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Cognizant’s job cuts will be focused on the middle levels, as the US-listed IT services company tries to cut costs and restore growth. Analysts lay the blame for its problems at the feet of activist hedge fund Elliott Management.
ET had reported that Cognizant is considering job cuts, the size of which is yet to be determined. The Teaneck, New Jersey-headquartered firm said its headcount growth had outstripped revenue growth in the past two quarters. CEO Brian Humphries, who took over in April, said the company would work towards lowering the cost of delivery through “pyramid actions”.
“It’s clear that Humphries has embarked on a definitive strategy to fix the pyramid, which means there will be rationalisation of middle-level positions that offer little more than project management, making the higher-level executives more accountable for both revenue and profitability, and keep a tighter control over pay increases and bonuses,” Phil Fersht, founder of IT advisory HfS Research, told ET. Middle-level positions are typically those that are held by people with over seven years of experience.
In addition to lowering costs, Humphries said he was going to focus on investing so Cognizant could return to stronger growth rates. “Investments, of course, can take many forms, including marketing, demand generation, partnerships, reskilling, increased sales coverage or increased spend on platforms tools and automation,” he told analysts in a post-earnings conference call.
He has a tough job ahead of him, analysts said, as he attempts to fix problems caused as a result of activist investor Elliott Management’s plans for the company. In November 2016, Elliott Management disclosed a stake in the company and asked Cognizant to cut costs to raise its margin, return capital to shareholders and shake up its board.
In February 2017, the company complied to Elliott’s demands, committing $3.4 billion in share repurchases and dividends over two years, embracing automation, rationalising staff and shifting focus towards higher margin digital business. But analysts said the cuts that were made as a result of what Elliott Management wanted hurt the company’s competitiveness and crippled its growth.