Recently Cognizant Technology Solutions was in the news when the IT services major reportedly handed out annual salary hikes as low as 1 percent for some of its employees. It was also reported that the company had been offering decadal-low pay packages to freshers. The company rolled out increments after deferring them by four months. The hikes are reportedly in the range of 1 to 5 percent. Around the same time Rajesh Nambiar, the chairman and managing director of Cognizant India, resigned from his position after serving the company for four years and has been replaced by Rajesh Varrier as India CMD.
The company is also planning to consolidate its operations and as a result has also put up its Chennai property which currently serves as its India headquarters. Is the IT services major looking at challenging times ahead or it is just part of the strategy that is being similarly followed by many other IT services firms.
“Cognizant has been through significant changes in their leadership cadres over the last few years. This situation typically involves consistent retooling of the organisation structure and processes, often results in changes in strategic priorities and focus. IT services as an industry is passing through a rough patch due to the adversities in the business environment and rapid changes in technology,” Aditya Narayan Mishra, MD and CEO of CIEL HR told THE WEEK.
The former Chief Executive Officer (CEO) of Cognizant, Brian Humphries, was involuntarily terminated without cause, by the Cognizant board in January 2023 and was replaced by Ravi Kumar S. Many industry analysts had said that Humphries’ services were terminated because the company's revenue's were not catching when compared to the competition.
In an exclusive interview to this correspondent in August 2020, Humphries who had joined after Francisco D’Souza left the firm in 2019, had said that under his leadership he was focused on returning Cognizant to its position as the IT services industry bellwether. To achieve this, a combination of Cognizant veterans and newcomers was required who could bring in fresh perspectives to its business. He had said that he wanted to create a senior leadership team that balanced internal promotions with external hires.
The Nasdaq-listed firm which follows a calendar year had reported a nearly 6 per cent decline in net profit to $546 million for the first quarter ended March 31, 2024, down from $580 million a year ago. This translated into a decline in net profit by 5.9 per cent year-on-year (YoY) to $546 million YoY, for the first quarter FY24 ending March due to a continued slowdown in discretionary spending by clients which the company has been witnessing.
“Companies are forced to adapt to these changing scenario and hence, readjust their strategies to deal with the evolving challenges. In this case, they are acquiring new capabilities by acquisitions, preparing their existing workforce for the upcoming projects and at the same time optimising their costs to improve their ROCE (returns on capital employed),” added Mishra.
After the Q1 of CY 2024, Ravi Kumar S., the Chief Executive Officer at Cognizant, had stated that their clients were navigating an uncertain economic environment and their company was adapting to the market dynamics by helping them achieve operational efficiencies, supporting their innovation agendas, and preparing them for AI-driven transformation across their businesses.
Just a couple of days back reports came in that Cognizant is also selling its prime property in Chennai. Apparently this had served as its India headquarters for over two decades. It is expected that the 15-acre land with a four lakh sq ft office space situated on Chennai's IT Corridor is expected to fetch the IT major around Rs 800 crore. However experts point out that the aim of the company is to be asset light. This has been part of the company's strategy to sell its office assets in Hyderabad and Chennai as part of its strategy to become asset-light and capitalise on non-core real estate.
Cognizant has also given a weak revenue outlook for the CY 2024, as businesses cut back on IT spending amid high interest rates and persistent inflation. The company has also stated that it is likely to end the year with a revenue of $19-19.8 billion, against $19.8 billion estimated by analysts.
IT services companies such as Cognizant are expected to continue with cost cutting measures in the near future as enterprises across the globe are embarking on such cost reducing techniques. Though the intent to invest in technology remains, with a focus on digitalisation, automation, back-end systems and AI initiatives, catch-up is possible once macro improves. There has been a higher focus on digitalisation, automation, back-end systems and AI initiatives. Therefore, enterprises are looking to invest in technology initiatives that can drive better productivity, with an emphasis on digitalisation and automation.
Experts believe that microeconomic forces in the IT sector are driving these current trends in India. The oversupply of talent, combined with quasi-stagnant demand, is putting downward pressure on salaries and this could be early premonition of secular deflation.
