Cognizant is taking inspiration from TCS in trying to tame costs

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  • Cognizant’s CFO Karen McLoughlin said that the IT major will further streamline costs in its core business.
  • This includes the cost of revenue — employee costs, equipment cost, and the cost incurred in production and distribution of services.
  • This comes after the IT major announced it will trim senior management roles.
  • McLoughlin says TCS is better at cost management.
  • “I'm not sure we will ever get to the levels of a TCS. They do a remarkable job on that and driving margins,” Karen McLoughlin said in a conference.
American IT multinational Cognizant recently announced that it will trim senior management roles in the company as a cost cutting measure. It also offered a voluntary separation package to its bench employees in the US. In fact for the several employees, the company also reduced the severance pay to three months instead of five months, along with one week pay for all the years of service.

But, that is not all. Addressing the Bernstein conference last week, Cognizant’s CFO Karen McLoughlin reportedly said that the IT major will further streamline costs in its core business. This includes the cost of revenue — employee costs, equipment cost, and the cost incurred in production and distribution of services.

“I'm not sure we will ever get to the levels of a TCS. They do a remarkable job on that and driving margins,” Cognizant reportedly said
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And it’s inspiration is none other than Tata Consultancy Services (TCS).

CompanyFourth quarter revenueTotal employeesPlan to hire freshers in 2020Jan-Mar’20 operating margin
Cognizant₹80,359 crore 292,50020,00013.7%
Tata Consultancy Services₹92,322 crore448,46439,00025.1%
*Cognizant follows January-December financial year

In fact, McLoughlin said that Tata Consultancy Services (TCS) is better managing costs and margins and Cognizant is still behind them, for that matter.

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“As that business (legacy) has matured, the reality is it needs less investment than it did five, ten years ago. I think the pivot we have to make is how do we think about the cost structure on that part of the business,” ET reported citing her speech at the conference.


Its revenue for the fourth quarter stood at ₹92,322 crore. According to TCS annual report 2019-20, the company’s employee cost stood at ₹64,906 crore — that accounts for 49.4% of the revenue.

For IT giants, wages, employee costs and campus placement drives make up for over half of its operational costs. TCS employed 448,464 people in FY20. While cognizant has 292,500 people in the workforce.
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Work from home to cut costs

To maintain margins, the IT majors are implementing work from home for its employees — even after the coronavirus situation normalises. TCS CEO Rajesh FGopinathan said only one fourth of the employees working on a project will be present at a place at one time. This will also cut down the travel and infrastructure cost for the company.

Cognizant shifted nearly 70,000 desktops to employees’ homes and may also move to free up the commercial places from where these employees used to work, ET reported.
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