We Donít Make All The Profit We Can
|Image: Maurico Lima/ AFP for Forbes India|
|QUITE AT HOME: Fransisco D'Souza on a street in Sao Paulo, Brazil|
Cognizant Technology Solutions, ranked 7th in the Forbes List of 25 Fastest Growing Technology Companies in America
Francisco D’Souza, 40, CEO
To sacrifice some profit and reinvest it in growth
Investor discontent at lower returns
Among the least hit by the slowdown, growth intact
Five-year average revenue growth 48 percent, net profit growth 46 percent
10 percent revenue growth in 2009 vs. industry growth in single digits for 2009-10
The decision to stick to a 19-20 percent operating profit margin was a strategic choice. We started as a captive shop for Dun & Bradstreet in 1994. When we wanted to take our company public a few years later, our challenge was to differentiate ourselves from the other 600 to 700 offshore companies in India.
We did a fairly detailed analysis of the marketplace. We found that, from a customer viewpoint, there were traditional Indian offshore firms that were good for low-end, repeatable tasks. And there were traditional technology consulting firms [Big Eight], good for high-end transformational work that required deep domain and industry expertise and frequent interaction with business users.
We said to ourselves, if we could provide our customers with experience that was equivalent to the Big Eight but with the global delivery capability of an offshore company, we could differentiate ourselves. In those days, the Big Eight were operating in mid-to-high single-digit operating margins, and the offshore companies were in the very high 20s and 30s. We chose an operating margin that was in the middle of those two.
When we went for IPO we hadn’t achieved 19 percent. We told our investors we had a reasonable game plan to bring it to 19 percent. But we also said that it was part of a trade-off.
Cognizant would use a cushion of 5-6 percent margins to reinvest in the business to deliver higher growth. So, we told them we will grow faster than our competitors. Shortly after we went public, in three or four quarters, we were able to demonstrate that higher growth rate. Once we did that investors were more comfortable with that trade-off.
These investments go into many things. The key is to think ahead and get ahead of market trends. Let me describe just two.
In 1998, the first major investment we made was in our client facing organisation. In today’s environment, that team of people, now 700 strong, is one of the key reasons that we are able to navigate so effectively through this difficult economic environment. As our clients face a difficult economic environment, we have people at customer locations every day talking in customer shoes so that we can understand pressure points and respond.