Cognizant Hints At Further ‘Cost Cutting’ Measures Due To Coronavirus; TCS Has Impressed Them
The IT multinational firm, Cognizant will further streamline costs in its core legacy business, Cognizant’s Chief Financial Officer (CFO), Karen McLoughlin has said.
McLoughlin, speaking at a Bernstein conference last week, also said rival Tata Consultancy Services (TCS) managed costs better, which Cognizant would find difficult to emulate.
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Does Cognizant See TCS As A Role Model!
At the Mumbai-headquartered TCS, the cost of revenue at the end of its Q4 2019 was Rs 92,322 crore. Cost of revenue refers to the cost of producing and distributing the company’s services. It typically includes salaries, employee benefits, subcontracting and equipment costs among other costs to the company. India’s top software services provider employs 4,48,464 people.
However, with New Jersey-headquartered Cognizant, it stood at Rs 80,359 crore ($10.63 billion) at the end of the Q4 which ended in December 2019. Cognizant follows a January-December fiscal year. The company employs 2,92,500 people.
The CFO said, “As that business (legacy) has matured, the reality is it needs less investment than it did five, ten years ago. I think the pivot we have to make is how do we think about cost structure on that part of the business.”
She added, “I’m not sure we will ever get to the levels of a TCS. They do a remarkable job on that and driving margins.”
What Is Cognizant Doing For Cost-Cutting?
Cognizant has been working on reducing expenditure. This includes a voluntary separation program and planned job cuts by the middle of the year. The company is also handing pink slips to those employees not on active projects through the program.
Since last year the company has seen several involuntary exits at the senior executive level. In October 2019, the company indicated it would lay off as many as 7,000 employees.
Analysts said more hiring of entry-level digitally skilled executives offshore will help the company reduce costs, although this will be difficult to achieve given client preferences.
Peter Bendor-Samuel, Chief Executive, Everest Group said, “(Cognizant can) increase the offshore-onshore ratio – that is, they can have a larger proportion of their workforce in low-cost destinations such as India. He also said, “This is hard to do in the current environment where clients are often seeking to have more work delivered onshore.”
He also said the company could look to benefit from reducing costs of its onshore workforce. He added, “The simplest way to do this is to reduce the use of expensive contractors which Cognizant has utilized more aggressively than peers.”