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The external environment plays a significant role in Cognizant's success from three aspects: high demand for India's IT offshoring service; strong competitions from domestic and global peers; and deficiency of talent (Eccles et al 2008).
High demand for Indian software services exports
India's software exports became successful because they provided an inexpensive source of highly skilled workforce. According to Exhibit 1, the growth of revenue on software exports increases gradually from 1993 to 2001, and the rate was over 50% during the last 6 years.
As shown in exhibit 2, the US market made up more than half of export revenue , thus making the US the biggest client for Indian offshoring IT services during 1997 and 1998 (Arora et al 2000).
Despite high demand from markets, Cognizant currently faces very competitive software outsourcing market. In the domestic environment, Cognizant has been sharing the cake with other Indian companies whose revenue went beyond $ 1 billion as shown in Exhibit 3. Cognizant is not the best performer among them. Additionally, it is more stressful when playing in global battlefield. Collectively, compared with global peers such as Accenture, EDS and IBM, India's offshorers merely constitutes less than 5% of IT outsourcing market share worldwide (Eccles et al 2008).
Shortage of IT Talent
The growth of Indian software services exports relies heavily on the availability of highly skilled IT employees. From exhibit 4, the proportion of Indian employees as a % of total employees of global IT companies is high. This increases the competition of recruitment of IT talent. However, a shortfall of nearly half a million engineering professionals is predicted by 2010 (Eccles et al 2008).
Farrell et al (2005) estimated that demand for suitable engineers will reach 138% of local supply and wage inflation for Indian IT engineers' soars at average of 15% per year as illustrated in exhibit 5.
Prior to C2, how did Cognizant's Organizational Structure fit its Environment?
According to Francisco D'Souza (2008), before 2000 Cognizant was organized such that most teams reported to managers located in India. As a result of more sophisticated client needs, this structure could no longer work. In 2002, Cognizant became the first to organize around business industry verticals, defined as groups of customers in industry sectors with particularly high revenue potential. Verticals may include financial services, healthcare, retail, manufacturing and logistics etc. (Eccles et al 2008). Cognizant divided its market along customer axis (D'Souza, 2008).
This implied a change in the way reporting structure worked so teams in India and around the world would report to the customer facing executives (Cognizant employee close to the customer).This led to the creation of the two in a box. The (TIB) model implies that for every customer account, Cognizant has a senior account manager onsite referred to as the client partner and a dedicated delivery head referred to as the delivery manager (Mishra 2010). Cognizant embeds personnel with demonstrated domain experience in the client organization to help drive IT strategy and ensure business alignment (Cognizant 2007).
The value propositions from offshoring and outsourcing is compelling. (Chandrasekaran, 2009). Cognizant substituted clients' IT staff with less costly offshore personnel and helped clients to leverage its extensive IT talent pool to grow their business. Clients favored the professional project management this approach provided. It also gave client's staff opportunity to focus on other aspects of the project. This helped clients to save cost and also to minimize time spent (Cognizant 2007).
The new structure also made Cognizant more responsive and flexible to customer needs (D'Souza 2008). As a result of such close client cooperation, Cognizant was able to tailor make any solution or services that enable customers meet all short term, cynical as well as long term needs. This creates a great deal of relationship with customers. Cognizant's strategy of pursuing 'client centricity' further differentiates Cognizant and provides a competitive edge (Chandrasekaran, 2009).
Before 2006, Cognizant was an emerging company and Wipro, TCS and Infosys were ahead in the technology business. By 2007, as shown in Exhibit 3, Cognizant had grown to a 16.3% net profit margin and revenue of 1.424 billion USD.Cognizant had also spread its services to over 400 corporations from 34 global delivery centers in five countries (Eccles et al 2008). Pankaj Mishra (2010) attributed Cognizant's growth to the TIB model which Cognizant established when it decided to reinvest all profits in excess of 20% back into the company.
How did Cognizant's previous Organizational Structure create tension?
Cognizant swung the pendulum too far in the direction of customer intimacy. They found that although they were successful in ability to be responsive to customer needs, they were unable to draw their entire global team into one single cohesive team that would behave as one global seamless team. The major frustration was as a result of time difference between employees on client sites and off site managers. That came to the head when client partners were on the verge on resigning. The major frustration was that after they finished their USA work day they had to stay up at night to talk to the Indian workers as a result of the difference in time zone (D'Souza 2008).
There was also the issue of conflicts where the onsite and offshore managers could not agree. Though the onsite and offshore managers have a common goal of meeting client expectations, how this translates to their day to day responsibility can be different, sometimes even conflicting. The offshore manager has to deal with career aspirations of associates while the onsite manager has to deal with a client who wants the same Cognizant team on his project for continuity (Eccles et al 2008).
Another area is in the preservation of Cognizant distinct culture. As the company grew, the employees stationed at client sites felt disconnected from the company. The two in a box model which is sometimes expanded to three in a box in some cases implied that for every project Cognizant had to devote a minimum of two employees (D'Souza 2008). The client partners in the model were typically MBAs. The delivery manager tended to have strong computer science background (Eccles et al 2008). As a result of the shortfall of skilled employees in India, this caused a challenge as Cognizant had to find two qualified employees for each project.
How did Cognizant overcome this tension?
Cognizant was able to overcome the problems of preservation of culture by organizing quarterly events to bring onsite professionals together with their central office colleagues. This helped employees stationed at client sites to reduce the feeling of disconnectedness from the company. "Transform while perform" methodology enabled Cognizant to help companies across industry to attain greater levels of productivity without additional costs. This is through containing IT costs, modernizing underlying IT infrastructure and driving new business capabilities (Cognizant 2009). Seeking optimal solutions and win - win results between onsite partners and delivery partners helped to ensure that the common goal of meeting client expectations are met (Eccles et al 2008).
Despite the insufficient labor in India, Cognizant has been firmly committed to maintaining its Employer of choice status in India. Cognizant's recruitment strength begins with the long-standing alliance with the top technical; universities and business schools in India, where competition for the best students is formidable. As a result of these strong relationships and Cognizant's Employer of the year status, Cognizant has an edge in recruiting the best brains. Cognizant to recruit about 70 percent of its global new hires from institutions with the highest-rated technical and MBA programs (Cognizant Annual report 2003).
How does Cognizant's 'C2' programme fit the firm's environment?
The only constant law in the world is change. Hence Malcolm Frank, Cognizant's vice president, identified four changing macro phenomena namely web 2.0; decoupling of work and geography; mobility of knowledge and second work (Eccles et al, 2008) and described a new framework called Cognizant 2.0 (C2) in terms of the flexible environment.C2 includes four elements, real time knowledge management, real time workflow, real time process guidance and real time collaboration (Eccles et al, 2008). Cognizant estimated that C2 could reduce project cycle time by about 20% on average (Skrupski, 2009).
As claimed by Eccles et al (2008), firstly, Cognizant wants to build selection system relying on a database which captures 80% of whom will have a proper knowledge dealing with certain cases. This ensures that only the best one will be selected leading to high quality. Secondly, Cognizant uses a collaborative platform which allows staff to capture actual workflow in real time together. This ensures that employees from all over the world work as a whole. Thereby preventing fragment in terms of lack of sharing information. Thirdly, Cognizant will post formal, context specific guidance in a working form based on Cognizant's previous best practices. This ensures that work can be finished and integrated in the same format, helping people reduce time expense on understanding, and giving Cognizant's client confidence because of the professional and consistent working process. Finally, C2 framework encouraged natural collaboration providing specific solution across the firm worldwide. This ensures that, using the WEB 2.0 technology, experts can offer the best suggestion through they do not take charge of the process. There are some unexpected benefits, including identifying unknown talents and enhancing employees' sense of belonging.
Problems in development
Acceptance by older generation
The group 50-plus have the disadvantage to learn new technology, but meanwhile, they are the decision-maker in the company (Büchel, 2010). Malcolm Frank, cited in Leahy (2010), admitted that, "Breaking bread and having a few drinks together - that still matters." There is still nothing that can replace a face to face meeting for the senior generation. In the crisis, Cognizant gathered senior executives quarterly to sit down and discuss the challenges from global. The new platform gave senior executives a communication channel, but people preferred to follow the traditional way.
Encouraging less innovation
Since the best experience is more available to obtain and imitate at present, C2 enhances standardized output resulting in moving the solution from one client to another. 44% of 430 IT professors who worked in Indian IT offshore companies said turnover was a big matter (Anonymous, 2008). Noshir Kaka (2009), the director in McKinsey's Mumbai office, argued that "The best way for India's IT service to go straightforward is becoming more innovative." For offshore IT service companies like Cognizant, customization and innovation should be the core competence but not standardization.
Accuracy of database
The Halo Effect identified the basic human tendency to make specific inferences on the basis of a general impression (Rosenzweig, 2007). As a result, the database could be inaccurate. In practice, a brilliant idea of problem solving might have a negative response due to the economic downturn. Conversely, a mimic idea could get a positive feedback in terms of the economic boom. Business is not science. We cannot guarantee one who performed well in the database is available to do well next time.
Lessons for cross-border service
Cognizant operated excellently, and maintained more than 17% operating margin from 2006 to 2008. It is a good example to discuss what vital factors for overseas service are.
Time zones difference
It causes lack of communication resulting in lower quality of service. Interview with Jagdish Panjwani, who worked in Infosys Technologies Ltd. as a software engineer, claimed that time zone is definitely a big issue since engineers have strong wish to contact with clients to know more details.
Alternatively, time-saving in business was involved in different time zones (Kikuchi and Marjit, 2010). According to a McKinsey report in exhibit 6 (Kikuchi and Van Long, 2010), the working problems of US organizations are sent to the Indian center at the end of US workday by e-mail. Indian software engineers provide solution during their working hour and by the time US organizations reopen, the solution has already arrived.
Efficient and effective communication
In this case, both vendors and clients found it difficult to assess how the other side was evolving (Eccles et al, 2008), the same as college relationship within the corporation. Cognizant created C2 platform combining all the "native" software, such as Office, in order to solve the instant communication problem and keep all the working process consistent. Skrupsi (2009) mentioned that C2 embraced over 4,000 projects at what will soon extent to more than 600 customers. That is what strategy Cognizant did to preserve Cognizant's credibility and reputation. Meanwhile, that is what overseas service can seriously think about.
Foreign Currency Fluctuation
This creates high uncertainty for operation. In 2007, Cognizant stated that the appreciation of rupee versus the US dollar led to a 2.1% drop in their operating margin. However, the depreciation of rupee versus the US dollar had a sympathetic influence on their operating margin by 1.19% in 2008. As a result of the massive impact, Martyn Hart (2008), chairman of the National Outsourcing Association, indicated that outsourcing providers should keep a close eye on the financial market and be cautious to hedge on the rising and falling of currency.