Top challenges for newly appointed CEO Ravi Kumar at Cognizant

Recently, IT giant, Cognizant announced the appointment of  Ravi Kumar S as CEO and a member of the Board, effective immediately.

He replaced outgoing Brian Humphries who will remain with the Company as a special advisor until March 15, 2023.

Ravi Kumar S joins Cognizant after a 20-year career at Infosys where he held various leadership roles, most recently working as President & COO until October 2022.

Humphries had resigned from the post that he held for four years, a move that has been linked to Cognizant’s recent underperformance, including revenue decline in the third quarter of 2022.

Top Challenges

• Underperformance.
• Revenue decline.
• To crack large deals.
• High attrition rate and the loss of important senior personnel.

In the month of August 2022, US-based wealth management and investment banking services firm Wedbush Securities advised the board of Cognizant to observe the company’s underperformance, and possibly even consider replacing the incumbent boss, Brian Humphries.

Wedbush Securities said in that report, “there is an inevitable, imminent urgency of addressing these points” as Cognizant’s current “technique of avoiding/not competing” for large deals is “unprecedented” since every IT services firm is competing for multi-year multi-million work from Fortune 500 clients.

Moshe Katri, Managing Director, Equity Research, Wedbush Securities mentioned, “We maintain our Outperform rating on CTSH despite a host of ongoing execution challenges, leading to the company’s significant relative underperformance (growth rates) vis-a-vis its peers.

“During a time which some would categorize as the best IT spending environment since Y2K, as we believe, that ultimately The Company’s Board is bound to act upon these issues, leading to leadership changes at the helm”, Moshe Katri wrote in a note dated July 29.

This is an uncommon rebuke from the analyst who has lined the data expertise providers sector for over 20 years.

Moshe Katri has mentioned a few points, “At its current form, Cognizant is probably one of the most under-appreciated platforms in the sector. During the past few years, and under the leadership of Brian Humphries (since April 2019).”

“We witnessed a number of troubling trends, including:

• The loss of important senior personnel.
• An inability to recruit senior personnel formerly with technology/growth companies.
• The decision to stay away from large deals/transactions.
• An inability to appropriately staff its bench, depressing revenue growth and likely resulting in competitive losses.
• Significant, relative underperformance in growth rates vis-a-vis Tier I offshore and global peers (INFY, TCS, Accenture). 3 years into the incoming CEO’s so-called restructuring plan, we believe The Board will address these ongoing execution/strategy challenges.”

According to an Economic Times report, however, Cognizant told ET in August 2022 that the assertions described in Wedbush’s report were “speculations at best.”

The company further said, “The report neglected how Cognizant was executing on its strategy, and several large deals – Zurich Insurance in Germany, National Insurance Company in India, and AXA, UK & Ireland – it had announced recently.”

Cognizant further added, “We have an industry-leading book-to-bill ratio of 1.2x, reinforcing our revenue growth expectations. We have expanded margins by 30 basis points year-over-year, and 50 bps sequential improvement, at a time when many of our peers are experiencing margin decline. Additionally, we returned more than $1 billion to shareholders through the first half of the year,”

Attrition Challenges

Currently, the company’s headcount stands at 349,400 employees globally. Almost 1.2 Lakh employees resigned from the company in the last 1 year.

For Q3FY22, the company announced that voluntary attrition stood at 29 per cent, and 6% involuntary attrition.

Total Employees left in the last year- 1,16,570