Yesterday Cognizant announced their results for the quarter and the year. That rounded up the quarter for the major Indian IT services companies.
I pulled some data together for the past five quarters. The results were pretty interesting.
First, I wanted to see what was happening to growth. I built an indexed chart which just shows growth for each company over its revenue in QE Dec-09.
Revenues for the previous quarter are in the same ballpark – between HCL’s $800 M and TCS’s $2 B a quarter. In that range, the size of the base should not impact growth much. Also, there were no major acquisitions during this period.
Cognizant is clearly pulling ahead of the pack. Wipro is falling behind a bit. HCL has upped its game and is keeping pace with Infosys and TCS.
What can we expect in the future? It’s hard to say. I think Cognizant will continue to lead the growth tables in the near term. The rest is anyone’s guess.
The long-term is a different matter. IT Services companies have a lot of inertia. These companies are like rolling, massive boulders. Changing speed or direction takes a lot of effort. And time. The companies that want to take the lead two years from now, better start making changes now. Managing results quarter to quarter, isn’t going to hack it.
The other interesting thing is the spread in margins in the industry.
The margins range from 10% for HCL to 25% for Infosys. (Wipro does not report net margins for its IT Business separately.) It is uncommon in an industry to have four similar sized companies in the lead with such a wide range of margins. Especially, in an industry where there are no entry barriers of technology.
My take is that this range of margins will narrow in the long term. Since Cognizant is now the growth leader, it can afford to stay put. But Infosys, TCS and Wipro will find it difficult to stay where they are.
If they execute well, these companies will be able to gradually up their spend on the things that matter and protect pricing. If they don’t, their pricing power will erode.
Protecting price levels is all about reducing competition. Superb account management and client service can do that. Investing in solutions that create measurable value for clients can do that. And new services and IP can do that.
Yes, a strong brand will also help, but the leverage from better marketing today, with five major players in the market, is not what it used to be. Good marketing is now table stakes.
On a related note, fellow EI, Ray Wang, who is just back from a NASSCOM conference, has a great post on how Indian services companies can start leading.
I spent a fair amount of time with Cognizant in 2 innings and in between couple of years in Infy. My take is Cognizant is much more aggressive and has more business/ client relevant Org structure than others. In terms of size Cognizant lags Infy about 2-3yrs however in Org structure it leads by 2-3 yrs. i.e. Cognizant’s verticalization was much ahead of Infy phasing out of the WENA, CENA structure and was much smoother (may be because the shift was on 200M vs 1B). Similarly on IMS (Infrastructure Mgmt) and IVS (Testing), Infy followed similar Org pattern as Cognizant albeit much later.
In an earlier blog you said the difference between big boys lies in Leadership and HR. Absolutely true. Unlike the previous recession, in this recession Infy’s HR sent panic waves as a result they had lot to lose in last 5Qs. For a long long time Infy scored heavily over its peers when it came to quality of its early days hires and the belongingness amongst its old timers. Now either old-timers gone or their passion. One can argue its same for all but I believe Infy had the most to lose (irrespective of what attrition nos say). May be now its same for all…