MUMBAI: Cognizant will target a large number of smaller digital services deals, its top executive said, as the US-based IT services provider takes a project-focused approach to turn itself into a more aggressive digital services provider.

Analysts, however, questioned the strategy citing the slowdown in discretionary technology spends globally.

“The pivot to digital requires us to rethink many aspects of our company, including our brands, skills, processes, systems and tools. Client engagements will become more project-oriented, meaning more contracts with lower total contract value,” CEO Brian Humphries said in an analyst call last week.

On the company’s positioning in the digital services space, Humphries said digital projects “will not have the same renewal price erosion faced within the legacy” unlike the legacy business.

Analysts, though, drew a distinction within digital deals — between those that allow organisations to be more competitive with newer digital offerings, or ‘transformation services’, and those used by companies to upgrade existing legacy infrastructure, or ‘modernisation services’.

They believe ‘modernisation services’ will attract more deals in the coming quarters, and said they were surprised by Cognizant’s focus.

“We predict that as the global economy slips into recession-…the business transformation segment will be hit hard by the reduction in discretionary spend, whereas the modernisation segment will continue to accelerate…,” said Peter Bendor-Samuel, CEO, Everest Research.

“It would appear from his (Humphries’) commentary that he is directing Cognizant at the business transformation space — this is somewhat surprising as Cognizant seems well positioned to address the modernisation space given its large backlog of legacy work,” he said.

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Cognizant’s peers like industry leader Tata Consultancy Services, may focus on clinching modernisation deals, rather than aggressively bidding on digital deals, as the global economy braces for a period of slower growth, Bendor-Samuel said.

“The large deals that TCS and others are going after are all in the modernisation space and it would be very surprising to find that Cognizant was not chasing these lucrative and growth driving opportunities,” he said.

Revenue from digital services contribute to 35% of Cognizant’s overall revenue, according to its second quarter numbers, while India’s biggest software exporter TCS has pegged this figure at 32.2% in its first quarter results.

Cognizant follows a January-December financial year.

Digital revenue contribution for Infosys stands at 35.7%.

IT services providers are trying to increase revenues from digital offerings like cloud, artificial intelligence, cyber security and allied services, as companies cut spending on traditional outsourcing projects.

“Most of the digital transformation deals are usually smaller in value and shorter in duration as clients would want to start them small and want to see quick results….they (Cognizant) have to sign more deals to make the best out of this approach, and it would be interesting to see how they execute this,” said Mrinal Rai, principal analyst at ISG, a global technology research and advisory firm. “I think this is a strategic move to find out contracts best suited for both Cognizant’s own specialized capabilities and clients’ unique business needs,” Rai said.





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