New Cognizant CEO Brian Humphries has to address revenue deceleration, missed opportunities, and an unpleasant record of outsider CEOs in Indian IT firms.

• Francisco D’Souza is moving on from his position as CEO, Cognizant after a period of 12 years.
• His reign marks stellar revenue growth for the company, which outperformed Indian peers like Infosys and TCS.
•  However, recent times have seen Cognizant’s miraculous growth story stutter in the face of changing ground realities.
• New CEO Brian Humphries has to address slowing growth, besides ensuring that Cognizant does n0t miss out on new opportunities. 

After around 12 memorable years at the helm of IT major Cognizant Technologies, CEO Francisco D’Souza will be moving on. The company has appointed Vodafone Business CEO Brian Humphries to take his place from April 1, 2019. D’Souza will be executive Vice Chairman till June 2019 to facilitate a smooth transition.

Humphries will be the first non-South Asian and also the first non-founder at the helm of Cognizant. Through his career, Humphries has worked as COO, Dell Infrastructure Solutions and has stints with HP, Compaq and Digital Equipment Corporation.

D’Souza’s term at the top has been phenomenal, marked by a ten-fold revenue growth for Cognizant from US$ 1.4 billion in 2007 to US$ 16.4 billion in 2018. When he joined, the company had around 40,000 employees, while it now has 282,000 people on its rolls.

WHO SAID WHAT

“Our industry is entering a dynamic new growth stage. Brian is a broadly experienced technology executive with a proven track record of driving enterprise-wide transformation through focused execution, often in challenging and highly competitive market segments. Brian brings a global perspective and a keen knowledge of our businesses and the technologies with which we innovate. We’re confident he has the ideas, energy, ambition and insights to extend the remarkable track record of success under Frank’s leadership.’’

Michael Patsalos-Fox, Chairman, Cognizant

“During my 25 years at Cognizant, including the last 12 as CEO, and the last seven months as Vice Chairman, I’ve had a bird’s-eye view of the world-changing technology revolution that is reshaping how we work, live and play. Cognizant has been fortunate to play a leading role in that transformation. While I have enjoyed serving as CEO, I believe this is the right time for me to step aside and for the Company to name a new leader to build on the strong foundations we’ve created and take Cognizant into the future.”

Francisco D’Souza, CEO, Cognizant

THE D’SOUZA CHAPTER

Under the leadership of Francisco D’Souza, the growth of Cognizant has been legendary. Its ability to deliver under adverse environments provide invaluable lessons for business management. As Ramakrishnan Chandrasekaran, executive vice-chairman, Cognizant India states, “Frank (CEO Francisco D’Souza) often says never miss a crisis, it’s an opportunity.”.

Even in the middle of the Lehman Crisis, Cognizant delivered 16% in 2009 and 40% in 2010, even as Tata Consultancy Services Ltd (TCS) and Infosys Ltd were only managing single-digit growth. While other companies were conserving cash, Cognizant opted for investment – hiring more sales executives, doing pro bono work, etc. Its relatively non-bureaucratic structure has helped growth.

Moreover, Cognizant had adopted a sales oriented and MNC approach early in its existence. The CEO was working from the US, which accounts for around 75% of its revenues.

From 2010, the firm was increasing revenue by US$ 1 billion every year, and in the 12 years ending December 2018, it had additional revenue of US$ 14.66 billion, more than Wipro and Tech Mahindra combined.

THE TURNING POINT

In 2016, the company came under strong criticism from activist investor Elliott Management Corp., who forced the management to focus on profitability rather than ‘growth at all costs’.

Moreover, the company’s growth strategy seems to have come face-to-face with its inherent limitations in a changing business environment. Revenue growth has suddenly fallen to single digits between 2016 and 2018. Its growth in 2018 was 8.9%, which was less than 10.34% for TCS (that too from a larger base). Moreover, Infosys is expected to overtake Cognizant in 2019.

One more weakness of the company has been its inability to capitalise on new opportunities. For instance, cloud computing was a bus that Cognizant missed. Consider the fact that Amazon Web Services, which was set up in 2006, has a higher revenue than TCS at US$ 21 billion on a trailing 12-months basis.

CHALLENGING THE PRECEDENTS

The case history of appointing outside CEOs in Indian IT firms has been quite interesting. Vivek Paul had to leave Wipro before his term ended, and a similar fate awaited former Infosys CEO Vishal Sikka.

But Cognizant seems to have sensed that the winds of change merit an outside-in approach rather than the current norm of appointing insiders as CEOs. That is why Humphries was preferred over the president Rajeev Mehta, who will leave the company on April 1.

Humprhries has his task cut out already, as the precedents set by outside CEOs in Indian IT firms are not in his favour. Besides this, the key challenges for Humphries will be to arrest revenue deceleration and capture market share in new areas like analytics, artificial intelligence, blockchain, cloud computing and IoT. Francisco D’Souza’s leadership has left a lasting legacy and a tough record to beat, but it’s indeed time for the company to move on.