Cognizant, one of the largest employers in India, said it will let go off some of its employees and shut down some of its facilities as part of its ongoing shift away from traditional outsourcing to ‘digital transformation work’.
The company said it is ‘accelerating its shift’ to ‘high value, digital transformation’ work, “while continuing to re-asses less profitable opportunities, that do not further its positions in the digital market place.”
The transformation is similar to what the company had to go through after the dotcom bust and the financial crisis of 2007, CEO Francisco D’Souza said.
It said it has spent $11 mln on severance payouts and advisory fees so far this year — including on the already announced senior-level retirement program — and needs to spend some more this year on severance costs as well as on lease terminations and other facility shutdown-related expenses.
The outsourcing service provider has offered its directors and senior vice presidents the option of stepping down, accepting either six or nine months’ pay as severance package. This will be completed by the June and the savings will be visible from this quarter onwards, the CFO said.
The savings from optimizing real estate will kick in towards the second half of the year, Cognizant’s chief financial officer Karen McLoughlin said.
“The vast majority of the initiatives are just starting now and in the January-February time frame was a lot of planning,” she said.
“There were some small actions in Q1 (January to March).. to help up prepare for this, as well as some severance, but most of the actions will begin here or have begun already in Q2,” she said.
She said the primary aim of these changes was to keep the company aligned with changes in the market, but the firm would also look at reducing costs via the ongoing changes.
“These actions will ultimately improve our cost structure and our operating margins,” said McLoughlin.
As an indication of the company’s intentions to keep its employee costs under control, she said, Cognizant has added only 1,000 new hires in the first quarter of 2017. Hiring in the new year will be to acquire ‘criticial skills’ in digital technologies, the CFO added.
The CFO, however, refused to give a guidance on the exact number of people that will be hired this year.
“In 2016, the headcount grew much faster than revenue.. headcount will grow slower than revenue this year,” she said.
FIXING THE PYRAMID
The company said it looks at the current situation as an opportunity to reduce the complexity in its organizational structure and fix the pyramid but cutting away needless layers of managers and organization.
“We’ve had 20-plus years of rapid growth. The company is a little bit more complicated, internally, than it needed to be. This is an opportunity for us to simplify it,”D’Souza said.
“It’s an opportunity for us to be more efficient and effective in how we do things. The emphasis is on simplifications and the team is rallying around that.”
It also said that it was changing its business model to one that does not require as many US visas and said it hired 4,000 US citizens and residents in 2016.
“We are shifting our workforce rapidly in the US, with more US jobs and US delivery centers,” CEO Francisco D’Souza said.
“In 2017 and beyond, we expect to significantly ramp up our US workforce by hiring experienced professionals in the open market and by making more use of universities, veterans and related programs,” he added.
Besides changes in the visa regime, client need for co-location and co-innovation requires Cognizant to “shift its workforce” to the US. “The shift in demand is for co-locating and co-innovating, that’s what digital requires.”
The company also said that there “isn’t much of a difference” between the cost of hiring a local person from the US and bringing someone in from outside, particularly given that the H1B program ensures that the person brought in from outside is paid market wage.
“The biggest challenge is finding the right talent,” said McLoughlin. “As long as you can find the right skillsets, the cost structure is not significantly different.”
This year, it said, it applied for less than half the number of US visas as last year.
The company CEO said it will increase hiring in the US.
The company, which has about 200,000 of its 260,000 employees in India, has been reported to be letting go of thousands of employees since March, some of whom are taking the matter up with labor authorities in India.