M+E Connections

Digital businesses will continue to make up an increasingly larger part of Cognizant’s revenue and, if its strategy is successful, there will be very little of its business not digital in the not-so-distant future, according to Jan Siegmund, its CFO.

“Two or three years out, you will see, in a good outcome… Cognizant not talking about digital revenue anymore because the vast majority of our business is like that,” he said May 11 during the online MoffettNathanson Annual Payments Processors and IT Services Summit.

Cognizant recently reported strong results for its first quarter (ended March 31) that were helped significantly by continued growth in its digital business.

Siegmund, who joined the company Sept. 1, reiterated May 11 that digital revenue growth accelerated 15% from a year ago in Q1, with digital representing 44% of its revenue mix.

Cognizant areas of focus in digital—its “digital battlegrounds” — include digital engineering, analytics and data and Internet of Things (IoT), he noted.

When joining Cognizant, he realized that shifting into higher growth areas was one action that was needed over the next 3-4 years ago for the company to be successful, he said.

Cognizant’s Strategic Transformation

And a “strategic transformation” was needed also, Siegmund pointed out. That strategy, which it is in the middle of now, includes the strengthening of Cognizant’s brand. “We don’t want to be known only for a legacy IT type of service; we want to be known for innovative solutions and differentiation,” he explained.

Other parts of the strategy are the further globalization of the company to expand its client base and for Cognizant to become more relevant to clients, he said. But changes like these take time, he said, adding: “I think we have work to do and we’re making progress.”

The company has also accelerated its acquisitions of small- and medium-sized companies in strategic areas, he noted.

“It would be not a big leap of faith to assume that, when we look at this industry, that we as a company have ambition to shift share onto our side,” he explained. “And the share shift should come organically but also will be aided by M&A,” he said.

A shift in meaningful international revenue has not happened yet, he said, noting there are more opportunities outside North America. There is “more work to be done on that component” of the strategy, he conceded.

Attrition Update

An area of concern for now, meanwhile, is attrition and there are “opportunities to improve” there, Siegmund said.

“Although we executed well” in Q1 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,” Cognizant CEO Brian Humphries told analysts on the last earnings call.

Echoing comments made by Humphries, Siegmund said the company has increased its hiring and recruitment capacity and is able to “onboard” new employees quicker than before. It has also “fine-tuned our competitiveness relative to compensation and benefits [and] we have improved our overall posture,” Siegmund said.

The company saw an improvement in resignations in the first quarter and that continued to improve in April and May, so there is a “positive trend” now, although Cognizant still expects to see some impact on attrition in Q2, Siegmund said.