From Outsourcing to Consulting

IT services company Cognizant is trying to take on IBM.

A Cognizant office in Chennai, India. 

A Cognizant office in Chennai, India. 

Photographer: Madhu Kapparath/Mint via Getty Images

On the penthouse floor of an office building in Midtown Manhattan, Cognizant has furnished a suite of rooms with hardwood floors and vintage furniture that wouldn’t look out of place in East Egg. Dotting the walls are framed photos of Elvis Costello, Charles Darwin, Martha Graham, and Pablo Picasso, and the office’s two terraces have views of the East River and the Chrysler Building. It’s a long way from the meeting rooms at Cognizant’s headquarters in Teaneck, N.J., and even farther from the cubicles that fill the company’s offices in India, where three-quarters of its 220,000 employees work.

The Manhattan setup is part of Cognizant’s effort to remake itself as a technology consultant instead of a cheap data-processing workhorse. In India, wages are rising and competition for labor is growing, so hiring tens of thousands of employees each year is no longer a guaranteed way to expand the business. In the U.S., congressional efforts to reduce the number of temporary visas outsourcing companies receive each year would further complicate Cognizant’s traditional business model. And worldwide, corporate clients that once relied on outsourcers to manage big SAP and Oracle databases have begun shifting the work to cloud services that require less hands-on management. New demand for the traditional outsourcing work “has ground to a halt,” says Bloomberg Intelligence analyst Anurag Rana. “IT budgets at best are flat to slightly up.”

And so Cognizant is working to create an image of quality over quantity. The company has 5,500 consultants, up from fewer than 1,000 in 2010, pitching strategic advice on IT, mergers, and customer service to clients such as the New England Health Exchange Network and Singaporean retailer NTUC FairPrice. The company is still adding workers to its outsourcing business but says it plans to slow hiring. “Five years ago it was more, ‘Tell us what to do, and we’ll do it well,’ ” says Cognizant President Gordon Coburn. “Today, we’re sitting at the table helping to generate ideas on how you can improve your processes.”

So far, Cognizant, which was spun off from credit reporter Dun & Bradstreet in the 1990s, has focused on advising clients concerned that digital upstarts could take away their customers. “Our clients are asking the question, ‘Will I be Ubered?’ ” says Malcolm Frank, executive vice president for strategy and marketing. Thanks to the investments Cognizant has made in consulting, he says, the company’s become a good judge of which businesses are at risk.

Cognizant, which posted $10.3 billion in revenue last year, is still small compared with consulting heavyweights Accenture ($30 billion) and IBM’s services division ($51 billion). But Cognizant’s shift toward consulting appears to be paying off: Profit is expected to approach $2 billion next year, up from $1.7 billion this year, $1.4 billion in 2014, and $884 million in 2011, according to data compiled by Bloomberg.

Outsourcing critics aren’t impressed with Cognizant’s hiring of more full-timers in the U.S. The company’s “whole business model is about replacing American workers,” says Ron Hira, a professor at Howard University and co-author of Outsourcing America. “They’re still using the visa programs for cheaper labor and, in many cases, to directly replace American workers.” Cognizant says it’s creating jobs by hiring locally but often faces a shortage of qualified workers.

India’s homegrown outsourcers, such as Infosys in Bangalore and Tata Consultancy Services in Mumbai, are also trying to expand into consulting. In October, Infosys announced the $70 million acquisition of Noah Consulting, an oil and gas industry specialist with offices in Houston and Calgary. Tata in May announced plans to open a design center with the Royal College of Art in London. On Dec. 2, Wipro in Bangalore announced a $78 million purchase of German consultant Cellent. The other companies haven’t yet had Cognizant’s success. Forrester Research now ranks Cognizant among the top five global consulting firms, along with Accenture, IBM, Deloitte, and PwC. Forrester said in a July report that Cognizant “is gaining traction as an increasingly strong technology-based transformation power.”

Cognizant credits its consultants and an added touch of class. In the Midtown office, Senior Director Jay Chittenipat says Cognizant plans to set up similar schmoozing hubs next year in Amsterdam, San Francisco, Singapore, and other cities. “We want people to think differently,” says Frank, “and look at problems through a new set of eyes.”

The bottom line: Cognizant’s profit is up an estimated 20 percent this year as the outsourcer shifts more resources to consulting services.

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