Dr Apparao was one of the first few employees who joined us within six months of our start. We were really small then, and he was running large research programs for learning and development. Actually, there were a whole bunch of people who had done far bigger things before they came into this small company. So the question was, how would we make it satisfying and rewarding for all these people?
The answer to that underscored the way we built the organisation internally, which is what helped us grow the company rapidly, catapulting us to the top-tier, despite being a late entrant. Before I explain that, let me tell you about the thought behind creating Cognizant — in some sense it demonstrates our long-term thinking.
Cognizant was spun off in 1994 from Dun and Bradstreet and a few years down the line, in 1997-98 when we were ramping up, we asked customers what kind of organisation they would like Cognizant to be. They told us what was apparent: if they wanted consulting and deep domain knowledge, they went to MNCs, and for higher quality, process rigour and global delivery footprint, they wanted Indian service providers.
Clients wanted a company that could blend both. We decided that was the position we wanted to occupy. There were two sets of competitors; one was larger players such as IBM, Accenture, EDS and CSC and the other, Indian service providers. We then looked at the profitability profile of these two sets of players.
The Indian players were running their margins upwards of 30% and multinational players were in the high single digits. We decided that our margins needed to be in between because we needed to invest in the business to develop the deep consulting and domain expertise and high-quality process rigour. This has shaped our investment philosophy till date. It was a challenge, but we did it. It is difficult for a company to balance its attention on its investors and customers. We settled for lower but stable margins (which usually makes investors unhappy, but is good for customers) and that was a long-term call.
That margins in any industry would align themselves to normal levels was a given. Since we were late entrants and we knew margins in IT would decline over a period of time, we stood a better chance if we did things differently. Investors like predictability in a company, so we took care of that by providing earnings predictability instead of constantly chasing the dream of an expanding margin. With investor interest taken care of, we could single-mindedly take care of our customers.
In the initial days, since we had a team of accomplished people, we realised we needed to encourage them to grow their business independently, which is where the philosophy of empowerment came in. Strategically, that was a good thing to do — building an organisation top down. We built a management-heavy team before we went in for campus hires and management graduates. Each member of the senior team was challenged to do things big, because that’s what they were used to.
People often say one has to move of out of their comfort zone. We tell our people it is very important to remain comfortable but we want you to have multiple comfort zones. We encourage our people to move on to different things after every three years. The key is to leave them alone and not sit in judgement: you let them know that it’s not the end of the world if an idea fails. That allows them to try new ideas.
As a new player, we also had to differentiate ourselves from the competition and in order to do that, we had to invest heavily. The lower but stable margins also gave us the ability to invest in the business and remain focused on target customers. In 1998-1999, we decided to organise the company along industry verticals. The big consulting companies were organised that way and while we didn’t have the industry capability they did, the strategy was to get there. At the time, companies like Wipro and Infosys were on our radar, but they were not organised along those lines then, so not only was this aspirational, it would also help us differentiate ourselves.
We also developed a culture of identifying areas that would lead to major transformation, and bet on it early. During 2000-01, the aspiration was clearly ‘be a dotcom company or work with a dotcom company’ – it was the dotcom era, after all. Since we were too small to acquire any capability at that time, we partnered with Viant, an American company that was the leader in digital business consulting. In three years, we were considered one of the leaders in e-commerce and e-business, and that opened doors to some large American customers.
For instance, a large financial institution had three or four vendors with whom it had been doing business for decades. While it was not comfortable outsourcing any of the traditional business, it was willing to work with us on its e-business initiatives because it had heard so much about our e-commerce capabilities. The ability to identify opportunities on the horizon through internal research has stood us in good stead.
There are always a bunch of different technologies at any point of time tipped to be big emerging trends, so choosing the right one was important. But it was more critical to know when to pull the plug if things were not working as planned. Our learning has been that if one of your top 20 customers does not adopt the technology or the product after its launch, the concept or the product is not going to take off.
One of our key learnings over the years has been that strategy is not always about doing something; it is also about not doing things that are not right for you. You need to think ahead, so that you make the right decisions. For instance, a few years ago, a call centre business was a big temptation. There was pressure to enter the business because almost every morning there would be an announcement of deals being won by Wipro or some centre being set by Infosys, and so on. Our own employees felt that, as an organisation, we were being too slow. So, we worked on a business plan and discussed it with the board.
The board asked two vital questions that settled the matter. One, would you let your customers be serviced by your call centres and two, what new capability will you be developing. The answer to the first was clearly ‘no’ as our account managers felt they would never be comfortable doing that. For the second question, it was clear that the call centre business would not give us any competitive advantage over the long term and so we dropped the idea.
Before I wind up, let me tell you one anecdote from our early days, which was a lesson in truthfulness and transparency. We were pitching for a client and we had a small office on Cathedral Road, in Chennai, which was not ready yet. We were nervous, but were also very keen on getting the business. We told the clients we could do the presentations at the hotel they were staying in but they were keen on having it at the office. So we made some makeshift arrangements at the office to make it look as if it was ready and went ahead with the presentations.
We were happy we pulled it off as the presentations went off very well and we thought the customer didn’t have a clue that we were not fully ready. We did get the order, but the customer also made it a point to say, “We will work with you but we also know that you guys are clearly not ready, and you have to get your house in order first.” Ever since, I have realised that people on the other side are far more intelligent than you are. If you try to project something that you are not, even if it doesn’t hurt in the short term, it will definitely come back to haunt you in the long term.