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2 3 r d - 2 6 t h N o v e m b e r, 2 0 0 6

Case:
Cognizant Technologies Solutions: A New Future

Advantage India Retaining the Edge


Cognizant Technology Solutions: A New Future
It was late on Friday afternoon, when Mr. Ranganathan, Executive Vice President, Cognizant sat in
his plush Bangalore office, looking over his notes from previous meetings. He had spent the last two
days meeting many senior managers, and understanding where the company was and where it was
headed. On Monday he had to make a presentation to the company Executive Board, analyzing its
current strategy and recommending changes that would enable Cognizant to continue to grow over
the next 5 years.

Cognizant had been showing impressive results, consistently over the last few years. However Mr.
Ranganathan had a feeling that this was no cause to believe that Cognizant would return similar
results in the future. He turned over the events of the last two days in his head, and yet he could not
put his finger on what was bothering him. He wasn't even sure whether he was being overly cautious,
or prudent in spending so much time looking through all his notes.

There were a number of concerns which had him thinking, one of which was local competition from
the likes of Infosys and TCS, who had also made great strides over the last few years. Most of these
companies had done well in part due to the inherent advantages India offered, advantages which were
likely to be partially eroded by other low cost destinations for IT services. Thinking about changing
regulations, and increasing competition from multinational firms like IBM, Accenture, EDS and CSC,
Mr. Ranganathan could not determine which of these posed the greatest threat or the biggest
opportunity for Cognizant. The real question was "Given that Cognizant was at a crossroads in its
existence, which were the paths it could take, and which one should he, as the Executive VP,
recommend?"

Harshwardhan Jha and Sarang Verma, students of the Post Graduate Programme in Management from the
Indian Institute of Management, Ahmedabad, have prepared this case under the supervision of Dr. N.
Ravichandran, with inputs from Mr. Natarajan Radhakrishnan and Ms. Aarthi Srinath of Cognizant
Technology Solutions, for IIMA Confluence 2006. No part of this document may be reproduced without the
prior permission of the Indian Institute of Management, Ahmedabad.

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Company History
Cognizant was started in 1994 as a joint venture between Dun & Bradstreet (76%) and Satyam
Computer Services Ltd. (24%). Cognizant provides customized software solutions in the financial
services and healthcare verticals. It has its headquarters in New Jersey and operates primarily in
Canada, Europe, India and the US. In June 1998, after getting listed on the NASDAQ stock exchange,
a large portion of Cognizants stake was with IMS Health which it completely divested in early 2000
in a tax-free split off. IMS Health was the worlds leading provider of information solutions to the
pharmaceutical and healthcare industries.

Cognizant has come a long way since its start in 1994. Its 2006 2nd Quarter results show Cognizant
to be the 4th largest IT services company in India. It has shown year on year sales increase of around
50% for the last three years and an average profit growth of 69% during this period. Cognizant lays
special emphasis on customer focus, specialized expertise, leadership and innovation, seizing global
opportunities and embracing change.

Cognizant has shown phenomenal growth, primarily organic, although it has made six small
acquisitions. It recently acquired AimNet which is a Massachusetts-based Managed Infrastructure and
Professional Services provider. This transaction provides Cognizant with a state-of-the-art US-based
Network Operations Center (NOC), a world-class patent-pending list, proprietary infrastructure, a
management software platform, an installed base of over 80 direct and indirect customers and
partners as well as high-end network & infrastructure consulting capabilities in areas such as network
architecture, planning, design and infrastructure security solutions.

After hiring a record 9,000 employees in 2005, it today employs over 34,000 people and plans to
increase this number to over 36,000 by the end of the current year. Since most of its employees are
hired from campuses, Cognizant plans to spend $76 million to help build more high-tech campuses in
India. It is fast catching up with its competitors Infosys and Wipro, and has already outperformed
them with respect to metrics like revenue growth, profit growth, revenue per customer, stock price

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growth, trailing and forward P/E, etc. It has averaged 58% annual sales growth as opposed to 44% for
Infosys and 42% for Wipro. Its annual earnings have also averaged 58% growth the past three years
as opposed to close to 41% each for Infosys and Wipro. It was selected as the 'Best U.S. Company in
India' by Indo-American Chamber of Commerce and has been named among the top 16 hot growth
companies by Business Week. It was recently ranked 21st in the Healthcare Informatics 100 List.
Cognizant was positioned by Gartner, Inc. in the "Leaders" quadrant in its recently published "Magic
Quadrant for Offshore Applications Services 2006 report.

The Cognizant Culture


The Cognizant culture is about meritocracy and continuous learning. Efforts are made to give
employees a wide range of experiences by providing them opportunities to work on different
technologies as well as in different domains. It is not surprising that most employees rate learning as
one of the most positive aspect of their job experience at Cognizant. Fostering ideas, integrity, open
communication, diversity, and responsiveness to their clients' needs are some of the company's
important values. The collaborative and people focused culture has helped in promoting these values.
Some of the initiatives such as grand annual day celebrations and distribution of iPods on the
company's reaching a 1 billion $ in revenues have enabled employee share in the company's success.
Overall the company tries to ensure that employees have a passion for making a difference through
their work and strive for excellence in order to provide not just customer satisfaction but customer
delight.

The Cognizant Client Engagement and Delivery Model


Cognizants philosophy is to give the customers an experience of working with a Big 5 firm such as
Accenture or IBM (local presence, no loss of control and responsiveness) with the efficiencies of
working with an Indian vendor. In order to achieve this, Cognizant invented and implemented the
proprietary two-in-a-box organizational and global delivery model of offshoring at a time when its
Indian competitors were still using a passing-the-baton kind of model.

The distinguishing feature of the Cognizant delivery model is that instead of assigning either the
onsite location or the offshore delivery center as the power center of the organization, Cognizant

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vests authority and therefore responsibility with people across geographic locations. Typically on any
given project it is both the delivery director who is in charge of the off shore operations as well as the
client partner who serves as the interface between the client and Cognizant who are responsible for
the project. The two-in-the-box model thus ensures better integration throughout the implementation
of the project. Cognizant CEO Mr. Lakshmi Narayan feels that this model gives Cognizant a
sustainable edge over competitors because while the model itself is easy to conceptualize, the
implementation is a difficult, iterative process with the complexity being directly proportional to the
size of the organization. Therefore rival firms similar in scale to Cognizant currently would find it
extremely difficult to successfully implement this model.

Cognizant HR policies and processes


As a people focused organization Cognizant has consciously adopted a set of HR policies and
processes which are aimed towards ensuring that Cognizant consistently has the most talented, best
trained and most satisfied workforce in the industry. It is this dedication to its people processes that
has earned it a People CMM level 5 assessment.
1. Recruitment: Cognizant hires fresh graduates from top engineering and management colleges such
as the IITs and the IIMs in India as well as laterally in the ratio of about 75% to 25% respectively. On
campuses it enjoys an enviable position as the number 1 slotted IT Company in most B schools as
well the number 1 or number 2 slotted in the majority of the premier engineering colleges in India.
2. Selection: Cognizant employs a rigorous selection procedure which tests a candidates technical
ability, mental aptitude as well as cultural fit with the organization. This is accomplished through
written tests as well as up to three rounds of interviews.
3. Training and Orientation: Cognizant has an ongoing training program for its associates which
focuses on technical, domain as well as behavioral training (to which end it has created the Cognizant
academy and the Personal development center). Continuous development of associates is ensured
through:
a. Entry level training: At the time of joining all fresh graduates are put through an intensive 10week long classroom based training program. This program is designed to equip trainees with
technical skills in areas such as programming, database design, system architecture and

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exposure etc. Additionally the trainee is provided insights on behavioral aspects such as
presentation skills, communication skills, and team dynamics. Lateral hires at the time of
joining the organization go through a comprehensive orientation program which gives them a
better idea of Cognizant as an organization. This includes overviews of the companys culture,
business model, process methodology, business groups, support services, available benefits,
etc. Additionally there are role specific orientation programs for individuals.
b. Besides the entry level program, Cognizant provides continuous opportunities for its
associates to learn and grow through various Skill Improvement Programs (SIPs). These
include role based training, Continuous Education Programs, Project Specific Training,
Domain Specific Training, and External Training Programs. Cognizant policy makes it
mandatory for associates to go through 7 days of technical and three days of non-technical
training every year.
4. Retention: In an industry typically categorized by high turnover Cognizant has managed to limit
attrition to the low teens on an annualized basis (In March 2006 it was 11% and in June 2006, 15%).
The following are considered to be some of the chief factors responsible for this extremely low rate.
a. Compensation levels at the top quarter of the industry
b. Employee Stock Option Plan (ESOP) for high performers. (available to all employees who

have worked with Cognizant for four year)


c. Performance based reward system including fast track schemes
d. Rotating employees between different projects as well as technologies
e. Providing employees the freedom to choose their own career path in areas as diverse as

Technical R&D, Project Management, Account Management and Business Development


with a vertical domain alignment
f.

Culture Cognizant has a very open work culture as manifested in togetherness events,
annual day celebrations, or opinion polls conducted across the organization as inputs for
policy decisions

g. Opportunities to learn and grow through a proactive training program. About 4% of the

companys revenues are devoted towards training the employees

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h. Opportunities for employees to voice any and all concerns via Employee Satisfaction

Surveys, Internal Customer Satisfaction Surveys, Open house, Employee outings etc.
i.

Employee benefit plans on par with the best organizations in the world

Rise of the Indian IT industry


Advantage India
Globalization and technological advances in the networks domain have allowed white-collar jobs to
move offshore and have been the turning point in the world of outsourcing. The Indian IT industry
has benefited greatly from this phenomenon and has an ever increasing presence in both urban and
rural India. IT software and services in 2002-2003 accounted for 2.4 per cent of Indias GDP and 20.4
per cent of total exports. The industry has grown at a CAGR of 46% annually since 1999. (Source:
IBEF)
The rise in the IT-ITES industry in India has been attributed to the following factors:
The presence of a large low cost, high quality labor pool in India has made it a cheap and
attractive destination for outsourcing work. Off shoring work to India generates savings of 30%50% on average. A large English speaking community and an educational system which
produces a huge number of technology graduates have spurred the Call center and BPO
phenomenon.
The global delivery models used by top Indian firms increase productivity and provide higher
returns to clients in the IT applications and consulting areas.
With many International firms setting up shop in India, there has been an increasing focus on
quality among the Indian companies. All the top players have SEI-CMM level 4-5 and
ISO900X certifications.
Due to a growing need for better IT services in businesses the world over, the top global IT
companies are acquiring smaller companies with niche competencies to supplement their skill
sets. This has fostered a new breed of entrepreneurs and venture capitalists in the country that
are starting new businesses with the objective of being acquired by a bigger firm.

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A Proactive policy framework by the government has played an important role in encouraging
competition and fostering growth.
o Favorable tax structure - Minimum Alternate Tax is levied at a rate of 7.65% on the profits
of the companies. Profits from software exports do not form a part of the profits taxable
under MAT.
o NASSCOM, a consortium of Indian software firms, has been given more freedom in
regulating the software industry.
o Amendments have also been proposed in the Indian Evidence Act, Indian Penal Code and
the RBI Act. The mechanism of digital signature has been proposed to address the issues of
jurisdiction, authentication and origination.
o Recognizing the importance of Venture Capital Funding, the Ministry of Information
Technology has set up a National Venture Fund for the Software and IT Industry with a
corpus of Rs. 100 crore in association with the Small Industries Development Bank of India
(SIDBI) and Industrial Development Bank of India (IDBI). The aim of the Fund is to
provide Venture Capital to start up software professionals and IT units in the small-scale
sector.
State-of-the-art infrastructure- Setting up of software parks and SEZs and wooing of IT
companies by many states of the country have further fuelled growth.

The Future
Potential in the global IT industry (the $100 billion opportunity)
IBEF has projected that the IT industry will account for 7 per cent of Indias GDP and 35 per cent of
total exports by 2008. Over USD 100bn worth of deals are expected to come up for renewal over the
next two years. With the increased focus on outsourcing, these deals can potentially create huge new
sources of revenue for India.
Potential in the domestic IT industry
NASSCOM estimates that by the year 2008, revenues of the Indian domestic software market would
equal revenues from Indias software and services exports, touching US$ 35 billion. Projects on egovernance undertaken by many state governments, a growing realization among Indian businesses of

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the role of IT in faster growth and a huge potential of low cost-high volume growth in the rural sector
are expected to be the driving factors for domestic growth.
Political scenario
After the government change in 2004, both global and Indian executives were worried about the
possibility of policy changes that could be brought about by the left backed coalition led by the
Congress National Party. However the positive steps taken by the government, including increasing
the cap on FDI in other sectors of the economy, have had a constructive impact.
India as an R&D Hub
There has recently been a trend of increased spending on R&D by Indian IT firms to develop products
and on studies of how to create value for the customers. Some notable examples of products coming
out of research in India are Finacle by Infosys Technologies and I-Flex by Flextronics, both
customizable banking software systems which have a growing demand outside India.
Shift from a BPO to a KPO
Knowledge Process Outsourcing is fast becoming the byword in the Indian IT industry. There is a
shift to domain-based processes and business expertise, rather than just process expertise.

Competition
Cognizant faces competition not only from other Indian IT firms but also from multinationals based
in the U.S and other developed countries. A new but serious threat is from companies in other
developing nations such as China, Eastern Europe and South America.
Indian Firms
The IT industry in India is highly competitive. Infosys, TCS and Wipro are the largest outsourcing
service providers in India. GTL, Satyam Computer Services, HCL Technologies, ITC Infotech and
Patni Computer Systems are other well-respected big names. There are also a few other companies
with expertise in niche segments. Companies such as MphasiS, Quintant (iGate Group) and Techspan
(Headstrong) have strengths in the financial services domain, and Irevna is leading the move to
offshore equity research. Sonata has been employed by investment banks such as Lehman Brothers
and Deutsche Bank and I-flex has recently announced it is to work with IBM on financial service

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solutions. In this context, it would be instructive to look at the profiles of some of the top Indian IT
companies.
Infosys Technologies Ltd.
Infosys Technologies Ltd. focuses mainly on providing IT services to clients globally. It is also trying
to enter the consulting space with the launch of Infosys Consulting in April 2004. Infosys uses a lowrisk Global Delivery Model (GDM) to increase project execution speed while maintaining a highly
predictable time and cost schedule, which it claims to be its unique selling proposition.
Wipro Technologies Ltd.
Wipro Technologies also provides technology-driven business solutions to help its global customers
meet their strategic objectives. Wipro has 40+ Centers of Excellence that create solutions around
specific needs of industries. Wipro has been pioneering quality initiatives such as six sigma and
PCMM in the IT industry to provide delivery excellence to its customers.
Tata Consultancy Services Ltd.
Tata Consultancy Services Limited (TCS) is Indias oldest IT company and has the backing of the
powerful Tata group. It has the highest revenues and profits among the Indian IT companies.

Comparative Analysis (As on 31 March 06)


Company

IT

2005-06

2005-06 Profit

YoY Revenue

Profit

Employee

operations

Revenues (in $

(in $ million)

growth

growth rate

Strength

from

million)

Infosys

1981

2152

555

31.6

26.82

58000

Wipro

1981

2139

456

30

28

55000

TCS

1968

2893

665

35.98

50.07

62832

Satyam

1987

1012

225

33.78

37.76

30000

rate

(%)

%)

International
With Indian companies enjoying increasing success, the major IT companies of the world have started
to pay attention as for many contracts, these Indian IT companies are directly pitted against them. The
top 5 IT companies in the world are IBM, HP, Accenture, EDS and CSC.

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IBM Global Services


IBM Global Services is the largest IT outsourcing company in the world. It holds nearly 15 percent of
the global IT outsourcing market. It has 3,30,000 employees and $96 billion in annual revenues. The
company provides a wide range of services such as application development, system integration,
application management services, data center outsourcing services, maintenance, e-business hosting
services, networking services, support services, security services and storage services.
EDS
EDS is the second largest IT outsourcing company with a market share of around 11 percent. It
employs 1,17,000 people and has $20 billion in annual revenues. The services provided by EDS
include various IT outsourcing services, application development services, network management,
storage, and data center services.
CSC
CSC is the third largest IT outsourcing company in the world with a market share of around 5 percent.
It has 90, 000 employees and $14.6 billion in annual revenues. It provides business transformation
and IT consulting; systems integration and professional services; enterprise application development
and management; application software for the financial services industry; business process
outsourcing; and application outsourcing, IT infrastructure outsourcing.
HP
The services arm of HP is also one of the top ten IT outsourcing companies, claiming close to $14
billion in annual revenues. HPs IT outsourcing services include application management, end-user
workplace management, help desk services and software supply chain.
(Tutorial Reports)
Accenture
Accenture is one of the worlds leading management consulting, technology services and outsourcing
organizations. It has 1,00,000 employees and $13 billion in annual revenues. The company has a long
term customer base, comprising large corporations and governments. More than 300 of the Fortune
500 companies are its customers. Government agencies in over 30 countries have utilized Accentures
services. A long term customer base is its main advantage.

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The global players clock in revenues of $10-25 billion while the Indian companies are still under $ 10
billion in revenues. But at the current growth rate Indian players can catch up in the next 5 years. Also
India IT companies have a much better profit to revenue ratio. The Big five are recognizing this
threat and are also moving to India for outsourcing. This is done by opening development centers in
India and through strategic acquisitions such as EDS acquisition of Mphasis. (Tutorial Reports - IT
Outsourcing Companies)

Upcoming locations
India reaped huge benefits as the first mover in outsourced IT services. But other low cost countries
are fast catching up. With the increasing wages in India and a shortage of skilled workers, other
locations are becoming increasingly more attractive.
Mexico and Canada
These are utilizing their geographic advantage of proximity to North America to attract business. The
government of Mexico is heavily investing in the software development industry to overcome its
limitations in terms of resource pools and language skills. Mexican companies such as Softtek and US
companies such as IBM are proving their capabilities with certifications such as SEIs CMM and by
customer references. Canada on the other hand does not face any language or cultural barriers, and
the Canadian government is looking to grow its software and services export business. Trade with
Mexico and Canada is also facilitated by the US North American Free Trade Agreement (NAFTA).
Mexico and Canada would definitely be useful alternatives for projects or systems that are not suited
to long-distance offshore Outsourcing.
(Stephanie Moore Dec 17, 2003)
Russia and Eastern Europe
These do not have an organized IT industry as of now. However strong potential exists in these
regions as the quality of engineering graduates is at par with India. The educational system still has
some quality centers left, and the wage rates are lower then the developed world. Therefore American
multinationals have already begun to consider this region as an alternate destination for IT skills.
(The Economist, Nov 11th 2004)

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China
Most of manufacturing-related R&D work is being outsourced to China, with GE, Siemens and Nokia
all doing research there. China's is yet to catch up in the fields of IT as the IT industry in China is not
yet as organized as in India. But with China already ahead of India in terms of IT engineers produced
per year, it wont be long before China catches up with India. Atos Origin, a big European IT-services
firm, says it is more interested in China than in India because there is less competition for engineers
Central and Eastern Europe
These are more attractive off shoring destinations for European and Japanese companies, respectively
due to skills in French, German, Japanese, and Spanish. Also given the formation of the European
union, the number of regulation governing intra Europe commerce are very few, especially labour
laws.
Additionally China, Hungary, and Russia are considered to be better labor sources for certain
specialized skills, such as aerospace engineering and materials science. Recognizing the trend Indian
companies are themselves setting up facilities in alternate locations. TCS has opened offices in
Budapest, Hungary and Hangzhou, China. Last year it acquired a 1,300-employee outsourcer in
Chile, and it plans to add 1,500 to the 485 people at its Brazil arm. Infosys Technologies set up shop
in Shanghai, Mauritius and two Czech cities, Prague and Brno. Wipro has set up new offices in
Shanghai and Beijing and plans to open soon in Bucharest and Romania. The international players are
also moving to these locations. Therefore, in the coming years, these locations would pose a
challenge to Indias position as the number one location for IT off shoring.

Challenges
Costs

Rising Wages: As noted above one of the biggest advantages of IT industry in India is the cost
advantage which comes mainly from cheap skilled labor. However in recent times the wages in
India have shown an increasing trend. So much so that although Wipro, on July 18 reported first
fiscal quarter net income of $134 million, up 44 percent from a year ago in 2005, it still saw its
stock drop 5 percent because investors were concerned about the problem. Even more worrying
was that Wipro was not alone. The preceding week, Infosys Technologies, in announcing its

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quarterly results, took pains to explain the steps it is taking to deal with the wage inflation
problem. In its earnings call, TCS also took note of the impact of rising wages on its performance.
This rise in wages is bringing down the cost differential between India and developed nations.
This reduces the cost advantage and thus companies have started looking at other countries like
Brazil and Russia for their offshore processes.

Attrition: This is a factor which adds to the rising costs as Indian IT companies suffer from
attrition as high as 30 %( in some cases). As the companies grow bigger they require more and
more trained employees. Due to the lack of properly trained labor, companies end up poaching
from other companies. This leads to a high attrition rates (workers on an average are estimated to
leave the company within 1 year of joining). As top global companies like IBM set up in India
they also take a dip into the already scarce human resources leading to more attrition and further
increase in costs, not just due to higher wage bills but also training costs for new recruits.

Interest rates: The interest rates for working capital requirement in India are around 14 % .This is
much higher than corresponding rates for countries such Singapore and other Eastern European
countries which further increases the cost of operation for Indian firms.

Tax structure: Having enjoyed a friendly tax regime for most of the recent past the IT firms have
cause to worry due to the newly introduced service and fringe benefit taxes.

Migration
One major problem faced by the Indian IT industry is large scale migration of skilled software
manpower. With the strengthening of dollar vis--vis rupee, the continued large-scale shortage of
software professionals in the West, and the large income difference for these professionals in India
and the West, there is increasing motivation for Indian IT professionals to move to greener pastures
abroad. What makes this phenomenon especially worrying is that such opportunities are much easier
to find for Indian professionals after they have received training at one of the Indian firms. This
brings down the return on investment on training for many Indian IT firms. Companies then have to
try to retain employees by giving more challenging jobs, higher pay or stock options.
Innovation
IT products from other nations are too expensive for Indians and the Indian IT companies have very
few products of their own. Thus the large potential of the domestic software market remains
untapped.

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Value for Money


Another factor affecting the IT industry is the quality of work delivered. There have been cases of
clients not being satisfied with the above and thus not only costs but the work itself too becoming a
crucial concern. Ability of Indian firms to improve in this aspect would again depend upon the skill
level of workers, their educational background and the extent of their training .
Geopolitical Risks
With the risk of terrorist attacks and war with the neighboring country Pakistan the risk associated
with working with Indian companies is perceived to increase (their work/data might be destroyed in a
terrorist incident). Recent events like bomb blasts in major Indian cities too show India and Indian
companies in a more risky light, which not only affects the willingness of multinationals to source
work from them but also makes global investors less likely to invest in them .This is especially
debilitating for Indian IT firms due to their dependence on global liquidity to fund growth.
The night before
Looking out of the window, into the distance, Mr. Ranganathan considered his situation. Cognizant
had grown very fast, the fastest to $ 1 billion in revenues amongst Indian IT firms. He was acutely
aware that managing similar growth on an ever increasing revenue base would need continuous
innovations and scaling with respect to internal processes, client interaction models, and the
workforce which would put enormous pressure on support groups such as HR, Recruitment and
Finance. A major component of this expansion in workforce would be fresh engineering graduates,
who in turn required extensive training in order to become effective. A further source of complication
from HR's point of view was that with talent being a precious commodity Cognizant would have to
vie with its competitors continuously to attract and retain the best talent in the midst of this frantic
pace of growth.

Mr. Ranganathan was also aware of the fact that Cognizant had in the past made a strategic decision
not to be present in the voice based BPO market in any significant way. Cognizants BPO practice
was integrated within the domain practice to provide domain-aligned business solutions rather than
establish too many subsidiaries, each with its compulsions of growth, profitability, leadership and
direction. Cognizant had also consciously focused on the high value vertical-BPO rather than the

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voice-based on horizontal (F&A, payroll processing etc) process outsourcing. Of late, many customer
contracts looked for end-to-end solutions wherein voice-based BPO services were also required. Mr.
Ranganathan was thinking about the pros and cons of this. He was also concerned by the fact that
most of the Cognizants business came from clients in either U.S. or Europe as opposed to its
competitors who had a more geographically dispersed client base. Although this was not of
immediate concern, he wondered whether there was a call to make a conscious effort towards such a
dispersed customer base.

Mr. Ranganathan walked back to his desk, and picked up his notes for what seemed like the
hundredth time. He looked at all the things he had highlighted. Cognizant had a much smaller
presence abroad in terms of development centers as compared to its peer firms in terms of both
number of centers as well as size. Mr. Ranganathan remembered reading an article on China and its
state run English education program. He knew that this was something he needed to consider. He also
remembered a conversation he had with a colleague about the top five IT consulting firms, and their
recent moves to acquire development and implementation capabilities. Mr. Ranganathan was aware
that this could increase competition in Cognizants own backyard, and he knew he must take steps in
his proposal to counter this new development. He looked at the last highlighted point in his notes.
With a wry smile he remembered that he had seen an article concerning this three times in the last
month in the morning newspaper. Data security had suddenly become a major concern for both
international clients, and Indian IT firms. There had been instances of employees misusing
confidential information in some other Indian IT firms which had caused many clients to view India
as a potential source for IT solutions with trepidation.

As he sat down in his chair, many questions arose in his head. What was the biggest threat to
Cognizant on its path of growth? Was Cognizant equipped to handle these challenges? Were its
current organization structure and delivery model optimal in the context of Cognizants current
situation and macro economic environment? What are the largest and most promising opportunities,
which would drive growth? What are his options and what recommendations should he make in the
meeting tomorrow. With only until tomorrow morning to come up with his analysis, Mr.
Ranganathan knew it was going to be a long night.

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Exhibit 1:
Organization Chart

President and CEO


Lakshmi Narayanan

COO
Francisco DSouza

COO, Global Client services


Rajiv Mehta

Support functions

Verticals

President and MD, Global


delivery
Chandra Sekaran

Horizontals

Global Delivery
Organization

EVP and CFO

Sr. VP, marketing and


strategy
Malcolm Frank

Gordon Coburn

Finance
IPR
Corp. IT/NSG

HR

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Marketing
Communication

Exhibit 2
Dated June 16th www.physorg.com
In a startling announcement last week, Apple, which opened its software division in Bangalore with
much fanfare in April, announced without citing reasons that it is closing down its Indian operations
and "has decided to put its support center growth in other countries." Consequently it served layoff
notices to about 600 newly appointed employees, who, according to reports, said "India isn't as
inexpensive as it used to be," and that was impacting the financial feasibility of the Indian operations.
"Apple hired professionals at salary levels much higher than the industry standards and soon realized
that the business generated from the additional expenditure did not justify the costs," said an industry
insider requesting anonymity.
But if the Apple decision perplexed the Indian IT offshoring industry, what came as a jolt were local
reports that said that Intel, as a part of the company's global cost-cutting and layoff exercise designed
to cut $1 billion out of its forecasted expenses, is seeking to downsize its Indian operations as well.
"Intel is conducting an in-depth review of its focus and structure," said reports quoting Intel officials
that would lead to "fewer employees in India as a result of attrition, redeployment and changes to
Intel's business."
Indeed, even as global IT behemoths like IBM, GE, IBM, Microsoft and Google, as well as their
Indian counterparts, keep announcing grandiose expansion plans almost every other day, the
explosive demand for IT professionals is beginning to drive up pay rates in India, raising questions
about the long-term benefits of outsourcing work to that country.
According to the "NASSCOM-Hewitt Total Rewards Study 2005" released in early March, the Indian
IT-services sector witnessed an average salary increase between 16 percent and 18 percent in 2005,
although the salary rise was less dramatic at the entry level.

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Exhibit 3
The experience of one customer shows that some Indian firms will not only have to overcome the
wage spiral, they will have to offer better value. Kana Software, a customer service software and
solutions provider in Menlo Park, Calif., brought its product development operations back to the
United States from India, following an unsatisfactory experience working mainly with Indian
provider HCL
http://www.physorg.com/news69676084.html Infosystems, of New Delhi.

Exhibit 4

Financial Performance:

For the years 2002 05

Measure

Value for year 2005

Market Value ($ Millions)

8,863.8

SALES ($ Millions)

989.6

Sales Growth (3 yr. average annual)

57.2%

Profits ($ Millions)

181.5

Profit Growth (3 yr. avg. annual)

69.4%

Return on Investment Capital (3 yr.)

21.5%

Share price 12 month Hi/Lo ($)

65/41

Share price as of 9/24/2006 ($)

72.57

Return on Equity

22.9%

P/E Ratio

51

No. of Employees

24,300

Steady Operating Margin

18%

Revenue per client per year

$5 million to $40 million

Average annual growth rate in earnings

69.4%

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For the Second quarter of 2006

Measure
Revenue

Value
$336.8 million

EPS on a GAAP basis

$0.37

Sales Growth

59%

Net Income

$55.1 million

Non-GAAP operating margin

20%

Estimates for the third quarter of 2006

Measure
Revenue

Value
$363 million

EPS on a GAAP basis

$0.38

Estimates for the Fiscal 2006

Measure

Value

Revenue

$1.37 billion

EPS on a GAAP basis

$1.45

No. of Employees

36,000

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Exhibit 5

Highlights:

Year on Year sales increase of 50% or more each quarter

Plans to spend $76 million to build more high tech campuses in India

Hired a record 9,000 employees in the year 2005

Cognizant has averaged 58% annual sales growth vs. 44% for Infosys and 42% for Wipro

Cognizants annual earnings have averaged 58% growth the past three years vs. 41% each for
Infosys and Wipro

Cognizant posted an Earning per share of 28 cents, up 56% from prior year

Sales increased 52% to $235.5 million

First call analysts see profit rising 38% for the quarter and 47% for the year

Deepening business with existing customers. 63 out of 247 active clients are considered
strategic partners

Cognizant will hire nearly 12,000 employees this year (2006)

Company is expanding into new segments outside its core financial service and healthcare
specialties, such as retail, manufacturing, life sciences and telecom.

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Exhibit 6

Splits:17-Mar-00 [2:1], 02-Apr-03 [3:1], 18-Jun-04 [2:1] (Share Prices in $)


Last Trade

78.39

Day's Range:

77.43 - 78.83

Trade Time:

16-Oct

52wk Range:

42.25 - 78.83

Change:
Prev Close:

+1.15 (1.49%)
77.24

Volume:
Avg Vol (3month):

1,643,340
1,308,250

Open:

77.79

11.05B

Bid:

77.40 x 100

Ask:

78.45 x 100

Market Cap:
P/E (trailing twelve
month):
EPS (trailing twelve
month):

1y Target Est:

75.95

Div & Yield:

N/A (N/A)

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58.15
1.35

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Exhibit 7

Outstanding achievements / awards:

September 18, 2006: Cognizant Named To Fortune Magazine's List Of 100 Fastest-Growing
Companies For Fourth Consecutive Year June 2006: Cognizant Jumps 14 places to #21 in
Healthcare Informatics 100 List and 5th ranked in revenue growth

April 2006: Cognizant Ranked #16 in Business Week Hot Growth Companies

July 2005: Cognizant Selected as The 'Best U.S. Company in India' by Indo-American
Chamber of Commerce

Exhibit 8
Mergers / Acquisitions:

June 2002: Certain assets of United Healthcare Ireland Limited

October 2002: Acquired assets of Silverline Technologies relating to the provision of software
services to American Express Travel-related Services Company

April 2003: Acquired ACES International, a niche, boutique CRM company in California

December 2003: Acquired Infopulse, a Netherlands-based niche IT services firm servicing Capital
Markets on the European Stock Exchanges

April 2004: Acquired Ygyan, a Pune, India, based firm specializing in SAP Enterprise Software

April 2005: Cognizant acquired Fathom Solutions L.L.C. a Chicago-based consulting company

September 2006 AimNet, A Massachusetts-based company that provides Managed Infrastructure


and Professional Services with High-end network and infrastructure consulting capabilities in
areas such as network architecture, planning, design and infrastructure security solutions.

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Exhibit 9
Performance of CTSH v/s Indian peers (Infosys (INFY), Satyam (SAY), Wipro (WIT):

Performance of CTSH v/s MNC peers (EDS, IBM, CSC, Accenture (ACN)

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Exhibit 10

Cognizant rides past incubator Satyam

(Economic Times Chennai; Date: Aug 3, 2006; Section: Front Page; Page Number: 1)

Indian Institute of Management, Vastrapur, Ahmedabad 380015. India.


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References
1. IT Outsourcing Companies retrieved on 23 Sep 2006 from- http://www.tutorialreports.com/business/outsourcing/it/companies.php?PHPSESSID=c781dbddf9e520c7bb2229a
db544dfda
2. Stephanie Moore - IT Trends 2004: Offshore Outsourcing retrieved on 23 Sep 2006 fromhttp://www.satyam.com/homenews/documents/it2004_giga.pdf#search=%22%20Stephanie%
20Moore%20and%20Margo%20Visitacion%22
3. McKinsey Quarterly, 00475394, 2005 Special Edition., An upgrade for the Indian IT services
industry., Kaka, Noshir, Sinha, Jayant,
4. Forbes, 00156914, 4/17/2006, Vol. 177, Issue 8.Offshoring The Offshorers., Dolan, Kerry A.,
5. Infosys official website http://www.infosys.com
6. Wipro official website http://www.wipro.coms
7. TCS official website http://www.tcs.com
8. Satyam official website - http://www.sathyam.com/
9. KPO - http://en.wikipedia.org/wiki/Knowledge_process_outsourcing
10. Edelweiss Securities Pvt. Ltd., Information technology :Winning in global markets, Zaveri.H,
April 20,2006
11. A report by PWC for IBEF, Information Technology, retrieved on 23 Sep, 2006 from
http://www.indianembassy.at/content/india/documents/Information_Technology.pdf
12. A report by PWC for IBEF, Information Technology Enabled services, retrieved on 23 Sep,
2006 from http://www.indianembassy.at/content/india/documents/Information_Technology
_Enabled_Services.pdf
13. Yahoo Finance http://finance.yahoo.com/
14. IIM Bangalore Management Review, September 2006 Managing Across Borders, J
Ramachandran, Pranav Garg

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