At the Cognizant UK & Ireland analyst and adviser meet in London this week we were keen to get a closer understanding of three things:

1. How some of the changes introduced since the arrival of Ravi Kumar S as CEO are making a difference to the company
2. The factors underpinning this year’s revenue underperformance of Cognizant in the UK and Ireland, also any new go to market priorities for the region
3. Cognizant’s plans for leveraging the newly acquired Belcan.

Our takeaways in all three areas were encouraging and we came away with a positive outlook both for Cognizant in UK and Ireland and for its expanded ER&D business.

Cognizant in September 2024: refreshed management, more energized workforce, radically improved CSAT

Firstly, anyone who follows Cognizant will be aware that since his arrival in January 2023, Ravi Kumar S has brought in a wealth of new senior talent (including at the very top CFO Jatin Dalal, ex Wipro, and EVP and Global Head of Operations Rajesh Varrier, ex Infosys).

To give a few more examples:

• In terms of sector heads there are two new SVPs formerly at Infosys, Anurag Vardhan Sinha (Comms, Media & Tech) and Nageswar Cherukupalli, (Financial Services and Insurance). Also fresh from Infosys is Shweta Arora, now SVP, Global Head of Consulting
• Wipro, in addition to Jatin Dalal, has also lost Mohd Haque, now Cognizant’s Chief Commercial Officer, Americas. He also brings in extensive sector domain expertise and networks, this time in healthcare, a key sector for Cognizant.

It is almost customary for a new CEO to bring in execs that they have worked with or alongside before, particularly when joining a company that has faced well publicized challenges – this is not remarkable. But changing faces does not always work its magic. At Cognizant, there is a palpable sense of revived energy and of clarity about corporate strategic priorities.

One of Ravi Kumar’s stated priorities is for Cognizant to be “an employer of choice”: this does not sound particularly ambitious, but it does hint at challenges the company was facing, including around attrition, recruitment, employee morale, and also performance. Attrition has fallen at Cognizant – but so has it for its peers: this reflects the current labor market. One initiative launched last year, the “Blue bolt” internal grassroots “idea incubator” is likely to be having a positive impact on both employee involvement by delivery personnel and also client perceptions of Cognizant, thus a contributory factor to company achieving its highest ever Net Promoter Score, after a less successful period. We gather that NPS has increased in the last 2 years from 46 to 60, a huge improvement.

Increasing focus on Industry Solutions

Cognizant formerly had four “integrated” horizontal practices (Core Technologies and Insights, Enterprise Platform Services, Intuitive Operations & Automation, Software & Platform Engineering). In 2023, Cognizant set up its Industry Solutions Group as part of the company’s strategy to build further differentiation at the industry level. The ISG is essentially a sub-unit (led by EVP of Intuitive Operations & Automation) that houses industry technologists and specialists in vertical micro-segments with the remit to work with external partners in developing industry-specific products and services: an early example is Telco Assurance 360, built on ServiceNow.

Cognizant UK & Ireland: looking to new offerings in key sectors

After three years of decent growth (3-year CAGR of 12.2%, thanks primarily to the strong U.K. public sector), Cognizant UK&I has had a disappointing year so far in 2024, at least in terms of revenue performance. H1 revenues of $900m were down 5.4%, around 6.4% in CC). An 11.4% decline in the financial services sector (last year accounted for a third of UK&I revenues) accounts for most of the region’s underperformance: this can be attributed to falling discretionary spending, Cognizant having lost out on vendor consolidation at a major U.K. bank.

For some vendors, the U.K. continues to be a growth region in 2024 (we note TCS, 6.0% growth in its last quarter, Sopra Steria, 5.3% in H1 2004). Those vendors have invested heavily in the region and have some well-established and very large outsourcing arrangements. Although Cognizant has made a number of tuck-in acquisitions in recent years in the region (and Belcan has also brought in U.K. capabilities), we would argue that it has not done this: UK&I represents just 9% of global revenue (in comparison, the region accounts for around 17% of the global revenues for TCS and Sopra Steria) and most activity remains dependent on discretionary spend; Cognizant is not protected by sizeable outsourcing deals.

So, what are Cognizant’s priorities for UK&I? Nearly two years ago, we noted the following:

• Continued focus on the U.K. public sector (central government, defense, and health)
• Reigniting the BFS sector across banking, targeting large deals and security and market infrastructures, also government regulators, and fintech
• Scaling up consulting sub-vertical expertise.

This broadly remains the case today. The sectorial priorities are still BFSI (specific areas of banking, also of insurance), public sector (back-office operations), also Comms Media & Tech (e.g., field operations, order processing, digital content marketing). We note a stronger focus now on outsourcing opportunities, including areas of BPS. Cognizant does not have a significant presence in the U.K. for BPS and thus will be positioning as a challenger. There are some obvious areas of both public and private sector BPS which present potential opportunities for Cognizant in which to look to compete.

Belcan – third acquisition in ER&D means end-to-end ER&D service capabilities

Cognizant has been investing since 2001 in boosting its ER&D capabilities. That of Belcan, recently completed, follows the company’s earlier acquisitions of:

• Mobica (March 2023), an IoT software engineering services provider headquartered in Manchester. Mobica brought in nearly 900 employees across Europe and the U.S., including around 550 in Poland, a significant expansion of Cognizant’s nearshore delivery capabilities in Eastern Europe (where we felt it had lagged its peers)
• ESG Mobility (June 2021), a Munich-based engineering R&D provider for connected, autonomous and electric vehicles, brought in around 1,000 employees, in Germany, U.S., and China.

In total, we estimate Cognizant has invested $1.75bn in these three acquisitions, including $1.29bn for Belcan (the company’s largest acquisition since that of Trizetto). The rationale for beefing up ER&D capabilities is clear; our interest is how Cognizant intends to leverage Belcan (which is slightly margin dilutive, we note also it counts Boeing as a major client, although its overall revenues are growing).

Belcan has around 6,500 employees globally and gets around 85% of its revenues from the U.S. Its revenue mix is approximately 45% product engineering, 34% systems & software (model-based engineering, embedded software), 21% manufacturing and supply chain. A blend that dovetails nicely with those of Mobica and ESG Mobility: in terms of its portfolio, Cognizant can now claim to having end-to-end capabilities and scale (around 10,000 employees) in ER&D. An immediate priority will be integrating the three companies, presumably under the Belcan brand.

Belcan brings to Cognizant a presence in the aerospace sector: as well as there being continuing high demand for engineering talent in this sector, there are opportunities to bring in IT services capabilities from Cognizant to clients such as Airbus. Belcan also has some activity in the defense sector: we would not be surprised to see Cognizant look to leverage this to set up a federal sector business in the U.S. We see also potential opportunities for Cognizant to introduce Belcan to some of its automotive sector clients in Europe.

Renewed sense of confidence

It is less than 21 months since Ravi Kumar started as CEO. This blog does not aim to be comprehensive: it does not, for example, look at progress in major initiatives such as the corporate push to land large outsourcing deals (where the company has seen success in North America) but we note a renewed sense of confidence at Cognizant and in the UK&I market and we look to see some new developments over the next year or so.

(see also Cognizant Aims for Major Uplift in Bluebolt Grassroots Innovation Program in 2024 - NelsonHall (nelson-hall.com)