Cognizant Technology Solutions Corp

NASDAQ:CTSH

Earnings Call Transcript 2007-Q1

[Ashwin Shirvaikar, Citigroup]

Good afternoon, everyone. All right. Can I have your attention? Okay. Let's get started with the keynote session here. I am Ashwin Shirvaikar. I am Citi's Payments, Processors and IT Services analyst. Thank you all for joining and it's my great pleasure to welcome as well Cognizant. And from Cognizant, we have CEO, Brian Humphries. Brian welcome. Thank you for doing this.

[Brian Humphries, Chief Executive Officer]

Good to be here.

[Ashwin Shirvaikar, Citigroup]

So we're going to keep this fairly tight and flowing. At the end, there will be an opportunity to ask questions. I am going to kick-off, Brian, with just a question, take advantage of the fact that you're relatively new. And when you joined you kind of set out a -- set-up a transformation office which might be -- talking about that might be a good way to kind of set the stage so to speak. It seems center to your message the transformation office, the message to a lot of constituents. So maybe you can talk about that and the six elements of it at a high level to kick off.

[Brian Humphries, Chief Executive Officer]

Okay. Well, hello, everybody. Look, let's start with the basics. Cognizant is about $17 billion of revenue. About 3/4 of that is in North America. I started in April 1 and in the morning of April 1 my CFO told me we missed a quarter, which felt like an April Fools' joke but it wasn't an April Fools' joke. And, of course, then we're immediately on the back foot ahead of earnings five weeks later. And so you can imagine the amount of work that we have been doing in that period and subsequent trying to understand what do we have, what are the assets we have, how do we build upon those and what elements do we need to tweak. The transformation office was set up with a view to codifying a lot of that activity that we have to get done. Each element of the transformation office is led by myself, or one of my direct reports, an executive committee member.

And ultimately we set out to review a set of suppositions that we're trying to back solve to with some expected outcomes and hopefully some near-term wins, of course things like sales force transformation; delivery transformation; our strategic refinement, who are we, where do we want to get to etcetera; our organization structure, avoiding duplication of overhead etcetera; human resources and culture; and, of course, what I call, fit for growth, or a cost efficiency lever would also an opportunity for us to ensure we invest in an ability to scale the business. And so here we are now four months after all of that. I would say we're well down a path of putting ourselves in a position to draw conclusions and start pulling the gun in some of those conclusions and execute them into the coming year.

[Ashwin Shirvaikar, Citigroup]

Okay. One thing I'd like to end with will address six points you mentioned. But let's start maybe since growth is extremely important to the investor base and in my own conversations, it's probably the number one thing that comes up. So let's talk about sales force and sales force compensation structure. You noted publicly in the past that it's not optimal the way it is currently set up and maybe that's -- and maybe I'm being too polite when I say it that way, but can you describe to us what you mean and the path to getting that changed?

[Brian Humphries, Chief Executive Officer]

Yes. So sales compensation is something that's really important in any company whether it's a B2C or a B2B company. I'm always surprised at how little questions we historically get around something as fundamental as this. Cognizant has a set of values and I stand behind those values, but I'm trying to put a twist on them to say values with expectations. So let's use an example of sales compensation to demonstrate the point.

Normally, I imagine companies that you speak to tend to have a sales force that is somewhat leveraged. And when I say leverage, if you're earning $100,000 a year, perhaps $50,000 is fixed and $50,000 is variable or 60-40, sometimes 70-30. But typically it's in that range unless you're a niche system consultant or solutions architect, which is more technical versus a seller. I would say Cognizant has historically operated with 85-15 or 90-10 type plans, so very little leverage, which, of course, I don't particularly care about cars myself but lots of people do. You're not going to get the best breed of sales people in the world to come to your company if you have a 90% fixed on target earnings. There's too little beta.

On top of that, we've talked at length in recent years around the importance of the shift to digital. That doesn't happen because you have a strategy slide that says you have to shift to digital. You need to torque whole set of things including brand attributes, the skills you have, but also the sales compensation. So if I compare Cognizant to some of our competitors, who have a much more leveraged pay plan, and within the variable portion of their compensation, they have a significant amount of parameters. Look you have to hit this percentage of growth, you have to have this percentage of business mix A, B or C, why percent needs to be digital.

Cognizant was quite the opposite. We had a very low beta, 90% fixed, 85% fixed, and for the piece that was variable, a dollar was a dollar is a dollar, which means that you're not really going to have a sales force that are going to do anything except do what they did yesterday because salespeople tend to follow the path of least resistance, which tends to have been what you've traditionally sold.

Now, of course, it's not because I have this mentality and methodology that we can implement it immediately. Sales compensation tends to be something you implement at the start of the fiscal year and so that change will be implemented on January 1.

[Ashwin Shirvaikar, Citigroup]

Okay, understood. And keeping on talking about the sales force, are there other things that you kind of noticed because you've been relatively short time at Cognizant here, but you've been very busy, going out meeting clients, going out meeting your own employee constituents. What feedback are you getting from them with regards to, say, sales force the top of the funnel, things like that, if you could talk about that?

[Brian Humphries, Chief Executive Officer]

So, I would say, as a new CEO, if you start in a company, the first week the salespeople bring you out to see clients, all the clients are always happy. They will always be happy because normal managers behave in a certain manner that they bring the CEO to see happy customers the first week. Let's be honest. But with every passing week I was putting pressure into my team saying, look I want to see normal customers please, because sometimes out of chaos comes opportunity and my task is also help the sales team in that regard. But actually I probably visit 100 to 130 customers in the last few months. I've had three that have been really challenging discussions. So for the most part -- and by the way, anybody who has followed Cognizant over the years knows that our heritage has been outgrowing the competition, maybe at a lower margin rate, ingratiating ourselves with customers upselling and cross-selling and therefore growing at a multiple of the industry. And that is on the back of happy customers and our customer NPS remains very high.

I would say that's the good news. Now in the same vein, the bad news and the opportunity is one of the same. Customers tend to very much position us in the run operations portion of their shop and they don't really associate us with the digital transformation or the cybersecurity element. So invariably if you're a CIO or a CEO or CFO, you are trying to save money with a view to transforming. And so my task is to take the happiness that they have for us in the legacy portion of the business and make sure that I can actually get a bigger portion of the pie elsewhere where Accenture and Deloitte and others have actually win more than their fair share.

In every single customer meeting I'm in, while I'm grateful for the business we have, I do ask them, look have you met our head of digital? Are you aware of our digital strategy? And 9 times out of 10, they haven't. They're not aware of our strategy. They haven't met my head of digital. So probably after about six weeks in the job, we changed the head of digital at Cognizant. We've now got somebody who has a passion, who has a vision, who's absolutely like me focused on meeting customers every single day. And in every meeting when I ask the C-suite, do you mind if I come back with my head of digital? Invariably, the answer is, no, of course. We love you guys. We work with you for decades. I'd love to hear your story.

So that's the problem and the opportunity in the same vein. We have to be more prevalent. We need to have a brand that stands more for where we want to lean into the future as well and amongst sort of reasons that's one of the reasons I hired a new CMO two weeks ago.

[Ashwin Shirvaikar, Citigroup]

Absolutely, okay. Just to change gears just ever so slightly there. The other point that struck me the last time we spoke was this notion of self-funded. As a new incoming CEO, as you look at the company, a list of things that need to be potentially changed, list of things that need to be potentially invested in, the question becomes, can you make these changes without going to the sort of investor well so to speak and, say, hey, have patience, x hundred basis points of margin investment or whatever two years, but you said self-funded. That struck me as being important. Can you talk about, I mean, how complex is the organization at Cognizant that you can actually extract a lot of self-funded advantage out of that?

[Brian Humphries, Chief Executive Officer]

Look our revenue is about $17 billion per year and our margins are about $3 billion. And the only thing that that tells you is, we have $14 billion of cost. And every 100 basis points of efficiency you're getting a cost structure of $140 million, which is almost 1 point of growth. And $0.01 EPS is $6 million. So the sensitivity and the awareness of those data points is really important to me. If you think about a company that has grown for 25 years albeit in the last few years, our growth rate has slowed and has been more disappointing and that has just ridden this wave and done an outstanding job, it's almost like being in a house for 20 years and never moved and not having done spring cleaning.

When you go to move to your next house, you tend to find a lot of stuff that you don't necessarily need to have with you anymore. I think it's the same in Cognizant, a fresh set of eyes, a new perspective and really trying to hone in on what do we have that are hobbies, what do we have that are critical and what's our strategic posture and is our cost structure and everything else set up to accommodate that. If you think about Cognizant in terms of the emerging growth mature declining market maturity model, we have a lot of our businesses that have historically been over on one portion of the curve that I need to make sure, well, look we were absolutely draconian from a cost structure point of view in that regard. And then I need to use those savings to fund the future. And I'm a big believer that cost is growth, but growth and investments are different. Now let me tell you what I mean by that.

We've lost some major deals in the last two years to TCS or INFY. When I look at the post mortem on those deals it's very clear to me that while some people will say "Well it's because they bought the deal; or because the margin standards of Cognizant are so high now post an activist investor we haven't been able to participate in those deals." To be honest, it's a little bit nonsense. We haven't got a cost structure to compete efficiently. And because we didn't have that cost structure, we couldn't take deals that we should have been able to take. So already, I'm in the mode of pricing more dialogue with the cost structure that I'm expected to have in the future point number one.

Point number two. Look we need to start investing in growth as we speak. So as I'm in the process of ripping out some costs at this moment in time, I've already started the process to hire 500 revenue-generating people even ahead of announcing restructuring charge or otherwise. There's a lot of goodness in Cognizant. It's just frankly we need to be a little bit more rigorous in terms of operational discipline spans and layers op hygiene etcetera.

Normal companies tend to have 10 or less layers. If I'm the level one as a CEO my direct reports are level two etcetera. When I joined Cognizant, we had 15 and this is like a telephone game. If I call you and I tell you something by the time it gets to 15 people later the message will be different. So it's not just around costs. It's around communication. It's around nimbleness and agility.

Likewise we have tens of thousands of people in Cognizant with less than four people reporting to them. A normal span of control is eight to 10, so there are pockets of opportunity for us to get after with a view to fueling investments and growth. And that's why I stand by my comments that when we have one of the lower growth rates in Wall Street today and one of the lower margin rates in the services industry today there's some heavy lifting I need to do. But if I'm able to get that cost out, I can self-fund some of the investments and growth.

[Ashwin Shirvaikar, Citigroup]

Makes sense. Makes sense. The other thing to talk about when a new CEO comes in perceives a suboptimal operation and proceeds to make changes is management change. You had some. Some of it’s voluntary, some of it's normal people leaving. What investors tend to not like is the constant drumbeat of pick up a newspaper and the head of such and such is leaving or the head of delivery or the head of financial or what have you. To what extent and how can you maybe curtail that? And there's a normal process and I think investors understand that there's a normal process. But beyond that, how do you get management stability under you?

[Brian Humphries, Chief Executive Officer]

Well starting promise is you want to curtail it. And of course, you do want to curtail it within certain bounds. But also sometimes change is good. We had Banking and Financial Services and Healthcare represent 63% of Cognizant. They are our two single-biggest verticals. We have been underperforming those markets for a few years. When I speak to those customers, our top five customers in each of those areas, which are $100 million to $300 million customers for us and I ask them how often our leadership team have been out to see them, what thought leadership we have etcetera it wasn't a very resounding answer.

And so to a certain extent look those are decisions I personally made. We need some fresh ideas. We need some fresh perspective. Those people tend to cultivate a set of people below them as well that are used to working with their style and I'm quite different. I'm saying you better be with customers every single week like me. The demands on Cognizant's leadership team are greater than they have been perhaps in the last year, 1.5 years. So some of the changes frankly I have forced. And some other changes people have opted out, because there's a new approach. It's much more data-driven. It's much more rigorous. There's more pressure in the system.

And of course, I've had a few people who have left that actually I regret leaving, but that has been in the 5% to 10% range. The rest I'm personally -- I don't want to say quite comfortable with, but it's fine. Life goes on. Cognizant is a great company. It's got almost 300,000 employees and you're creating opportunities for other people to step up. I'm trying to then buttress our own capabilities with some strong hiring from the outside.

So our new Head of North America for instance is DK. He's a growth guy. He's been with Cognizant 22 years. I put all of our delivery resources under one leader Pradeep who's been in Cognizant 23 years. But in the same vein I'm populating around them people from the outside, so some of you may have invested in Mphasis over the years. Ganesh Ayyar has joined my team as a direct report to me. He's the ex-CEO of Mphasis. During his tenure in Mphasis their market capitalization quadrupled. I brought in a new CMO from the outside. I brought in a new Head of Healthcare from the outside.

So it's -- the task is to get the best of what you have make some bets on new people that rise to the top and at the same vein complement those with external people from the outside. And then at some stage you have to prove what you already have. And look it's one of the benefits of Cognizant over many years. It's been very loyal to its employees. But there's also in my opinion periodically a time for change.

[Ashwin Shirvaikar, Citigroup]

Okay, okay. Just to again shift gears a bit and talk about the portfolio of what you do, right? You have a range of services. And frankly, Cognizant was one of the only investors in sort of digital right and also candidly investor in what goes by various different terms, but let's just call it platform. When you look at what you inherited, where do you intend to focus on? You kind of touched on the -- what many would consider a fundamental issue which is a lack of diversification that you can solve obviously. But can you just talk about the process of getting from point A to point B in your mind?

[Brian Humphries, Chief Executive Officer]

Diversification?

[Ashwin Shirvaikar, Citigroup]

Diversification the organization itself where have you invest?

[Brian Humphries, Chief Executive Officer]

Yes. Look there's multiple different levels of diversification. One is geographic. We are 76% North America. We have a $1 billion-plus business in the U.K. but the rest of Europe rapidly falls off. And Asia and LatAm is very, very small. So as an example, I was up in -- I want to say Oslo about two months ago and we have two client partners, two. So what would happen if we had five? Well, we'd blow the market away Brian. Okay. It's approved. You've got five. So we have to scale our international operations. We are by no means saturated internationally so that's one angle.

Second angle needs to be around vertical, but I want to caveat this as follows. We want to get back to a much faster growth rate. At the end of the day, if you have 63% of your business in Healthcare and Financial Services that are largely flat or declining, you will not get to the growth rate that I'm aspiring to get to unless we fix those. So please don't leave this room thinking as that we're going to diversify away from those and not invest to make them strong again. We want to fix those business, whilst diversifying.

And then, of course, you got other areas of our business like Products and Resources and Communications, Media and Technology that have been growing for us double-digits that I want to double down on. I spent all of last week in the Bay Area trying to understand our partnership strategies and major customers out there. And I've spent most of my working career in the tech industry, figuring out how I can get more into bed with some of these companies and become a stronger vendor to them and indeed a stronger partner to them. So, there's lots of things we need to do.

At the end of the day, one of the fundamental shifts we have to drive, however, is to diversify within the curve away from the run operation space that we're in towards the digital arena. And again, that doesn't happen, because a CEO puts a slide together and says, look, our strategy is to go digital. You have to do all the heavy lifting to make that happen and that is skills. That's brand. That is marketing. That is sales force compensation and that takes time to kick in.

[Ashwin Shirvaikar, Citigroup]

Okay.

[Brian Humphries, Chief Executive Officer]

We cannot have a situation like we had in the first quarter that I inherited, where because four health care companies merged into two, we missed our Healthcare number materially enough to make us miss our revenue and our EPS number for the first quarter, and he pressed so that market cap goes down 15%. We can't run a company that way and you can't invest in a company not being able to sleep at night, because you're so worried about somebody sneezing and then the company missing their earnings.

So diversification, I think is really important to us and probably more important than ever before, because back 10 years ago when we were predisposed to Healthcare and Financial Services, those markets were growing 10%, sometimes 10% plus. Nowadays, you're growing in the mid to low single-digits. But even within that mid to low single-digits, there's lots of growth in digital, which is why we have to scale into that rapidly.

[Ashwin Shirvaikar, Citigroup]

Okay. Okay. Let's talk then about your digital portfolio. What you inherited? Where you intend to invest in? What do you think of it? And I know digital has a very wide range of definitions. But there were also co-elements to digital, so let's not -- this is not a definitional question, this is more a strategy question.

[Brian Humphries, Chief Executive Officer]

Yeah. So we have three service lines. A few years ago, somebody had the idea to put digital in front of everything. So we have digital operations, which call it BPO if you will; Digital Systems & Technology; and Cognizant Digital Business.

At the end of the day, I've no interest then in scaling my digital number, if it's for bragging rights, if it's not purely digital. So, let me be very clear. If we sell something to Facebook, that's the classic portfolio, not the digital portfolio. That is not on my definition digital, even though the company we're selling to is a digital native company.

My digital definition is based on what we are selling. And so we do have to rapidly scale our digital operations. The good news in that classic curve is many of the things we have been historically strong at, that are now in the mature or declining phase as a market are actually leading indicators to our ability to parlay our way onto the next s-curve. So let's take a few examples of that.

Enterprise application services. Cognizant has massive practices tens of thousands of people having traditionally deployed on-prem software. Of course, now when I talk to Marc Benioff or any of the other SaaS-type leaders, we need to do a much bigger job at scaling into SaaS as a service practice, a much more tighter partnership with Andy Jassy in AWS. We have to be much more in bed with Microsoft and the like, and that's something we're setting out to achieve.

Similarly, on the same curve, you can argue application value maintenance or application development, customization, modernization, maintenance, et cetera. But the world many of you guys are aware of companies that are in what is increasingly called digital engineering or software product engineering things like EPAMs or Luxofts of the world. Frankly, that's a battle. I'm really looking forward to.

In the last six weeks, we have decided to take all of Cognizant's assets to do that kind of work that has been throughout Cognizant in verticals and service lines, put them all under one group. We have an excess of $800 million in that business. We have about 11,000 or 12,000 people doing that. And I have no hesitation to get in the boxing ring and say, look, we can leverage our historical strength Softvision, which is a digital engineering company we bought a few years ago, and go into attack around digital engineering and put a huge focus in that regard.

The other thing I will say is, we're at the cusp of five-generation technology, 5G, in mobile technology. I think for the first time in our history, this will be less of an inflection point to people like you individually in terms of your consumer life. And it's much more around security and latency and network slicing and that leads more to a B2B scenario. So the intersection point of 5G with the IoT portfolio is very, very important to me in terms of edge computing, and what we can do in certain use cases and verticals like manufacturing around Industry 4.0. So, you'll also see me put a huge push around digital and around IoT.

So you start shaping where we're going here. Now I always think about the battles you want to fight. Look, is the hill worth winning? Is it winnable by us? How many casualties am I going to have taking the hill? And then tomorrow morning, if I planted the flag tonight, does the panzer division come and kill us all? Was it worth the battle in the first place? There is no way anybody's going to dissuade me from saying that cloud, cloud migration, SaaS is a big battle, we need to win in, and it's worth winning IoT, digital engineering and data. And Cognizant has tens of thousands of data scientists, who've been very deliberately working in over the years around data warehousing, et cetera. Artificial intelligence and analytics and what we can do with that is pretty critical to our future as well.

So you'll see us put a huge effort behind some of those pillars, and then the big dimension to this discussion, then again, is build by or partner, and how we go to market with stronger partnerships than we've had historically.

[Ashwin Shirvaikar, Citigroup]

Okay. Okay. And on the topic of those partnerships, I mean, I got to believe that it's not just one way. It shouldn't actually -- for it to be successful, shouldn't be one way where Cognizant goes into Microsoft or AWS, and says, I want to partner with you. There has to be interest on the other side. What do those partners see in you that they kind of go "I need to partner with Cognizant." I mean, is it the vertical expertise? Is it the thousands of people? What do they see?

[Brian Humphries, Chief Executive Officer]

Look, we are of interest and I really want to tighten that partnership more than ever before. Last week Zach [ph] and myself sent a joint e-mail to a prospective customer. We want to get tighter with AWS. Tomorrow I'm meeting the Head of AWS Financial Services here in New York to make sure we can -- they can leverage our strength.

I want to accelerate cloud migration. I believe workloads are moving to the cloud. We'll still have a hybrid cloud strategy, but we have particular strength in Healthcare and Financial Services that I would argue is of particular interest to those firms. As well as if you think about Cognizant's heritage, it has been at the application layer. And we started talking about the application layer and business processes. Let's stand back from all of this.

If you go to the very core of this, you have companies like McKinsey or BCG or otherwise postulating around the importance of digital transformation. Digital transformation as a thought, as a conversation is very relevant, but it immediately leads rise to business processes and applications and that's where we play historically at the application layer.

And then, of course, as more workloads move to the cloud, we have a role to play in helping migrate consult, and obviously, manage thereafter and that's why we've become very relevant to the hyperscale players as well.

[Ashwin Shirvaikar, Citigroup]

Okay, okay. And so we've talked about organization a bit. We've talked about talent. We talked about strategy. In terms of -- sorry we talked about the strategy, but -- we talked about the upper layer of talent. But the rest of the organization as you think of various different angles let's just say attrition, let's just say hiring new people, let's say motivating them in the right way, can you talk about that because ultimately it's people organization?

[Brian Humphries, Chief Executive Officer]

It's people organization and some of the most motivated I've been is when I'm on the road with our client partners, selling to customers or indeed I was in India. We have 200,000 employees in India across 13 centers. And actually we call it a delivery organization, but we're doing a disservice to the organization because they do a huge amount of customer co-creation, solutioning as well as delivery. And so in many ways it's a virtuous cycle of selling and delivering and selling all at once.

Look what we're going through right now is a company that for 25 years was highly successful. In the last three years there have been a series of things that have in my opinion temporarily distracted us whether it's an activist investor; there was an FCPA situation; of course the CEO transition.

And then we implemented an organizational construct and model from a go-to-market point of view that frankly in my opinion has not been helpful to simplifying our organization, moving at speed etcetera, which we will address in the foreseeable future here.

The transformation office and the posturing of Cognizant towards digital in the future is really important in terms of winning over the hearts and minds of employees because a lot of our intellectual property comes to the building every day or goes to customer sites every day. It's a people business. And so there's a great deal of requirement to set the context as to why change is needed, why it's relevant.

There's a rainbow. There's a pot of gold at the end of the rainbow. What's in it for us as a company? Why should we pivot to that? What's in it to you as an employee? What do we stand for as a company? What's our purpose? Can we give back to -- get back to what we were good at before, which is strong growth, which engenders an ability to hire graduates in at the bottom of the pyramid, give them a career path, an upward mobility and progression and international assignments etcetera.

I want to get back to -- look we're going back to basics. We're going to double down. We're going back to a growth focus. And if we do that we'll have a rewarding future because we will pivot accordingly. Geographically we will pivot to digital and then it’s going to be a great place to work.

But contextualizing all of that and framing it up is pretty important to us at this moment in time. So every single month I send an e-mail to our employees. Last week in the Bay Area I had a all-hands with 250 employees. I'm in India every eight weeks. I'll be there twice in the next three months. We're actually doing our executive committees throughout the world now face-to-face for the first time to make sure that the leadership team are very, very present at this moment in time because we're going to ask a lot of our employee base in the coming six months, and we will unveil news to you guys in our Q3 earnings, and of course to our employees ahead of that.

I will say, I don't believe in death by a thousand cuts. I would rather pull the band-aid off, get it behind us, set the context as to why this is critical and then fast-forward us towards the future as quickly as we possibly can go, whilst bringing the organization with us.

And I'll caveat that for anybody who knows track and field, it's almost like a pacemaker trying to get to a world-record pace. You want to stretch people forward but you don't want to run too far ahead of people or they will ignore you. So you have to bring them with you and that's what we're setting out to achieve.

[Ashwin Shirvaikar, Citigroup]

Got it, okay. Are you willing to make big acquisitions to accelerate any of these things? I mean, tuck-ins yes, but big acquisitions? Is there time and energy for that, sort of, noise? Is there a necessity for that?

[Brian Humphries, Chief Executive Officer]

So it depends what you mean by big acquisition. I'm personally a bigger fan of tuck-in acquisitions than big acquisitions. But let me be very clear, an acquisition is not a strategy. An acquisition is a means to an end. And so the first -- I've approved some acquisitions since I've been here. I've also rejected quite a few acquisitions since I've been here.

Acquisitions for me are like people at Christmas wanting a dog. It's always a good idea. But then in February when it's raining and dark nobody wants to walk the dog. And so I'm very much of the mode, look, first question I better be very comfortable with your strategy. Second thing, I better be very comfortable that you're actually going to walk the dog in February when it's raining or snowing and we'll take the integration of that very, very seriously.

At some stage the core to me and if I can bifurcate in my brain for a moment, there's blocking and tackling in Cognizant, which is an amazing company with amazing heritage, great installed base, amazing customer loyalty and motivated employees. The blocking and tackling can happen in isolation and it will show up in the numbers.

Now I'm not patient enough to do that for two years and then turn my attention to strategy or partnerships or acquisitions. Unfortunately we have to learn how to do everything simultaneously. But M&A will be a means to an end. It will be part of achieving our strategy, but there's a lot of I would say operational discipline and rigor to trying to instill into the company in the short-term to make sure that whenever we do larger acquisitions in the years ahead, it will be on a stronger foundation.

[Ashwin Shirvaikar, Citigroup]

Understood. There is obviously -- we can talk for much longer, but I did want to give the opportunity for the audience to ask questions. If you want to ask a question just put your hand up. There I think are going to be mics that go around. We'll take a couple of questions and then we can -- I do have a closeout question. But any interesting questions from the audience? Fantastic. More time for me.

[Brian Humphries, Chief Executive Officer]

More time for you.

[Ashwin Shirvaikar, Citigroup]

Awesome. So one of the common questions I get from investors, I like the stock. I'm a minority in that regard currently.

One of the push-backs I get is this thing can't work unless -- and you talked about the two large verticals unless financial services and healthcare come along. And you mentioned that and you seem to believe in a similar -- you need to fix it right similar philosophy. The process of fixing if you can give us a glimpse into underneath, are these basically unhappy clients? Is this -- how much of this is secular? What's going on? How much of this is structural because of M&A? If you can break that down and give perhaps a color that would be quite helpful.

[Brian Humphries, Chief Executive Officer]

Yeah. So look, it's factually correct. It's 63% of our business. So to get to the growth rates I want to get to, we have to fix the business. And it's something we're going to take seriously and get done starting premise is you have leaders in those businesses that are highly energized that are seeing customers that have a point of view that understand where the industry's going that have forged partnerships that have an M&A strategy to accomplish their strategy. And in both cases I felt we didn't.

And hence we have made leadership changes in both of those arenas. I have hired the ex-Head of Wipro Healthcare to lead our Healthcare business. Jeff's been onboard now for about five, six weeks. We have an open search for the Head of Banking, which has been open for a few months. And, of course, I'm in no rush to hire. I want to hire somebody as quickly as I can possibly hire the right talent and not a day earlier. And informing that talent decision is actually input from customers. They are some of the first people I talked to in terms of who's been most impressive to them over the years.

If I take our banking business, actually our Healthcare business is not dissimilar. Years ago, those markets used to grow much, much faster. And the macro growth of those markets is about half of what it used to be a decade ago. But there is not one of those customers that I have met either in Banking or Healthcare, that when I'm having engagements with them and talking about their priorities, I do not believe it's like -- I started working in a company called Digital Equipment Corporation in the early '90s and this was back in the days of Windows 95 and was almost a choice point. Will I deploy it this year? Will I wait for a year? IT was almost a discretionary spend. IT is no longer a discretionary spend. Application layer is no longer. Cloud is no longer. This all gives you greater nimbleness, greater speed, greater security etcetera.

So, my sense is, regardless of secular or cyclical trends, I have two large industries, I need to fix and the good news is customers are still buying. And the bad news for us is, as they are buying, there are some trends that are happening simultaneously. Some of them are building out captives and most of them in the run operation space are talking about having to find efficiencies to fuel digital transformation.

So if I break that conversation down, it goes a little bit like this. Well, Brian, look we love you. We work with you for five years, 10 years. Well what do you think of us? What's your brand attributes? What we think of you in the run operation space? By the way, that's where I need to get a few hundred million of savings out. Can you give me a hand? At which stage then, I put my coffee cup down and I talk around the fact that, look I can consolidate your long tail of vendors. And if you allow me to do that, I will actually give you some concessions or rebates and it's a win-win, because I'll get more revenue and more margin dollars and actually keep the wolves from the door.

Let me be very clear. I can do that for the foreseeable future a year, or two years, three years, but that is not a sustainable strategy, because at some stage, I am the long tail as well as the core tail. So I have to simultaneously pivot to digital and that's where all the banks and all the healthcare companies are trying to make sure that they have a better online presence, better application presence. They know their customers better. They have more upsell, cross-sell capabilities. They have a more efficient operation running behind the scenes. So, I'm not of the opinion that the market opportunity is not there.

On the contrary, let's be very clear, in a $1.3 billion -- trillion services industry that is growing 5%. The macro demand is not the issue. And frankly, it's a cottage industry. Nobody has more than 3% of the market and very few players have 3%. So if somebody said to me six, nine months ago before I showed up in Cognizant, would you rather work in an industry that's growing 2% when you grow 3% or work in an industry that's growing 5%, but you're participating at a fraction of the market growth rate? I will take the latter, because I know than if we can fix some of the things that need to be fixed, I can participate in a higher growth market. And that's kind of where I think Cognizant is at this moment in time. The bad news is there's more work to be done than I possibly imagined joining. The good news is there's more work to be done. And if I can fix it, it will show up in the numbers and then the stock price will take care of itself.

[Ashwin Shirvaikar, Citigroup]

Okay. Let's briefly talk about the remaining 37%, number of different things in there. There's manufacturing. There's Telco. There's consolidation going on. There's trends like 5G on the one hand. But when you talk about manufacturing, you also have to think about the indirect impact of trade tariffs artificially put boundaries. How do you plan for that? Is that a concern? That 37% of your business has been doing better. Can you sustain that and get better?

[Brian Humphries, Chief Executive Officer]

So, it will by the way lead to some very targeted geographic decisions. Global growth markets as I've said is 24% of our business. We need to scale our Germany operations. We need to scale our French operations, around cloud, around manufacturing etcetera. But of course, look, we're operating in a world where there are a lot of permutations at play at this month in time, whether it's Brexit, whether its H1B visas and L-1 visas in the U.S., our ability to get talent in, our ability to renew talent once we have them here.

So look, we are leading ourselves into a situation where I think we have to be highly nuanced in terms of how we think about everything right down to delivery. I don't believe in just offshore delivery. I believe in near shore as well as onshore delivery. Our European operations have been more advanced in that regard. North America, we have a big effort underway right now to start dramatically thinking about changing our college hires and our onshore delivery capabilities.

Of course, this is happening simultaneous to a world of DevOps and agile development, where selling and delivery are almost part of a cycle of pods and guilds and tribes etcetera, so it's more important than ever before. I actually think as I said earlier, 5G and IoT will unlock a great deal of value in manufacturing as it will in key verticals like automotive and indeed healthcare and financial services. You may have heard of things like usage-based insurance which at the end of the day is basically individual-based insurance. Instead of your car, insurance being based on your zip code or the brand of car you drive, it's based on how fast you drive, how fast you accelerate, how rapidly you brake, how you go around corners etcetera. That individual-based insurance concept can be applied to other things like healthcare.

So given the latency, we have in 5G, you can have remote patient monitoring, assisted living and a whole set of other industry applications that can be unveiled in multiple verticals, manufacturing, obviously Industry 4.0 becomes pertinent as well. So, if there's one portion of our business that I'd like to have a shout-out to, it's our Products and Resources group that we disclosed externally to The Street. Our retail consumer goods and healthcare and hospitality division really on fire, doing really well and I see nothing but pipeline opportunities there.

[Ashwin Shirvaikar, Citigroup]

Awesome. So we're at the end of the time. You have 30 seconds to close out, if you have a message for the audience.

[Brian Humphries, Chief Executive Officer]

I would say Cognizant is a proud company with a broad heritage of success over the years with a focus on growth in the last few years. You guys know as much as me. It's been in one form or another somewhat distracted. We're trying to get all those distractions behind us, get back to basics get back to growth. There's lots for us to go work on operationally, strategically, partnership-wise, but I would say you've got an intention to go and make sure that this happens, make sure we have more people like you supporting us.

[Ashwin Shirvaikar, Citigroup]

Thank you. Thank you. Thank you for doing this.