Cognizant CEO Ravi Kumar S has launched a cost-saving initiative, dubbed NextGen, which aims to save the company $400 million. The plan involves cutting 3,500 non-billable roles, or 1% of the workforce, and rationalising real estate costs, which would involve giving up 80,000 seats. Following the announcement, Cognizant’s stock on Nasdaq surged 7%.
The company expects to achieve $350 million in savings in 2023 and $50 million in savings in 2024. The savings will be generated from employee severance and other costs related to non-billable personnel, as well as office space consolidation. Around $200 million of the savings will come from employee severance and related costs, while the other $200 million will be from office space consolidation.
“We’re redistributing our physical workspace. We are in a hybrid era of distributed lives and distributed work. Our presence in smaller cities will be important. Many associates have moved to tier-2 cities, and they will probably remain there in the foreseeable future. We can optimize on this space. We don’t expect 100% of the people to return to offices,” Kumar said.
Cognizant’s revenue grew to $4.8 billion in the first quarter of this year, a growth of 1.5% in constant currency, which was at the upper end of its guidance. However, for 2023, it has guided for possible negative growth, marking the first time in history that the company has done so. It expects revenue for the year to be $19.2-19.6 billion, indicating a -1.2% to 0.8% dollar growth, and a -1% to 1% constant currency growth. Around 100 basis points (1 percentage point) of this growth is expected to come from acquisitions.
Cognizant’s cost-saving initiative is part of a broader strategy to position the company for sustained growth in the years ahead. The company has been investing heavily in digital capabilities to help its clients navigate the rapid shift to digital business models. In particular, it has been focusing on artificial intelligence, automation, and cloud computing, which are all expected to drive significant demand for technology services in the years ahead.
The cost-saving initiative is also a response to the growing competition in the technology services market. Cognizant is facing stiff competition from traditional rivals such as Accenture and IBM, as well as from new challengers such as Tata Consultancy Services and Infosys. These companies are all vying for a share of the growing demand for technology services, which is being driven by the rapid digitization of businesses across all industries.
The decision to cut non-billable roles is also an indication of the changing nature of work in the technology services industry. As more work is being automated and moved to the cloud, the demand for traditional IT support roles is declining. This trend is expected to accelerate in the years ahead, as companies continue to adopt new digital technologies and business models.
Cognizant’s decision to give up 80,000 seats of real estate is also a reflection of the growing importance of remote work in the technology services industry. As more employees work from home, companies are rethinking their physical footprint and looking to reduce their real estate costs. This trend is expected to continue in the years ahead, as remote work becomes increasingly prevalent.
Overall, Cognizant’s cost-saving initiative is a prudent move that reflects the company’s commitment to positioning itself for sustained growth in the years ahead. The company’s focus on digital capabilities and its willingness to embrace new business models and technologies should help it to stay ahead of the competition and capitalize on the growing demand for technology services.
Cognizant has been responding to these challenges by investing heavily in digital capabilities and focusing on new business models and technologies. The company has been working to develop its artificial intelligence and automation capabilities, as well as its cloud computing expertise. These areas are all expected to drive significant demand for technology services in the years ahead, as businesses continue to digitize and automate their operations.
