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Cognizant Looking to Double its International Market Business


Cognizant's non-U.S. business, Cognizant Global Growth Markets (GGM), recently held an analyst and advisor day and discussed its regional priorities.

New CEO Ravi Kumar has initiated a restructuring plan ('NextGen Program') to reduce Cognizant's cost base to fund investments.

While Cognizant had guided on flat topline growth in 2023, Q1 saw a 9% y/y growth in LTM bookings, indicating the company has started to gain momentum in IT outsourcing deals.

Where Cognizant in the U.S. is impacted by a large contract ramp-down, Cognizant GGM's priority is topline growth, with an aspirational goal to double revenues (without specifying a date). Cognizant GGM generated revenues of $5bn in 2022, spread almost equally between the U.K., Continental Europe, and RoW. Together, these international (non-U.S.) revenues represent 26% of Cognizant's total revenues (compared with around 47% for TCS), so the U.S. will continue to drag on overall company performance.

Replicating its success in the U.K.&I

In Europe, Cognizant GGM is looking to replicate its success in the U.K&I, its fastest-growing geography for several years (21.1% CC topline growth in 2022), driven recently by public sector awards such as those with Defra.

Cognizant GGM believes its deployment of a vertical GTM in the U.K. helped it scale rapidly and reaffirmed its positioning at the intersection of vertical and sub-vertical knowledge and technology expertise. Cognizant has grouped its business into six regions, presumably intending to develop a verticalized GTM in the larger clusters.

Consulting will play a significant role. Cognizant’s ambition is to double its consulting activities to 9% of GGM revenues as it looks to drive client intimacy, expand its reach to LoB executives, and negotiate sole-source contracts. Within consulting, Cognizant also emphasizes its sustainability advisory services.

Cognizant GGM is focusing on its top 100 clients to drive deeper relationships. This is a very significant refocus, as GGM has ~2k clients. Depth of the relationship and client selectivity will prevail over the breadth of the client portfolio. This approach is consistent with Cognizant's push in consulting.

Cognizant continues to build its international onshore and nearshore presence, with recent onshore centers in Leeds, U.K.; Adelaide, Australia; and Halifax, Canada, while deploying its digital studio network globally (out of ~60 delivery centers). In total, Cognizant GGM has ~4k employees working in its digital studios out of a total of 86k employees servicing international clients.

Another strand of the push for accelerated growth is investments with partners. For instance, Cognizant GGM emphasizes its Enterprise Platform Services, believing Europe is more advanced than other corporate regions. The unit emphasizes specialized offerings and joint GTM with SAP, Oracle, Salesforce, Pega, Workday, Adobe, and cloud migration (e.g., SAP S/4HANA and Oracle Cloud). Beyond ISV practices, Cognizant has selected three broad themes (revenue management, SaaS application interoperability, and omnichannel) across ISVs. Again, the approach resonates in promoting a business approach rather than a technology sale.

Portfolio investments

Cognizant is aligning its service portfolio around a dual cost savings and transformation agenda. The company is targeting large IT outsourcing deals. It is also ready to accept build-operate-transfer deals to help clients grow their technology expertise through captives in India.

Cognizant GGM is preparing for a market rebound around Q4 this year. Platforms remain a priority. In the U.S., TriZetto remains a cornerstone of Cognizant's IP-based business, driving software product sales, C&SI services, and BPaaS services. Outside the U.S., GGM is targeting opportunities in English-speaking countries with a healthcare payer model similar to the U.S. model.

Cognizant GGM is also deploying IPs relevant to a growth agenda. For instance, through its Zenith and TQS acquisitions, it gained several IoT-related IPs such as Apex (industry 4.0), 1Facility (smart buildings), and its Sustainability accelerator. Cognizant also has its Meritsoft product for post-trade processing.

Unsurprisingly, AI is a priority. Cognizant was early among the major IT services providers in announcing its launch of an enterprise-wide generative AI platform (Cognizant Neuro AI, on May 15), an extension of platforms including Neuro IT Operations (AIOps), and Skygrade (application cloud migration, monitoring, and management).

Engineering services and Germany

Cognizant is making bets on two (out of six) geographical clusters: the Nordics and Germany. In Germany, the unit has done well in financial services, manufacturing and life sciences. It is looking to expand its presence in the large automotive market to rebalance its presence in Europe's largest economy. Cognizant's 2021 acquisition of ESG Mobility, now Cognizant Mobility, brought in 1k employees and next-gen ER&D capabilities around electric, connected, and autonomous vehicles, and significant relationships with automotive OEMs and tier-one suppliers.

Cognizant's prioritization of ER&D services goes beyond Germany: it has made several acquisitions in this area, including Mobica (2023, U.K., 900 employees, including ~500 in Poland) and TQS (2021, Ireland, 200, data historian analysis), complementing the large Zenith acquisitions (2019, Ireland, 800, industry 4.0 for pharmaceutical firms). Zenith brought specialized capabilities combining sub-vertical and technology expertise. With ER&D services being more verticalized than IT services, Cognizant’s dual positioning is key.

Expect further IP investments and M&As

What's next? Despite its recent slowdown in M&As, Cognizant signaled an appetite for investments in its service portfolio and a focused approach to geographical expansion, signaling growth aspirations rather than a restructuring story. While its dual positioning on vertical and technological knowledge is common, Cognizant demonstrated concrete examples beyond traditional consulting and systems integration (C&SI). We think the next step is building more IP, e.g., industry solutions in C&SI, and continuing the AI momentum. Also, expect more tuck-in acquisitions in Cognizant GGM. We think Nordics is the next candidate.

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