Cognizant CFO: Tough to match TCS on cost management – Latest News

IT services provider Cognizant will further streamline costs in its core legacy business, its chief financial officer has said.

Karen McLoughlin, speaking at a Bernstein conference last week, also said rival TCS managed costs better, which Cognizant would find difficult to emulate.

“As that business (legacy) has matured, the reality is it needs less investment than it did five, ten years ago. I think the pivot we have to make is how do we think about cost structure on that part of the business,” she said.

“I’m not sure we will ever get to the levels of a TCS. They do a remarkable job on that and driving margins,” McLoughlin said.

At TCS, the cost of revenue at the end of its fiscal fourth quarter was Rs 92,322 crore. The country’s top software services provider employs 4,48,464 people.

Cost of revenue refers to the cost of producing and distributing the company’s services. It typically includes salaries, employee benefits, subcontracting and equipment costs among other costs to the company.

At the New Jersey-headquartered Cognizant, it stood at Rs 80,359 crore ($10.63 billion) at the end of the fourth quarter ended December 2019.

Cognizant follows a January-December fiscal year. The company employs 292,500 people.

Cognizant has been working on reducing expenditure, including a voluntary separation program and planned job cuts by the middle of the year. The company is shedding those staffers not on active projects through the program.

Since last year the company has seen several involuntary exits at the senior executive level. In October last, the company indicated it would cut as many as 7,000 jobs.

Analysts said more hiring of entry-level digitally skilled executives offshore will help the company reduce costs, although this will be difficult to achieve given client preferences.

“(Cognizant can) increase the offshore-onshore ratio – that is, they can have a larger proportion of their workforce in low-cost destinations such as India,” said Peter Bendor-Samuel, chief executive, Everest Group. “This is hard to do in the current environment where clients are often seeking to have more work delivered onshore”.

He also said the company could look to benefit from reducing costs of its onshore workforce, “The simplest way to do this is to reduce the use of expensive contractors which Cognizant has utilized more aggressively than peers,” Bendor-Samuel said.

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