businesses will become [Horizon 1] businesses and our [Horizon 3] business will become [Horizon 2]. ... We think that is going to continue to develop momentum in 2014 and beyond. Obviously ,in 2014 we think we will add to those number of platforms that we have out. We think [Horizon 1], [Horizon 2], [Horizon 3] are all growing businesses and will all continue to drive growth for us over the next several years.

How does that compare to your competition?

We've always been working with our clients to run better and run different, and we think we have a very unique model in place because of the client centricity, the heavy investments we've put in in terms of strong front-end teams, our consulting capabilities. That model allows ourselves to compete very effectively with some of the global delivery companies and really push that cost and efficiency angle when the clients need it. ... When the economy is down, everyone is looking to save costs. ... When the economy is doing well, we can still help drive costs down but we can help discretionary spend as well.

Which phase are we in now? Investment or cutting costs?

I think it's a little bit of both. There's a lot of focus right now with the CEOs and, at the board levels, technology has really come front and center. We're seeing a lot of focus right now beyond the CIO. That is encouraging. I see companies are looking at it in terms of how do you ride the next wave of technology? So it's front and center. Given that we're still in a difficult situation, it's not like IT budgets are exploding to fund all of this, so the CIOs are in a difficult task of we've got to balance both sides of the spectrum. ... Technology has become a clear differentiator. We are excited about it.

When you say people are getting excited about technology, where is that demand showing up? Hardware sales? Software sales? Services?

I wouldn't say so much in terms of hardware sales. It's more things in terms of software services that you're seeing and certain solutions that we're selling. ... We leverage existing infrastructure, whether that's leveraging partners such as Amazon or Google in terms of providing the cloud platforms or leveraging the data centers that Cognizant has. ... It's really about solutions that we have and that we can provide a certain business. ... I think you'll see more and more of these kinds of things develop in the future, especially as companies want to be able to scale up and down toward their business needs.

Are you seeing an uptick in your services business as clients look for more software solutions vs. hardware solutions?

You're starting to see that, more and more opportunities that we're engaged in. ... You're starting to see more of those conversations about how do you take that client platform and along with that do you take the technology and operations and provide it back to a service to that particular client and others as well? It's pay-by-use as the demand for the clients goes up and down; you're starting to see that as a future trend and I think you'll hear more and more about it this year as well from Cognizant. I think it's going to be a big core part of our strategy.

What is the biggest opportunity out there for Cognizant right now?

I think the market is huge. I think there's immense opportunity out there. It's really about execution from our side. I think the growth is happening in all three Horizons. Each one of the Horizons has different characteristics, different types of people that you need to go, different areas of maturity as well in terms of our practices. I think it's really being able to push along all three spectrums. I think that's the most important thing about executing with that.

What about the biggest challenge?

I think the ways solutions, projects and overall technology, how is it delivered today, is going to be totally different in the next couple years. It's really important that we build out our capability and skill sets and really work with our clients and continue to invest in that area, continue to look at areas in terms of acquisitions that we build out in those areas.

What should we keep our eyes out for with Cognizant going forward?

I think you should continue to look out for us in terms of Cognizant Business Cloud Solutions. That should be on your radar. I think you should continue to expect industry-leading growth from Cognizant. I think you should continue to look at the investments that we make to really drive all these three Horizons. We made some acquisition announcements that really focus on all three of these Horizons. ... You'll see a more robustness in terms of geographies. You'll continue to see continued diversity in terms of verticals as well and just the service offerings, not just technology or application maintenance or development anymore, you'll continue to see the service lines build out as well.