Cognizant Tech Services Growth Story

Just look at the single statistics on growth in the past decade+ - A $100,000 investment in its IPO held through May 4, 2010 would be worth $10,298,202.60 for a compound annual return of 47.9%. (more than 100 times that is !!). An equal $100,000 investment in the S&P 500 over the same period would be worth $103,276.80 for a compound annual return of 0.30% (three-tenths of one percent). I wish I had subscribed to it. if indications are right, its still not too late to get invested in CTS.

How many Indian players would have the conviction to play on the margins to reinvest in the business.. while being a 'price' play CTS realised the importance building long term competencies.. which even after decades of existence several other Indian competitors are still hoping to build and some of them will find it ever harder to build.

First one is deep client relationships: the operating model is the 2 in 1 box principle which simply implies that each client will have 2 dedicated leads to reach out to - client account lead and delivery lead.. CTS made the priority on building the client relationship over short term margins. The client relationship is not left to the delivery manager or country sales director....its a role more than just sales.. now this is now further enhanced with sprinkling the consulting resources across the accounts, thus making the model to be 3 in 1 box model. The strong emphasise on the value add is perhaps picked up from the Accenture who has played the 'packaged' consulting services a key differentiator.

Second is the focus on few growing verticals and building strong expertise in those areas and thus fending off the competition. While this is always very familiar principle, so few people follow it. For example the Health vertical is the second biggest for CTS by revenue (first is finance). Not just that, it makes CTS the biggest player in this vertical, commendable achievement for CTS against much bigger players such as Accenture and IBM. In finance CTS possess good assets to the extent that deliverables are predone even before they go to the client. Credentials built so far are so specific to the client products and the process that CTS doesn struggle as much to break into new clients and areas.

Third would be the deep focus on partnership is the other key differentiators - Oracle, SAP, IBM, Microsoft - CTS has got privileged gold / premuim certifications and access to best in class support.Important for its 'go to' market strategies and client perception.

All this is possible because of its willingness or the 'strategic choice' to reinvest its profits back into the game. In an industry where 30%+ margins were norm, CTS decided to play with ~20% margin, leaving the remaining for price play if needed or strengthening of their onshore / account management organisations. This long term investment proven to be crtical in winning rates and thus the revenu growth.

As CTS look forward, its trying to spread forward into newer geographies (from too narrowed focus on North America). It has initited global delivery centers outside India. The key account management principle is further enhanced (its 30% of revenue comes from top 10 clients). The story still looks stronger for CTS, more on that as it comes by.