For Cognizant, global benchmarks are the ones to beat

Buoyed by an earnings growth that has been consistently better than that of top-tier Indian IT companies, New Jersey headquartered Cognizant Technology Solutions now says it has its eyes set on global benchmarks rather than local.

The firm is unhappy with comparisons to Indian information technology outsourcing firms such as Tata Consultancy Services (TCS), Infosys Technologies or Wipro Ltd. In fact, recently, when Wipro made top level changes, analysts ascribed the move to the fact that Cognizant is at their heels and could overtake them as the third-largest IT firm in India.

“We don’t really compare ourselves with the Indian companies,” said R Chandrasekaran, Cognizant’s president and managing director. “We want to compete and win against the best. That’s how we run the operations at Cognizant.”

In calendar 2010, Cognizant registered a growth 40% compared with the 17-25% growth registered by the top three Indian IT firms.

The Indian players have done better on profit margin front, but Cognizant has been forthright about investing profits in its front-end sales engine to capture maximum revenue growth.

“When you put that Indian tag, you are truly restricting the sphere of operation,” said Chandrasekaran.

He also claimed that industry analysts already rank Cognizant as the top player or among the top three players in industry segments such as the financial services and healthcare.

Management experts, though, are sceptical.

“Everybody talks about being global players. TCS, Infosys, Cognizant. But are they, really?” asked Soumitra Datta, Roland Berger professor of technology and business at business school Insead. “Look at their top management. How many non-Indian faces do you see? How much do they spend on research and development?”

“Everybody talks of being multinational, but most of them are just transnational, having operations in multiple countries,” said Pradip Udhas, head of IT advisory at KPMG India.

“The transition to multinational requires change in the very organisational DNA. Cognizant is better than the others in that they hire foreign nationals more aggressively and their top management sits out of the US, their largest market.”

On its part, Cognizant claims to be competing and winning deals against multinational firms such as International Business Machines (IBM) Inc and Accenture Plc.

“If you go by the wins that we have seen, we have come a long way,” Chandrasekaran said about Cognizant’s technology consulting practice — considered a traditional stronghold of IBMs and Accentures. “We are winning deals against the best companies including niche consulting firms such as IBM or Accenture.”

However, unlike IBM and Accenture, Cognizant declined to share any data regarding revenue it earns from consulting practice.

To be fair, Cognizant has far outstripped leading Indian IT firms, in terms of revenue growth.

“2010 has been a dream year for Cognizant, where it surpassed its own expectations by a wide margin,” Vijay Gautam and Krupa B Shah of Jaypee Capital wrote on Monday, when Cognizant announced its financial results for 2010. “Compared to the guidance of 20% YoY growth CY10 revenues that it gave at beginning of the year, the company achieved 40% YoY growth.”

Putting Cognizant’s growth in perspective, analysts Kunal Sangoi and Ganesh Duvvuri of Mumbai-based brokerage Edelweiss Securities wrote in a note on Monday, “For calendar year 2010, Cognizant posted an impressive 40% revenue growth, much higher than the 17-25% growth reported by top-3 (TCS, Infosys and Wipro).”

Cognizant’s success has been widely attributed to its willingness to aggressively invest in front-end sales force and senior management who are local to the markets they operate in, such as North America, from where it gets over 77% of its overall revenues.