Cognizant to Target More of Smaller Deals as Part of its New Digital Strategy
As the US-based IT services provider undertakes a project-focused approach to turn itself into a more aggressive digital services provider, Cognizant will be focusing on a large number of smaller digital services deals. It has, however, been questioned by the analysts as it can cause a slowdown in global technology expenditure.
“The pivot to digital requires us to rethink many aspects of our company, including our brands, skills, processes, systems and tools. Client engagements will become more project-oriented, meaning more contracts with lower total contract value,” CEO Brian Humphries said in an analyst call last week.
He also informed that “digital projects will not have the same renewal price erosion faced within the legacy unlike the legacy business.”
A distinction between these digital deals is being drawn by the analysts. Some of these deals are expected to bring transformation and make organizations more competitive while others will be used by companies to upgrade existing legacy infrastructure, or ‘modernization services’.
“We predict that as the global economy slips into recession…the business transformation segment will be hit hard by the reduction in discretionary spend, whereas the modernization segment will continue to accelerate…,” said Peter Bendor-Samuel, CEO, Everest Research.
“It would appear from his (Humphries’) commentary that he is directing Cognizant at the business transformation space — this is somewhat surprising as Cognizant seems well positioned to address the modernization space given its large backlog of legacy work,” he said.
According to its second quarter numbers, revenue from digital services contribute to 35% of Cognizant’s overall revenue while India’s biggest software exporter TCS has pegged this figure at 32.2% in its first quarter results.
We have clearly embarked on the journey of digital transformation and the step by Cognizant is an example of the same. Key IT service providers have started to map strategies on how revenues could be increased from digital offerings: artificial intelligence, cyber security, allied services and cloud.