Internal Analysis

Cognizant Technology Solutions – An Internal Analysis Report

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Table of ContentsA brief background of Cognizant Technology Solutions..............................................2

Relative Profitability Position vis-à-vis industry..........................................................3

Value Proposition for customers.................................................................................4

Value drivers for Customers....................................................................................4

Cognizant’s Value Proposition.................................................................................5

The 3 questions of Porter: Is Cognizant’s Value Proposition Unique?.........................6

Unique Value Proposition from Cognizant:..............................................................6

Benchmarking Cognizant’s Value proposition with competitors’................................7

Strategy Canvas and the 4-Action tool framework.....................................................8

Strategy Canvas......................................................................................................8

ERRC Framework – 4 Action Tool...........................................................................10

A Value Chain Analysis of Cognizant........................................................................11

Industries Value Chain:..........................................................................................11

Cognizant’s Value chain when compared with the industry..................................11

Zero in on price drivers.........................................................................................11

Zero in on cost drivers..........................................................................................11

Consistency of value chain with value proposition...................................................12

Benchmarking Cognizant’s Value proposition with competitors’..............................12

Key Resources and Capabilities and the VRIO test...................................................12

Key Resources and Capabilities.............................................................................12

Now when these resources are put into a VRIO test:............................................13

Are these resources and capabilities valuable?.................................................13

Are these resources and capabilities rare?........................................................13

Are these resources and capabilities costly to imitate?.....................................13

Are these resources organized to capture value?..............................................13

Suggestions..............................................................................................................14

Section A Group 3 – Software Services Industry – CTS – Internal Analysis Report

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A brief background of Cognizant Technology Solutions

Cognizant is a multinational conglomerate headquartered in Teaneck, New Jersey, USA. Cognizant was founded on 26th January, 1994 and as of today its portfolio includes custom information technology, business consulting and is also a provider of BPO services (Business Process Outsourcing). Cognizant Technology Solutions is a division of Cognizant which is particularly into the information technology services sector. Off late the Cognizant has defined a separate entity for business consulting services namely CBC: Cognizant Business Consulting. However, we will be treating the IT consulting and BPO services holistically as a part of the internal industry analysis.

Cognizant’s core competencies include: Business Process, Application Development and Systems Integration, Application Development and Systems Integration, Operations and IT Consulting, Enterprise Information Management (EIM), Application Testing and Maintenance.From amongst Cognizant’s best-performing industry sectors, financial services revenues have gone up over 22% from the prior year.Healthcare revenues, primarily from payer,

pharmaceutical and medical device clients, rose more than 17% year-on-year.Revenues from retail/manufacturing/logistics clients grew by almost 25%.1

Special Note: throughout the report, Cognizant has been used as a proxy for Cognizant Technology Solutions.

1Cognizant Annual Report 2013


Consulting

Services

Technology

Services

Business

Process Outsourcing

Services

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Relative Profitability Position vis-à-vis industry

Let us consider the following 5 metrics to compare the profitability of Cognizant as a whole with the industry namely, the Software Services Industry, the Service Sector, the S&P 500 companies belonging to the services sector and the global market leader namely, Accenture. All figures are mentioned as a percentage of revenues. As far as Cognizant is concerned, it is into 3 main businesses, Consulting (includes IT consulting), Technology Services and Outsourcing (including IT Outsourcing). Since, it is difficult to segregate the figures of CTS (the technology services wing of Cognizant), the company wide figures have been considered for Cognizant as a whole.

CTSH Profitability Ratio Cognizant Industry Sector S&P 500 Accenture Gross Margin 5 Yr. Avg. 42.04% 43.70% 47.35% 38.13% 30.70%

EBITDA Margin 5 Yr. Avg. 20.82% 21.23% 28.21% 15.75% 15.16%Operating Margin 5 Yr. Avg. 18.74% 16.66% 15.46% 12.80% 13.22%Pre-Tax Margin 5 Yr. Avg. 19.13% 15.87% 12.35% 10.62% 13.27%

Net Margin 5 Yr. Avg. 14.99% 10.65% 8.72% 7.44% 9.07%

Gross Margin 5 Yr. Avg.

EBITDA Margin 5 Yr.

Avg.

Operating Margin 5 Yr.

Avg.

Pre-Tax Margin 5 Yr. Avg.

Net Margin 5 Yr. Avg.

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

Profitability Comparison between Cognizant, Industry and Industry Leader

Cognizant Industry Sector S&P 500 Accenture

Source2

2 Figures obtained from CSImarket.com


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Value Proposition for customers

As per the conventional definition of ‘Value Proposition’, it is a business or marketing statement that summarizes why a consumer should buy a product or use a service. This statement should convince a potential consumer that one particular product or service will add more value or better solve a problem than other similar offerings.3

Every company must have its unique value proposition, if it has to survive and achieve some competitive advantage in the market.The value proposition of any company has a direct bearing to the customer’s willingness to buy, and hence, a direct impact on the company’s topline i.e. revenues.

Value drivers for Customers1. Integrated Services: A one place for all IT services along the customer’s value chain,

namely consulting services, followed by execution of the IT service, followed by after sales support.

2. Quicker completion of project: For any customer seeking IT services, the duration of the project matters a lot. The customers pay for the IT services projects right from the inception of the project. The faster the project gets completed and implemented, the sooner will the customer be able to reap the benefits of the project and thereby break even with the project expenses. Hence a competent pool of resources (both human and technological) with the service provider is what the customers seek.

3. State of the art and latest technology:Any customer will value the use and implementation of the latest IT solutions.

4. Service differentiation: Value proposition of SMAC, Project Halo and Cloud Computing

5. Lower prices: A lower price will always add value to the customers by reducing their bottom line i.e. cost, be it in any industry.

Cognizant’s Value PropositionCognizant defines its value proposition statement as follows:

As a customer-centric, relationship-driven partner, we are redefining the way companies experience and benefit from global services. Our unique delivery model is infused with a distinct culture of high customer satisfaction. Cognizant delivers a trusted partnership, cost reductions and business results. Cognizant enables global enterprises to address a dual mandate: to make their current operations as efficient and cost-effective as possible, and to invest in innovation to unleash new potential across their organizations.4

3Definition taken from Investopedia42014 Cognizant Fact Sheet


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Apart from the above, one of the major things which differentiates CTS from most of its competitors is the concept of one-stop-shop as far as IT service implementation is concerned.In this era of IT technology, a huge number of organizations are trying to implement Information Technologies and Systems in their organizations. For most of such organizations, IT may not be a direct core competence. And in the absence of already implemented IT systems, many of these organizations don’t have their own IT wing or MIS departments, to effectively guide them towards decision making as far as IT implementation is concerned. Naturally these organizations opt for business consultants to guide them in such decisions. Many of these consultants are often purely into consulting and don’t have an integrated IT services execution team of their own. This is where Cognizant differentiates itself form the herd. They have their own business consulting group name CBC. They act the front end partner for CTS, who are specialized in the execution of IT services. CBC has thus the capability of offering a packaged deal to its customers of both the IT related consulting as well as the execution services. This saves the customers from getting into unnecessary hassles of appointing separate consulting and execution service suppliers and the corresponding cost saving achieved by Cognizant through the achieved scale in business also gets passed on to the customers. Thus it acts as a win-win situation for both the client as well as Cognizant.

The 3 questions of Porter: Is Cognizant’s Value Proposition Unique?

We can analyze Cognizant on the lines of the three questions of Porter:

a. Which Customers: Various customer categories come under the purview of the software services such as banking and financial services, insurance, healthcare, automotive, power sector etc.

b. Which Needs: Cognizant is able to meet the dual needs of customers through an integrated consulting cum IT service package. Besides, Cognizant is able to cater to a largeareas of application development for ERP (Enterprise Resource and Planning), SCM (Supply Chain Management), CRM (Customer Relationships Management) and various other emerging needs in today’s organizations.

c. What Price:When it comes to Cognizant, it delivers a unique value to customers by offering reasonable prices and not premium prices. Cognizant is able to achieve the same, through smooth integration of consulting and technology services. Besides, since Cognizant is a significantly large company with multiple clients from the various sectors, they are able to reap benefits through sharing of resources thereby achieving an economies of scale within the organization.


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Unique Value Proposition from Cognizant:


SMACSMAC includes the power of Social media, Mobile as a platform, Analytics and Cloud. All these areas complemet each others activites, It work as multiplier in terms of value addition.This enables companies to support innovation and potentail to find business improvement areas.

CODE HALOIt is introduced to gather the data people generate every day by expressing themselves on digital networks, swiping cards or through transcations.It is a treasure of information for customers to exploit business opportunity available in the market and to improve their existing services by making meaning from Code Halo.Code Halo integration with company's provided framework 'Crossroad Model', helps clients to take decision quickly and more accurately.

BUSINESS CLOUDRapidly growing organizations are seeking verstile and cost effective solutions to cut down on their expenses. Cloud is one of the solution for those companies. They only need to pay what they will use. it is an option for companies to convert a portion of thei Capex into Opex.Cognizant business cloud solution consists of few special features:Cloud 360: A hyper-efficent paltform for enterprisesAssetserv: Managing all the digital assets centrally

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Benchmarking Cognizant’s Value proposition with competitors’

Let us analyze the value proposition of the nearest competitor of CTS i.e. Accenture, which is also involved in both IT consulting as well as Information Technology services. Let us keep the value proposition statements of both Cognizant as well as Accenture side by side and analyze compare them to each other:

Cognizant’s Value proposition statement:

As a customer-centric, relationship-driven partner, we are redefining the way companies experience and benefit from global services. Our unique delivery model is infused with a distinct culture of high customer satisfaction. Cognizant delivers a trusted partnership, cost reductions and business results. Cognizant enables global enterprises to address a dual mandate: to make their current operations as efficient and cost-effective as possible, and to invest in innovation to unleash new potential across their organizations.5

Accenture’s Value Proposition statement:

Over the past two decades, outsourcing has dramatically changed the way companies create and distribute value. From its origins as a hardware operations play, the practice has moved first to applications and software, and then to higher-level business processes and services. The next wave of change will take outsourcing into unexplored territory: strategic value and innovation.6

There are clear signals that Cognizant tries to lure in customers on the lines of lower costs for them and also tries to flaunt their global reach in order to propose world class services to their customers. One of the aims of Cognizant is also to build long term relationships with the clients. As the conventional marketing wisdom says, the cost of developing a new client is nearly ten times as that of retaining and serving an existing client.

As far as Accenture’s value proposition is concerned, they clearly try to lure customers by flaunting their ability to provide innovative solutions and adding strategic values as far the customer’s business is concerned.

So clearly, it is seen that Cognizant on one hand is focusing to become a cost leader, whereas Accenture is trying to adopt a differentiation strategy to sustain a competitive niche for itself.

5The 2014 Cognizant Fact Sheet6http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-Outlook-New-Value-Proposition-Outsourcing.pdf


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Strategy Canvas and the 4-Action tool framework

Strategy Canvas

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Industry Strategy Canvas

Cognizant Accenture IBM Igate Patni

Factors of Competition

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E-R-R-C Framework – 4 Action Tool


Eliminate1. Timely elimination of poor

performers within the oranization to maintain optimum productivity.2. Eliminate differential work

environments across all the global offices by bringing in standardization.

Raise1. Increase in sales and marketing

offices across the globe.2. Enhancing capabilites in offering

services in the areas of ERP,CRM,EIM,BPS and SMAC

3. Dedicated teams to develop innovative solutions and high end

services.4. Pool of skilled low cost skilled employees to reduce bottomline.5. Create more long term contract

than short period contracts.

Reduce1. Dependency on few clients for

most of its business.2. Dependency on specific

geographies: ex. 73% revenues generated from N. America; India is the main services supply hub as of now - to reduce such skewnesses

3. Most of the company's assets are based in India; any kind of terror

activites will give wrong impression to existing clients in context of saftey

of data. Reduce asset distribution skewness.

Create New value propositions for customers

namely:1. SMAC

2. Code Halo3. Business Cloud

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A Value Chain Analysis of Cognizant

Industries Value Chain:When we analyze the type of services provided by the industry it is primarily software development and secondly software enhancement. These services help multiple verticals to perform better. When we look into software development, it has multiple stages: Conceptualization, requirement analysis, high level design, low level design, coding, testing and support.

This being the software services life cycle, when the value chain is looked in business perspective:

1) Analysis of the problem of the given vertical 2) Use preexisting design to solve the problem else develop a new design3) Project implementation 4) Project Testing5) Project presentation and delivery6) Project up gradation and support

When the process is looked in detail it could be found that only step 5 and 6 derive value to the customers, but still other steps are necessary for completion of the service and value addition.

Cognizant’s Value chain when compared with the industryEvery software firm in the industry follows the similar value chain but cognizant meets dual needs of the customer using integrated consulting as a service package. It looks into the customer’s need apart from the problem and acts in accordance. CTS also cater to various needs of the organization today by using ERP and CRM. They also perform software up gradation on a timely basis unlike the industry which waits for the customer to ask for one.

Zero in on price driversThey develop good customer relation with not only innovative services but by learning the customers need and solving them automatically. They do not charge the customers with premium prices instead they have considerable prices with long term relations.

Zero in on cost driversUsing integrated consulting and technology services they achieve economies of scale within the organization. This helps them cut down their costs unlike other firms in industry which provides specified solutions to the problems.


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Consistency of value chain with value proposition

Cognizant Technology Solution’s value chain is highly consistent with its value proposition. In reference to previous finding we could find that Cognizant’s value proposition is its customer satisfaction, good long term relations with customers and cost reduction. The value chain of CTS is similar to the industry except automated up gradation (enhanced customer satisfaction), automatically leaning the needs of customers before the bring up the problem (To maintain good relations with customers) and using integrated consulting and technology solutions to cut internal operating cost and to provide services beyond customers expectation (Customer satisfaction and cost cutting).

Benchmarking Cognizant’s Value proposition with competitors’

Unlike its competitors cognizant was a late entrant in India. It was established only in the 90s, by then its competitors were established. In IT industry flexibility is the most important factor to engage in new projects. So being a late entrant in was able to make slight changes in its value chain which was much more effective. Being an international firm it has better access to customers, so have a lesser marketing expenses unlike other Indian firms. Accenture which is its global rival provides highly attractive solutions to its customers with enhanced design. The design provided by Accenture is distinctive when compared with other firms in the industry. (When compared to CTS they have a better designing model). CTS on the other hand try to provide solutions with preexisting design and try to upgrade after delivery. Since both have contrasting value chain and proposition CTS cannot adopt the enhanced design part of Accenture’s value chain as CTS focuses on cost reduction and integrated solutions.

Key Resources and Capabilities and the VRIO test

Key Resources and CapabilitiesCognizant has 1242 active customers over multiple industry verticals like Banking & Financial Services; Communications; Consumer Goods; Energy & Utilities; Healthcare; Travel & Hospitality; Information, Media & Entertainment; Insurance; Life Sciences; Retail; Manufacturing & Logistics; Technology. Their most valuable resource is their customer base. They also have a very good long lasting relation with their customers. They anticipate their needs and they satisfy them.

They have an efficient global delivery system; they have 24X7 delivery availability. They have more than 20,000 outsourcing projects delivered in 40 countries. They have 75 development


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centers around the world (these centers are spread throughout the globe). They have a good geographical reach, they have 25 regional sales and client relationship offices.

Another most important capability is their partnership and relations with reputed organizations like SAP, Microsoft, Oracle, IBM, SAS etc. They have a very good recognition throughout the globe, their key resources are their brand image and their loyal customer base.

Now when these resources are put into a VRIO test:Are these resources and capabilities valuable?

Yes, resources like long-term good customer relations cannot be built in a short period, it requires effort over years. Developing a loyal customer base is a goal for every company and CTS has successfully done it. Having such relations keeps the customers from switching and improves profitability. When we consider its global reach, having a global presence enables the organization to service a larger customer base. As they have large amount of customers they implement similar design and models to the similar firms of the verticals, which cuts their costs significantly.

Are these resources and capabilities rare?Yes, CTS’s current customer base is rare, it cannot be captured as the customers are loyal to CTS and won’t switch out. Out of the 6 US PBM’s CTS has 5 of them as clients, out of the world’s 10 most profitable biotech companies CTS has 9 of them as its clients out of the world’s 15 most profitable industrial manufacturing companies CTS has 7 of them as its clients and similarly they have many such clients who are very few are rare throughout the globe.

Are these resources and capabilities costly to imitate?Yes, since the customer bases are unique it nearly impossible to make them switch. If any of the firm would want to make the customer base to switch out then they have to offer the customers something very attractive in terms of cost and quality. Having a global presence is also costly to imitate, as it would take huge capital to set up 75 global development centers. Most importantly the brand image of Cognizant cannot be imitated, the only way to imitate the brand is to acquire or buy the organization.

Are these resources organized to capture value?Yes, having a global presence helps the organization to cater to the needs of clients worldwide. The service centers and development centers are played strategically throughout the globe to capture wide range of customers. Having such long-term relations with clients keeps them loyal to the service provider, which gives a strategically advantage as the clients wont switch and also they would bring in additional problems to be serviced in their new ventures.


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Suggestions

Since CTS’s key resources and capabilities passed the VRIO test, it could be inferred that the firm has a sustained competitive advantage. The key resources and capabilities like customer base, customer relations, global presence, and brand image are extremely important to be one of the leading software service providers. In addition to all these resources CTS lacks in one of the resource which its competitor possesses, innovative and a new design for every one of its customers (Accenture). The capabilities which Accenture possess are completely contrasting to the capabilities of CTS which focuses on resource and design sharing for cost cutting. Cognizant is losing out on customers who expect innovative and different solutions. For CTS to capture this base must come up with a separate business plan distinct from the earlier one, where it could fuel its resources to come up with innovative beyond expectations of the customers. In future the clients won’t be able to know or predict their problems, so it would be ideal if the software service provider would come up with innovative designs to overcome and predict such problems. So CTS must focus on making such design and remain as the global leader in software services and consulting.


Internal Analysis

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