Tuesday, December 12, 2023

Poor results, high attrition compelled Cognizant board to act

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BENGALURU: Last October, Cognizant announced that Ravi Kumar will join the company as the president of the America region on January 16. But on Thursday, four days before January 16, the company board announced that the Infosys veteran would join as CEO, and that the incumbent, Brian Humphries, was stepping down.
Analysts believe the only reason for this sudden change was a recognition that investors were losing patience with the continuing underperformance under Humphries, and the hope that an experienced IT services hand like Kumar could turn things around. Revenue growth guidance had been lowered last year for three consecutive quarters, indicating that the management had lost grip on the business as its internal challenges outweighed the opportunities, especially when its peers were growing in double-digits. The company had five straight quarters of over 30% quarterly annualised attrition. In the last four years, its market cap has dropped from $34 billion to $32.9 billion. And the stock continues to trade at a discount to its Indian peers.
Stephen J Rohleder, chair of the board, said in a recent regulatory filing: “The Board is focused on positioning Cognizant to reaccelerate growth and drive shareholder value.”
Ray Wang, CEO of tech research & advisory firm Constellation Research, said the arrival of Ravi Kumar S was most likely a phased transition to CEO. “However, the level of employee attrition, poor results, and client complaints created this confluence of events that led to Ravi’s ascension,” he said.
Phil Fersht, CEO of global analyst firm HfS Research, said Kumar was being groomed to eventually take over from Humphries, but there was clearly a desire from some board members to make a swift change. “Whether Kumar gets a fresh slate will become apparent, but the company is in a strong financial position and the board must get behind the new CEO, who is hugely experienced and ambitious for the firm, with innovative ideas. Humphries enjoyed good support from this board in the past and I would be surprised if the board fails to support Kumar’s plans,” he said.
Kumar has a huge task cut out. The constant churn in the company’s senior leadership as Humphries tried to globalise the team had ramifications on the offshore leaders—over 100 VPs and SVPs exited the firm, the majority of that in India. “Some leadership changes were necessary when Brian assumed the CEO role. However, this spiralled out of the comfort zone by 2020,” said a note from Kotak Securities. The note said certain external hires did not have the best credentials, and there were a “few perplexing decisions, such as staying away from the mega-deals market.”
Kotak’s analysts pointed out that any turnaround effort will need to address a few critical issues. “Stemming the loss of share in top accounts. This requires establishing strong connections with clients at the executive level, increasing sales effectiveness and getting the right delivery structure in place. Easing supply-side (people) pressures makes the last agenda easier. Cognizant needs to fix strategic bets, set the direction and create a more focused organisation. Getting the right leadership team and organisational structure in place. The leadership team thinned out due to the attrition of senior Cognizant folks during Brian’s tenure,” the note said.
TOI spoke to several seniors who left Cognizant, and their message was summarised by one of them: “The fabric is gone – you can’t rebuild culture overnight. Cognizant had a high-performance culture with loads of humility and camaraderie. He (Ravi) has to reunite the family.”

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