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Like many of the tech services firms, Cognizant Technology Solutions has seen its stock decline, but unlike its competitors it has managed to maintain a strong value when compared with the rest of the sector.
The software development and integration firm attributes its strengths and growth primarily to its business model and the way it has created partnerships with other solutions providers. But the overriding principle that has kept the company profitable is that it does not try to be all things to all customers.
Central to keeping costs down and improving its financial flexibility is the way Cognizant Technology does business. About 70 percent of its software development staff is sprinkled throughout eight software development centers in India, where a programmers position costs a fraction of a similar position in the U.S.
Using offshore talent is something that other companies such as Infosys, Silverline Technologies and Wipro have built into their business models to defray costs. In Cognizants case, about 25 percent of the staff is usually at client sites.
“The reason we have been able to do as well on the business side is because of our offshore business model,” says Kumar Mahadeva, chairman and CEO of Cognizant. “The model is very simple, but not all that easy to execute.”
While Cognizant is able to save money through its model, it also contends it can deliver solutions faster to clients. Even so, Cognizants model has its tricky points in coordinating projects from afar, says Mahadeva. “Just about everybody tried it, but relatively few have been able to make it work in the large type of business projects that need rapid iterations of an application,” which is attractive to companies.
During Q4, the company won 16 new customers, including Fortune 1000 firms. The company expects 2001 sales to increase 40 percent, up from previous expectations of a 35 percent increase, company executives say.
In the scheme of the IT sector, Cognizants roots are not typical. The company was started in 1994 to serve Dun & Bradstreets internal IT needs for large-scale projects. It was spun off in 1996 and did work for D&B-related firms. In 1997, it began marketing to non-D&B firms and went public in 1998.
In fact, 47 percent of the companys revenue comes from its application management division, where Cognizant manages codes for applications and provides e-business integration services. The company has a vertical focus on health care, financial services, insurance, banking and information services, retail, and telecom.
Central to the companys success is its focus. For instance, during the height of the dot-com era, it didnt jump into building Web pages and businesses, but instead created a strategic partnership with Viant Corp. where Cognizant would do the technical heavy lifting, tying the back-end legacy systems to Viants front end work.
“We stay very focused in what we do in architecting and building large-scale systems and not trying to be all things to all people,” Mahadeva says. “We looked around for someone with a strong brand that does the front-end work in defining the e-business. Viant saw the value proposition, and they didnt have the deep technology background,” he says.
Cognizant has struck similar partnerships with Computer Sciences Corp. (CSC) and Loudcloud, among other firms. The deal with CSC was a vehicle to help Cognizant penetrate the European market.
Mahadeva is not Pollyannish about partnerships. Some, he says, have not worked out and command plenty of energy to make sure both parties are on the same page. “Its a lot of work to make a partnership work,” he asserts.