Cognizant's Ambition to Engineer theModern EnterpriseHFS’ take on Cognizant’s vision and strategy under the new leadership of CEO Brian Humphries

Authors:• Phil Fersht, CEO & Chief Analyst, HFS Research

• Saurabh Gupta, Chief Research Officer, HFS Research

• Sarah Little, Director, Content and Strategy, HFS Research

November, 2020

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Contents

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Introduction

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Despite digital everything...

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The end game...

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Cognizant's playbook...

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The Bottom Line

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Appendix. Survey Demographics

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Authors

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About HFS

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About Cognizant

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Introduction

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2019 was a tough financial year forCognizant; its Q1 2019 financial resultsmissed the mark, posting revenue growthof only 5.1% and contracting profitmargins. In 2020, it encountered twinshocks: the pandemic, experienced withthe rest of the world; and, uniquely, a Mazeransomware attack. Clients' expectationsof third-party technology servicesproviders like Cognizant are also changingdramatically in the post pandemic worldand the pace of innovation has never beenfaster. Enter Brian Humphries, Cognizant’sfourth CEO and its first non-founder andnon-Indian CEO. What is his vision andstrategy for Cognizant to revitalize, tosurvive, and to thrive in this pandemiceconomy?

To find out, we conducted a series of in-depth interviews with Brian and spoke withseveral members of his executive team. Wealso surveyed 150 C-level executives acrossthe Global 2000 enterprises to understanddemand-side perspectives on the future ofbusiness and technical services in thepandemic economy and the market'sperception of Cognizant as a servicespartner.

Fundamentally, Cognizant’s purpose is to“engineer modern businesses to improveeveryday life.” The company’s goal is tohelp clients become more software-driven,accelerating digital transformationthrough an organizational DNA of growthand a “massively client-centric” mindset.This means businesses can create whatCognizant calls “ContinuousModernization.”

1 See survey demographics in the appendix.

Cognizant has strong fundamentals as a business and technology services provider–good liquidity, a strongbalance sheet, breadth of digital solutions, a diverse client portfolio, robust client engagement model, and long-standing client relationships. But the last couple of years have not been easy.

I inherited a massive miss in the first quarter of 2019, and then, literally,in the next year, we were dealing with the COVID-19 pandemic and aransomware attack, so it’s hard to go through that and not develop asa leader.”

Brian Humpries, CEO, Cognizant

Despite digital everything, we are still in theearly innings of digital transformation; COVID-19is becoming the burning platform for change.

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The last decade was dominated by digitaleverything. However, most companieshave yet to make the transition to a fullydigital operating model, and, instead, theyare digitizing only select operations. The2020 pandemic changed everything. Over90% of the C-level executives agree thatthe acceleration of digitization will alsoaccelerate the adoption of emergingtechnologies (especially cloud,cybersecurity, and the Triple-A trifecta ofautomation, analytics, and AI) butenterprises will also need to laser-focus onROI as we enter into a recessionaryeconomy. COVID-19 has widened the“digital divide” between the “legacyeconomy” companies struggling to makethe shift to digital and the “digital natives”that were born in the cloud. Our C-levelresearch clearly identifies two groups of

companies emerging (see Exhibit 1):

• Burning platform for change. Over 60%of the respondents recognize the need toaccelerate digital initiatives as COVID-19becomes the burning platform to change.Over 50% of respondents recognize theneed to drive profits with a purpose thatimpacts broader stakeholders beyondshareholders.

• New wave of cost-reduction. Over 70%of these respondents are searching for anew wave of “cost reduction” as we enter arecessionary economy. Over 55% alsorecognize the need to focus on virtualconsumer experiences for the new digitalworld.

There are strong industry undercurrents to

Despite digital everything, we are still in the early innings ofdigital transformation; COVID-19 is becoming the burningplatform for change.

the impact of Covid-19. A majority ofrespondents in the travel and hospitality,retail and CPG, and industrialmanufacturing and logistics sectors feeltheir organizations will perform worse inthe post-COVID-19 economy. However,many respondents in the banking andfinancial services, healthcare and lifesciences, and insurance sectors feel theirorganizations will be able to performbetter in the post-COVID-19 economy.

The implications of the pandemic will bebroad and lasting. The nature of work inour society will change across manydimensions, including how we interact,communicate, embrace technology andthink about risk. The role of business andtechnology services companies likeCognizant is to become, in one form oranother, an enabler of this rapidlyemerging digital society.

Exhibit 1. Expected impact of COVID-19 on organizational performance

I truly believe the power of digital technologies, and I actually truly alsobelieve that we’re in the early innings of the so-called digitaltransformation..."

Play the video below to hear the full perspective from Brian

The end game cannotbe finite; it’s about“continuousmodernization”

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The end game cannot be finite; it’s infinite. It’s all about “continuous modernization”

An infinite-minded leader uses their career to enhance the long-term value of the company.”Simon Sinek, The Infinite Game

The success of any business andtechnology service provider will be drivenby its ability to become a trusted partnerto clients through thick and thin–not just avendor who delivers faster or cheaperservice. Partnerships require long-termgoals. Business and technology servicesmust deliver continuous modernization toenterprises.

C-level executives look for business andtechnology service providers with specificattributes to help them in their quest forcontinuous modernization (see Exhibit 2).

Exhibit 2. Top five attributes for a business and technology service provider

1. Awareness

Service providers need to demonstrate“awareness of the problem” andunderstand clients' pain points. Whilepricing, scope, scale, and global footprintcontinue to remain relevant, trust is the #1brand attribute by far when selectingthird-party service providers, according tothe C-level executives we surveyed. Youcannot build trust in a relationshipwithout knowing your client’s businessand demonstrating extreme client-centricity.

2. Problem Solvers

Service providers need solve problems, notjust execute orders. They need todemonstrate how they can leverageknowledge and experience to meetcustomers' needs, think outside the box,and deliver flawlessly.

3. Future-forward.

Service providers need to act as co-innovation partners, anticipate tomorrow’sneeds, and provide clients with thecapability to keep an eye on the future(such as emerging technologies). You arefuture-forward if you can anticipatetomorrow’s needs and use uncertainty tocreate opportunity.

4. Agile.

Service providers need to be agile andflexible to react to business changes.According to the C-level executives wesurveyed, the #1 reason for leveragingthird-party business and technical serviceshas suddenly shifted from “drivinggrowth” pre-COVID to “dealing withuncertainty” post-COVID. Responding inreal-time to customer demands andproviding a state-of-the-art experience tocustomers, employees, and stakeholderscontinue to be critical.

5. Committed.

Continuously improving solutions requirescommitting to continuous learning, takingaccountability, communicating withtransparency, and being willing to fail.

Cognizant’s playbookto thrive in thepost-pandemic world

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Cognizant’s playbook to thrive in the post-pandemic worldConsumption and delivery of business and technology services is expected to change dramatically in the post-pandemic world (seeExhibit 3). What is Cognizant’s strategy to revitalize, to survive, and to thrive in this pandemic economy? Our conversations with Brianunearthed the key components of Cognizant’s strategic playbook to deliver on its promise of Continuous Modernization. They align nicelywith the top five attributes for a business and technology service provider shown i Exhibit 2.

Exhibit 3. 10 consumption and delivery trends that changed dramatically over the last three months

Win in digital.

Cognizant is speeding its pivot to the highest-growth marketcategories by evolving its portfolio offerings, partnerships, brandattributes, leadership and talent, and delivery capabilities. Itrealizes that the value is shifting to the innovation side, away frombuild or run. Cognizant has meaningfully increased its partnershipfocus and investments with all three leading hyperscalecompanies and its most strategic software-as-a-service partners.

Perspective from Brian

“We can continue to be a challenger brand in digital andcreate headaches for some of the incumbents who don’thave the full stack, from the top of the business value that’sdriven by software and data right down to the platform layerof cloud, at the bottom. At our core, we’re an applicationsand data company, so, fundamentally, we’re trying to helpcompanies become more software-driven.”

Targeted M&A.

Nearly 80% of our C-level respondents believe that severalundifferentiated IT/BPM providers will struggle to survive and thatvendor consolidation is likely. Cognizant is complementing itsorganic investments with a targeted M&A strategy focused 100%on digital. Earlier this year, it closed the acquisition of CollaborativeSolutions, one of the world's largest Workday consultancies. Withits leading position in the Workday ecosystem, CollaborativeSolutions expands its opportunity in cloud by establishing a newpractice in its large, fast-growing market and differentiatesCognizant, in particular, against offshore competitors. Morerecently, it acquired Tin Roof, which is a software productengineering company in Atlanta. Cognizant has also stood up anew Microsoft Business Group based on its recent acquisition ofNew Signature, a leader in cloud-native business transformation,and 10th Magnitude, a leading Microsoft Azure specialist.

Globalize.

Seventy-five percent (75%) of Cognizant’s revenue is concentratedin North America and its overall brand perception in EMEAremains relatively weak. It is focusing on diversifying its revenuemix across targeted geographies, globalizing delivery capabilitiesto increase overall robustness and resiliency, and developing aworld-class diverse and inclusive leadership team. Eighty-sevenpercent (87%) of our C-level survey respondents agree thatconcentrated delivery locations to drive economies of scale aregiving way to a diversified location footprint to drive flexibility.Clients need to have real flexibility and scalability for possibleongoing disruption to global supply chains in the currentgeopolitical environment. A localized delivery strategy isbecoming a critical component for demonstrating awareness ofthe full scope of client pain points, such as navigating disruptionsto data, access, and privacy, and understanding the overallexperience layer for both customers and employees.

Perspective from Brian

“I’m hearing a lot of clients talking, more and more, aroundthe importance of nearshore. We need to make sure wehave scrum teams both nearshore and onshore to makesure we have a very strategic rationale for where we havedelivery capabilities to modularise delivery around the world,and, of course, to ensure that automation is pervasivethroughout. And clients want that; they view that as prettycritical, to ensure virtual, agile, and business continuity.”

Be indispensable.

Cognizant is investing to become more relevant to clients byensuring compelling thought leadership and capabilities toaddress their industry pain points, delivered through a world-classcommercial and delivery interface. It has a strong point of view incertain industries, especially healthcare and financial services,which represent almost two-thirds of its revenue and provide a verystrong competitive advantage versus others. Clients increasinglywant service providers to sell outcomes. Nearly 80% of our C-levelsurvey respondents also believe that as-a-service and innovativecommercial models will increase as cash becomes king in thispandemic economy.

Keep learning.

According to the C-level respondents, the biggest differentiatedcapabilities are relevant experience, skills in emerging tech, andtalent beyond the basics (pricing, scope, scale, and globalfootprint). Cognizant has an employee base of 280,000 peopleglobally, and it needs to focus on its own reskilling. Cognizant hastrained over 20,000 people in digital in the last nine months anddoubled its Cognizant Academy (learning and development)budget despite COVID-19. Besides skills and capabilities,Cognizant needs to engage clients beyond the CIO function.

Perspective from Brian

“We’re continuing to evolve from being a vendor that has been a provider of talent via rate card work to a company that actually sellsmore of a client business outcome. It requires us to reduce the dependency of our clients to interview our resources and makes usless of a commodity. It accelerates our time to revenue. It actually gives me much more flexibility around automation and tooling, thepyramid, and the onshore versus offshore mix. So, as I start thinking about learning and development, I think on many levels, fromdelivery through to commercial, through to the fundamentals of how our business model in Cognizant will evolve in the yearsahead.”

The Bottom Line:“Success has many fathers, but failure is anorphan.” Leadership is about accountability.

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The Bottom Line: “Success has many fathers, but failure is an orphan.”Leadership is about accountability.

Under Brian’s leadership, Cognizant is taking some bold initiatives. It has taken some hard but necessary decisions to try and set up thecompany for long-term success. It’s investing in a culture that’s hyper-focused on clients, innovation, and collaboration. We tested itsnarrative and go-forward strategy with C-level executives, and the concept around delivering “continuous modernization” broadlyresonates. But real success will be determined by how well the new culture permeates through its 280,000 employees around the globeon a day-to-day basis.

“I don’t want a culture where success hasmany fathers, but failure is an orphan. Youalways want people to know what they areaccountable for. You need a culture that’sfocused on clients, and innovation, andcollaboration. You need a harmoniousleadership team, where the sum of the parts isbetter than the individuals. We’ve all seengreat teams over the years, full of individualstars but not being as good as a cohesive unit.

And, of course, in our industry, a peoplebusiness, we have to win over the hearts andminds of employees via transparentcommunication around the why, as well as thewhat. Fundamentally, I want to be viewed assomebody who took the necessary butsometimes hard decisions to set the companyup for sustained success.”

– Brian Humphries, CEO, Cognizant

As a leader, what do you wantto be known for, both insideand outside of Cognizant?"HFS Research to Brian Humphries

Appendix.Survey demographics

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Appendix. Survey demographics

Authors

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Phil FershtCEO & Chief Analyst, HFS Research

Phil Fersht is a world-renowned analyst,writer and visionary in emergingtechnologies, automation, digital businessmodels, and the alignment of enterpriseoperations to drive customer impact andcompetitive advantage.

Fersht coined the terms the"DigitalOneOffice" and the"Hyperconnected Economy" whichdescribe HFS Research's vision for futurebusiness operations amidst the impact ofautomation, AI and disruptive digitalbusiness models. In 2012, he authored thefirst analyst report on Robotic ProcessAutomation (RPA), introducing this topicto the industry and is widely recognized asthe pioneering analyst voice that hasdriven the evolution of the RPA industry.

Saurabh GuptaChief Research Officer, HFS Research

Saurabh Gupta is Chief Research Officer atHFS. He oversees HFS’ global researchfunction managing the global team ofanalysts across US, Europe, and Asia-Pac.

He works closely with the CEO to set thestrategic research focus and agenda forHFS Research, understanding andpredicting the needs of the industry andensuring that HFS maintains its positionas the strongest impact thought leader forbusiness operations and services research.

Sarah LittleDirector, Content and Strategy,HFS Research

Sarah Little is Director, Content andStrategy, CEO's Office, focusing on bigindustry themes such as leadership,culture, employee experience, and skillsfor the future of work. Sarah joined HFS in2012 and has worked across functions androles, currently supporting the CEO on keyprojects for both HFS Research andclients.

Sarah has spent her career driving theinterplay between business,marketing, and technology.

About HFSDefining future business operations

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The HFS mission is to providevisionary insight into majorinnovations impacting businessoperations, including: automation,artificial intelligence, blockchain,Internet of things, digital businessmodels, and smart analytics.

HFS defines and visualizes the futureof business operations across keyindustries with our DigitalOneOffice™ Framework.

HFS influences the strategies ofenterprise customers to help themdevelop OneOffice backbones to becompetitive and to partner withcapable services providers,technology suppliers, and third-partyadvisors.

Read more about HFS and ourinitiatives on www.hfsresearch.comor follow @HFSResearch

About Cognizant

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Cognizant (Nasdaq-100: CTSH) is oneof the world’s leading professionalservices companies, transformingclients’ business, operating andtechnology models for the digitalera.

Their unique industry-based,consultative approach helps clientsenvision, build and run moreinnovative and efficient businesses.

Headquartered in the U.S.,Cognizant is ranked 194 on theFortune 500 and is consistentlylisted among the most admiredcompanies in the world.

Learn how Cognizant helps clientslead with digital atwww.cognizant.com or follow them@Cognizant.

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Thank you for reading

Cognizant standsfor ContinuousModernization

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