Cognizant focuses on digital business, making acquisitions in new markets

BENGALURU: Cognizant Technology Solutions Corp. plans to strengthen its digital business through a series of strategic acquisitions that will enable the IT giant to enter new markets beyond North America.

Currently, Cognizant’s largest market is North America, which generates over 75% of the company’s total revenue.

“We continue to enhance our digital capabilities through targeted M&A. We are also focused on growing digital revenues geographically as we plan to penetrate deeper markets in Europe and Asia,” Pradeep Shilige, global head of delivery at Cognizant, said in an interview.

“Our goal is to double down on investments and capabilities in selected key areas that together deliver end-to-end digital transformation for our customers,” Shilige said.

Cognizant’s four digital battlegrounds are data, digital engineering, cloud, and the Internet of Things (IoT). The company’s digital revenue continues to grow by more than 20% year over year and accounted for about 38% of total revenue for the quarter ended December.

Since January 2019, Cognizant has acquired five companies to date, all of which operated in the digital space and primarily outside North America. In the March-June period, it acquired two Irish-based companies — financial software company Meritsoft to expand its software-as-a-service (SaaS) offerings and Zenith Technologies to bolster its IoT capabilities and gain expertise in life sciences. In October, it acquired London-based Contino to expand its digital engineering capabilities and expand its presence in the UK, US and Australia through existing clients.

This year, it acquired U.S. company Code Zero and entered exclusive negotiations to acquire the French operations of EI-Technologies, a Paris-based digital technology consultancy. Both acquisitions are expected to complement Cognizant’s cloud portfolio.

“These acquisitions are a continuation of the six acquisitions we made in 2018, five of which — Hedera Consulting, SaaSfocus, Advanced Technology Group, Softvision and Mustache — were digital companies,” Shilige said.

“Cognizant needs to focus more on acquisitions in the customer experience/design space, which will enable the company to do more front-end digital work with customers. They are currently struggling with their own internal issues. While digital revenues accounted for 38% of total revenues in Q4, it is higher than most Indian IT companies, but significantly lower than leader Accenture,” said Harit Shah, senior IT analyst at IndiaNivesh.

Cognizant is also investing in reskilling its workforce to prepare them for the digital age. “In 2019, around 88% of our workforce participated in learning new skills. We are doubling our investment in Cognizant Academy in 2020, which will enable us to reskill and reposition our associates towards our digital imperatives. We have a library of over 50,000 self-paced courses to help our associates grow in digital technologies,” said Shilige.

“To accelerate our digital momentum, we believe we need to hire or reskill around 25,000 employees in 2020 alone and we have started implementing that,” Shilige added.

Over the past few years, Cognizant has benefited from the growing digital market, which has grown to $44 billion, almost double the $23 billion it was worth in mid-2016. Cognizant’s annual revenue has grown 266% over the past decade and 4.1% over 2018, reaching $16.8 billion in 2019.

“Our continued progress across key initiatives is increasingly evident in our commercial and financial performance. We enter 2020 with renewed vigor and optimism,” Cognizant CEO Brian Humphries said during the company’s full-year and quarterly earnings call on Feb. 5.