{"id":2533,"date":"2021-11-02T18:00:00","date_gmt":"2021-11-02T18:00:00","guid":{"rendered":"http:\/\/localhost\/projects\/horsesforsources\/cognizant_q3_2020_results_110221\/"},"modified":"2022-04-26T17:16:34","modified_gmt":"2022-04-26T17:16:34","slug":"cognizant_q3_2020_results_110221","status":"publish","type":"post","link":"https:\/\/www.horsesforsources.com\/cognizant_q3_2020_results_110221\/","title":{"rendered":"Cognizant is over the Hump… thanks to the Humph"},"content":{"rendered":"
One of the most over-criticized\u00a0service providers of the past couple of years has been Cognizant. The company which rocketed from $1bn-$15bn in 15 years took full advantage of the pre\u00a0and post-Great Recession offshore boom, the directionless years of Wipro\u00a0and Infosys,\u00a0and a lovable arrogance… which even scared the hell out of Accenture.\u00a0 And all this was achieved with very few changes to its leadership team and an entrepreneurial spirit which was the envy of the IT services industry.<\/p>\n
However, with the pressure of the activist investor Elliott Management’s buy-back in 2018 shortly after its president and operational architect Gordon Coburn\u00a0fell on his sword for greasing the palms of\u00a0Tamil Nadu government officials to obtain building permits, the Cognizant halo quickly faded, and CEO Francisco DeSouza\u00a0departed with revenue growth slumping to 5% and operating margins heading down to the low-teens.<\/p>\n
Brian Humphries’\u00a0patient approach to change has proven the smarter approach considering the complex structure of the firm\u00a0<\/strong><\/span><\/p>\n Enter Brian Humphries\u00a0in early 2019 (see blog<\/a>) to take on his first IT services leadership position having spent most his career in telecoms\u00a0with Vodafone and hardware with Dell and HP prior.\u00a0 While many people thought Brian would cut deep, he took his time evaluating the firm’s long-time leadership – it took the best part of two years for most the old-guard SVPs\u00a0(known internally as “one-zeros”) to take themselves out or require a gentle nudge.\u00a0 Compare this to Thierry Delaporte who joined Wipro\u00a0in 2020 and quietly cut 155 VP (and above) level executives after a few short months.\u00a0 While many onlookers criticized\u00a0Humphries for moving too slowly, he was trying to develop a renewed spirit, professionalism\u00a0and culture without a traumatic break from its very impressive past.\u00a0 Wipro\u00a0had stagnated for years because of a very stodgy and bureaucratic structure which needed a quick, rapid fix, while Cognizant is more than twice the size and needed a more gradual pivot, especially as several former one-zeros had built huge fiefdoms that were not broken, but in dire need of discipline, direction and realignment with the broader business planning across its global business units which were too skewed to the US market.<\/p>\n Just when things were moving in the right direction, enter a pandemic, a ransomware attack, and the write-down of a disastrous legacy client<\/strong><\/span><\/p>\n When you examine the challenges of incoming CEOs\u00a0into very large businesses, there are not many which rival the series of events that Humphries\u00a0has had to endure.\u00a0 After righting the ship in 2019, along came the deep panic of the global pandemic with the seismic adjustments needed just to keep the wheels on keeping their clients’ delivery functioning.\u00a0 And to rub salt into an already gaping wound, the firm was hit with the Maze ransomware\u00a0attack, just as its employees were being rapidly\u00a0transitioned into their work-from-home environments.\u00a0 And, despite these unprecedented disruptions to its business, Cognizant plowed through the worst of these impacts only to be forced to write off around $150m in Q4 2020 from a disastrous acquisition of Finnish developer Samlink, struck shortly before Humphries\u00a0took the helm, which was geared at building a shared core banking infrastructure for three Finnish financial institutions.<\/p>\n Yet, despite these three significant setbacks, Cognizant has risen again, posting three successive high-growth quarters with a strong outlook for Q4 which should see the firm comfortably blow past the $18.5 bn level.\u00a0 This will see the firm likely finish 2021 as the fourth-largest IT services firm in the world, only being surpassed by\u00a0Accenture, TCS,\u00a0and (marginally)\u00a0Capgemini.\u00a0 IBM’s spin-out of its infrastructure services business (Kyndryl) and DXC’s\u00a0decline will likely make this eventuality happen:<\/p>\n <\/a><\/p>\n (Click to enlarge<\/span><\/a>)<\/em><\/p>\n The reason for real optimism is that growth in revenue comes with positive movement in operating margins and EBITDA.\u00a0 With the current issues impacting staff wages and attrition (especially in India), it’s critical for providers to maintain strong margin performance to provide that ability to reinvest in staff recruitment, training and salaries:<\/p>\n