Firm moves to bring growth back on track; annual savings will be $500-$550 million: CEO Humphries

Cognizant will reduce headcount in a bid to streamline its global operations .

During the third quarter earnings announcement, CEO Brian Humphries said, there would be a net employee reduction of 5,000 to 7,000 people. Those identified for lay-offs are in the mid- to- senior category and more than half of these will be in India.

Mr. Humphries told The Hindu,“The people reduction exercise will be completed by mid 2020. It will cost the company $150 to $200 million, however it will also bring in an annualised saving of $500 to $550 million.”

“The idea is to get the company back on growth track and we hope to hire more after some quarters,” he added. Earlier, during an investor call, Mr. Humphries said: “In any people-intensive business, cost reduction always involves difficult choices. To free up capacity to invest in growth, the company has made the decision to remove approximately 10,000 to 12,000 mid-to-senior level associates from their current roles in the coming quarters.” This would include a net reduction of about 5,000 to 7,000 roles (about 2% of its total headcount) and re-skilling and redeployment of about 5,000 of the total associates impacted.

These numbers exclude another 6,000 jobs that will be impacted by the company’s decision to exit a subset of its content moderation business, which involves screening for objectionable or violent content. Exiting this subset would impact its financial performance in the coming year, the firm said.

Cognizant added it would work with partners to help transition these roles to alternative vendors to find suitable outplacement for these 6,000 employees.

On content moderation business, Mr. Humphries said, “We are only exiting a subset of it, as we’ve determined that this subset is not in line with our strategic vision for the company.”

Cognizant has decided to allocate $5 million to fund research aimed at increasing the level of sophistication of algorithms and automation, thereby reducing users exposure to objectionable content.

The company also said it has identified a series of investments that require funding, including hiring 500 client-facing revenue-generating associates over the coming year.

In Q3, Cognizant raked in revenue of $4.25 billion, a 4.2% (5.1% in constant currency) growth over the corresponding quarter a year ago. However, operating margins declined to 15.7% from 18.3 % a year ago.

Net profit stood at $497 million compared to $477 million. Digital revenue, growing at 25%, accounted for about 35% of the company’s revenue.

On guidance, the firm expects full-year revenue growth of between 4.6% and 4.9%, compared with its earlier guidance of a growth of between 3.9% and 4.9%.

In Q3, banking and financial services was up 3% year-over-year in constant currency and healthcare was down 90 basis points year-over-year in constant currency, the company said.

CEO Humphries said, “Over the past few months we’ve initiated what we expect will be a multi-year evolution of our business. We view this as a systematic process of revitalising the company and one we’re pursuing with rigor and urgency.’’

(With PTI inputs)