BALACHANDAR NAYAN VIRENDRA NAGORI SIDDAHARTHA PRASAD S.

PRAVEEN KUMAR

How is the industry doing?

Vice president Gartner.. "While the global economic situation is improving, the recovery is slow and hampered by a sluggish growth outlook in the important mature economies and there are also growing concerns about the ability of key emerging economies to sustain relatively high growth rates. Nevertheless, as well as a fundamental enabler of cost reduction and cost optimization, investment in IT is seen increasingly as an important element in business growth strategies. As the global economy repairs itself in coming years, we are optimistic about continued healthy spending on IT."

www.gartner.com

How is the industry doing?

Therefore we that IT industry is expected to grow in all the areas computer hardware, Enterprise Software, IT services, Telecom Equipment, Telecom Services,. The growth in areas of software and hardware requirement would also lead to more business for IT services in the long run in form of maintenance and up-gradtion. After the recent downturn IT is being viewed more as strategic tool to cost reduction and enhancing efficiency. This change in view might make certain types of application/services more popular than others. Nevertheless the demand for IT services looks to have a positive trend.

Cognizant De-codified
Mission & Charter:

To focus on the spectrum of technology advances, from emerging to adolescent and early mainstream, with the objective of helping deliver everincreasing business value to our clients. With knowledge acquired from continuous R&D, we provide our teams with timely technical insights to help customer guide you toward making optimal choices that meet your business objectives, such as:
Innovation Growth Scalability Return in investment Total cost of ownership

http://www.cognizant.com/approach/gto-mission-charter

Cognizant De-codified (Continued)

Charter is based on four pillars:

Evaluating and optimizing a science or technology

Incubation

Innovation

Creating thought leadership; building tools, solution accelerators, application frameworks and reference implementations Building technology communities, training and facilitating adoption of tools and products Executing strategic, one-of-a-kind projects and working with clients and other groups-within to assure governance and technology leadership

Enablement

Consulting

Cognizant De-codified (Continued)

Cultural Value Drivers:

Open Transparent

Environment is one of open doors and open minds Open to all ideas that will improve ability to deliver excellence. Anyone who takes the initiative to present an innovative idea or express a concern will be openly and respectfully heard. Our communications, with either customers or clients are always proactive, direct and honest. It is a critical element in achieving the status as a trusted advisor. As a trusted advisor, we will never hide or ignore ethical issues.

Driven

We expect and reward personal and team initiative. Our clients experience this as a nimble, can do approach focused on delivering excellence at all times, with individuals and teams taking complete ownership of problems and developing creative solutions.
We believe the best way to deliver excellence to our clients is to unleash the excellence in our people Cognizant Associates have the freedom, empowerment and responsibility to find the best way to meet customers needs. We are trusted to apply our passion, intelligence and skills in each and every endeavour .

Empowered

Cognizant De-codified (Continued)

Cultural Value Drivers:
We believe that only by encouraging promising Associates to pursue paths that will fulfil their personal and professional goals will we be able to attract and maintain the type of quality people our customers have come to expect While recognizing the advantages of process and consistency, we know that a hallmark of excellence is adaptability We know that clients care most about results; we must adapt in real time to each new challenge in the marketplace so that we continue to exceed client expectations Our commitment to collaboration is evident in our matrix organization and team-based project structure. We reject the model of individual star performers, We, instead, choose to predicate the growth of individuals on their contributions to the teams success in delivering exceptional customer experiences

Opportunity filled

Flexible

Collaborative

Recent Happenings
Cognizant acquires marketRx for $135million Nov07
MarketRx is analytics and related software services provider to global life sciences companies

Business Perspective:
Acquisition to strengthen Cognizants full suite of offerings across all areas of the life sciences value chain, from R&D , manufacturing to sales and marketing operations. Stronger synergy benefits with existing Business intelligence/data warehousing and CRM services.

Alliance with Germanys T Business for European Business March08

T-Systems is the enterprise customer division of Deutsche Telekom

Business Perspective
Access to key sectors such as automotive and telecom, where T-Systems is strong. Better capabilities in the German market and access to large European customers.

Heavy re-investment in Sales, Marketing May09

Cognizants selling, general and administrative expenses amount to 23% of revenues, compared with 15% in case of Infosys.

Business Perspective:
More focus on deeper client relationship thus ensuring sustained revenues. Level of outperformance with respect to peers has gone up during the current downturn.

Recent Happenings (continued)

Our strategy is to maximize revenue growth Gordun Coburn Aug10
Focus is to maximize revenues before the industry completely matures.

Business Perspective
In the US, the emphasis is more on revenue growth rather than just focus on margins, as in India. Strategy is to get new relationships and grow them thereby cross-selling and upselling the services better than competitors

Cognizant, Genomics, Pistoia tie up for cloud-based platform April11

Tie up with bio-informatics company Eagle Genomics and life-sciences company Pistoia

Business Perspective
To develop cloud-based platform for streamlining information sharing and more collaboration in life-sciences industry

Cognizant overtakes Wipro August11

8.3% top line growth. TCS (4.7%), Infy (4.3%) and Wipro (0.5%) for June quarter Operating Profit Margin is still in 19 20% range where the numbers for Wipro (22%), TCS and Infosys (between 26% and 29%) are all ahead of the company

Business Perspective
Higher re-investment to achieve faster growth, deeper differentiation and thought leadership has paid off

Comments on Recent Happening

Thus we see that Cognizant did take advantages of the recent downturn and went on acquiring companies to build their capabilities both in terms of consulting practice and technological expertise. It also invested significantly to build customer relationship, which helped them to come out stronger of the downturn.

Elements of Strategy: Arena

Revenue Mix: - Europe: 18.6% - North America: 77.8% - RoW: 3.6% Industry: - Financial Services: 41% - Healthcare: 26%, - Manufacturing, Retail & Logistics: 20%, - Communications, Information, Media & Entertainment and Technology: 13% 721 Active Clients which include: - 27 of the top 30 Global Pharmaceutical companies & 9 out of the top 10 Biotech companies - 7 of the top 10 Communications Services Providers & Equipment Vendors - 7 of the top 30 Global Retailers & 2 of the top 4 Global Distribution system companies - 6 out of the top 10 North American financial institutions & 10 out of the top 10 European ones - 12 of the top 25 Life, Property & Casualty insurers, 12 of the top 25 Global Life companies - 4 out of the top 5 Online companies and 4 out of the top 10 Global Media Companies - 6 of the major U.S. Movie Studios
http://www.cognizant.com/RecentHighlights/Corporate_Fact_Sheet.pdf

Elements of Strategy: Vehicles

Internal Development: A form of agile development in response to customer demand, with a focus on internal strength initially Strategic Alliance: Invensys ( R&D )
- The relationship was expected to strengthen Cognizants presence in the manufacturing segment and further enhance its ability to provide end-to-end services to customers. It would enable Cognizant to expand its base in discrete manufacturing, process manufacturing, energy and utilities, pharmaceutical and consumer goods segments

http://www.controlenguk.com/article/26763/In-Hyderabad--Invensys-Outsources-its-Software-Development-Team.aspx

Acquisitions: Some of its successful acquisitions include: UBS India Service Centre
Private Limited, Active Intelligence, Strategic Vision Consulting (SVC), PIPC, Pepperweed (business consulting group) aimed at increasing its core competency with respect to the changes occurring in the market with proper due diligence - A planned M&A strategy is followed by cognizant to achieve the same which includes Target Assessment, Pre-merger Planning, Planning for M&A, Execution, Meeting integration and business operation goals, Delivering on Targets and Unlocking value.

http://www.cognizant.com/InsightsCasestudies/Mergers%20and%20Acquisition.pdf

Elements of Strategy: Differentiator

Sales & Marketing Effort (3-7%) more than the competitors. Pricing Strategy 17-20% profit Margin. Cognizant has ploughed back its earnings to build a client-facing organisational structure. Proprietary client engagement model, called Two-in-a-Box model which enables clients to more quickly reduce IT budgets, revamp IT operations and redeploy freed-up assets on more strategic initiatives that generate results. Much-better front-end - Investment in its front-end right from the beginning unlike other offshore vendors in India who focused on the back-end for many years Exposure to the life sciences and healthcare vertical from the start helped it to build domain expertise in this rapidly growing sector
http://www.cognizant.com/two-in-a-box

Elements of Strategy: Staging

Gone for organic growth before inorganic growth Focussing solely on internal development, Cognizant turned a cash-rich company and then set about acquiring smaller companies to boost revenue and expand geographical presence during the growing phase The acquisitions and strategic alliances were also in response to the recession based hit it took due to being overly dependent on the U.S. market and the opportunity it foresaw as many firms were valued low due to the market conditions Focus was more on sustainable business growth instead of chasing better margins like others Organized itself around specific industries and its growth strategy was focused on expanding into new geographic markets - especially building its client base in Europe, where companies are beginning to embrace global sourcing - and expanding its service offerings Cognizants strategy has been to provide blended onsite and offshore services, a combination intended to leverage the lower-cost labour available in offshore locations while maintaining close ties to clients through onsite technical and client management teams
http://www.spencerstuart.com/research/cio/1398/

Elements of Strategy: Economic Logic

Financial Ratios(2009) Net WC Ratio ROA ROE Net Income Margin Op. Mrgn (RoS) Asset Turnover Ratio Debt to Equity Ratio Earning Per Share Price Earning Ratio ROCE Revenues/Employee (2010) COGNI 0.50 TCS 0.33 INFY 0.59 HCL 0.18 WIPRO 0.20

18.7%
23.2% 16.3% 18.9% 1.15 1.80 25.27 23.0% 44153.85

26.1%
37.5% 19.1% 23.8% 1.38 0.04 1.13 10.05 39.6% 39512.81

28.9%
33.3% 27.5% 29.5% 1.05 2.24 11.91 35.9% 42216

14.2%
28.9% 12.9% 14.2% 1.10 0.61 0.42 9.40 18.3% 40483

15.2%
28.0% 15.1% 16.9% 1.01 0.39 0.56 9.27 23.6% 50839

Source : Data Monitor

Cognizant Business Model Business Areas

(Four vertically oriented Business Segments)

Revenues( million dollars)

Financial Services 41% Health Care 26%

2500

Banking Insurance

2000

1500

Health Care Life Sciences

1000

2008 2009 2010

Manufacturing/ Manufacturing, logistics Retail & Hospitality Retail / Logistics 20% Consumer Goods
Communications Information, Media High Technology

500

Others 13 %

Cognizant Business Model Service Areas

(Services delivered to the clients across four Business Segments)

IT Consulting and Technology Services

Business and Knowledge Process Consulting IT Strategy Consulting Program Management Consulting Technology Consulting Application Design, Dev, Integration and Re-engineering Complex Custom Systems Development Data Warehousing/ Business Intelligence Customer Relationship Management or CRM Enterprise Resource Planning or ERP Software Testing Services

Outsourcing Services
Application Maintenance Custom Application Maintenanace CRM and ERP Maintenance IT Infrastructure Outsourcing Business and Knowledge Process Outsourcing

Strategy Canvas
HIGH - COGNI -HCL MEDIUM - INFOSYS - TCS - WIPRO

LOW

Source: The Economic Times

Strategy Canvas
HIGH

Attrition Rates

Performance and Satisfaction (SPPS) 1) Infosys 11.6% study by EquaTerra for 2009-10
MEDIUM

- COGNI -HCL - INFOSYS - TCS - WIPRO

2) TCS 11.5% (IT Services 10.8%, BPO 18.3%) Cognizant Rank 1 TCS Rank 3 3) Wipro: IT services 14.3%, BPO 15%) Infosys Rank 4 Wipro 4) Cognizant 11.2% Rank 15 HCL Rank 18 5) HCL Technologies: IT Services 12.8%, BPO Services 21%

LOW

Source: Corrystone Global Partners

Strategy Canvas
HIGH - COGNI

Performance and Satisfaction (SPPS) study by EquaTerra for 2009-10

MEDIUM

-HCL - INFOSYS - TCS - WIPRO

Cognizant Rank 1 TCS Rank 3 Infosys Rank 4 Wipro Rank 15 HCL Rank 18

LOW

Source: Business Standard

Strategy Canvas
HIGH

Company TCS

Clients 917 880 712 612 434

Growth From Last Year (2009) 4.5% 7% 21% 7.8% 9%

- COGNI -HCL - INFOSYS - TCS - WIPRO

MEDIUM

Wipro Cognizant Infosys

LOW

HCL

Source: Times of India

Strategy Canvas
HIGH - COGNI -HCL MEDIUM - INFOSYS - TCS - WIPRO

LOW

Source: The Economic Times

Strategy Canvas
HIGH - COGNI -HCL MEDIUM - INFOSYS - TCS - WIPRO

LOW

Human Resources Policies

Hiring Image of a Mass Recruiter. Large number of freshers Hiring criteria not very strict Stringent 3 month training. Mainly around technology In team training

Training

Domain specific training E- learning resources

Incentive

At Par with other services firm Onsite opportunity good. 1.5 yrs in team unwritten rule. Indian salary and onsite salary credited

Retention

Again according to industry structure.

SWOT Analysis
Strengths Pricing Focus on building long-term relationships Proprietary Models Strong Process Innovations

Weaknesses Huge dependence on US market (78%) Low Brand Recall Low Product Innovation Less Diversified

Opportunities Virtualization Cloud Computing Mobile Technology Legacy IT systems Unexplored geographies (China, MiddleEast etc.)

Threats Currency Exchange Rate risk Anti-outsourcing mentality in Europe and US BFSI industry not doing well

Possible Disruption
With growing consumption of netbooks and increasing emphasis of hardware vendor to provide low cost computing products We view Cloud Computing as the technology which would disrupt the industry. Advantages of Cloud Computing High Scale, Low Cost Easy to implement Change Management Company has Agility and choice and can adopt new technologies faster

Disadvantages of Cloud Computing Potential Security issues Companies which adopts this solution have to be invested for a long time to reap the benefits. Therefore the lock in period is high. The users feel less in control of their terminal
Cognizant would have opportunities in providing services to client which helps them in planning, implementing, maintaining their cloud computing framework. Cognizant can also work in areas which would help to remove the disadvantages mentioned above.

Final Comments on Cognizant

Current strategy is expansion in verticals, however long-term strategy should be to be a substantial player in more industry verticals
Compared to other competitors (Wipro, Infosys, TCS) ,Cognizant operates in less

industry verticals. Till now cognizant has concentrated on going deep into the same
industry. They should focus on more industry verticals. This would not only open new revenue sources but also help them mitigate risk doing downturn.

Change in revenue model is required

Currently the contracts are geared towards per employee revenue basis. Around 30% of Cognizants revenue is fixed bid contracts. In long term they should push for such contracts more. This would provide Cognizant the incentive to improve their efficiency and enhance profit margins. It would also help them to manage their work force more efficiently.

Final Comments on Cognizant

Need to move to business strategy-focused consulting (Incentive Structure)
Although Cognizant seems to be concentrating on improving its consulting practice and

using it as a way to improve its relationship with client and build long term
relationships. The incentive structure of consulting team is such that it is linked to amount of IT revenue the consulting practice generates. Linking the salary structure to such a condition would hamper the growth of consulting practice into new areas and

new opportunities as employees would be concentrated only on doing routine work to

secure their salary.

Need for diversification geographical and industry-wise

They need to diversify their current focus on USA and Europe. This would again help them diversify their revenue risk and have access to more business opportunities.

Final Comments on Cognizant

HR can be used as a differentiating factor (Intra-transfer)
Current policies of Cognizant are at par with industry standard. In an environment were attrition rate is very high, Cognizant can build a differentiating HR model. For e.g. They

can have a research division like IBM Indian software labs and can allow for inter
transfer of employees based on performance of employees. Such steps can keep the employee motivated and can also ensure that they keep their technical knowledge updated.

They can have a well documented onsite policy.

Need to spend on branding to increase recall value

Although they are 3rd largest IT service provider in India their brand recall is low. They are still viewed by companies as a low pricing option compared to other vendors. They need to build their brand name.

THANK YOU