Cognizant announces $400 mn plan to simplify operations in 2 years

Programme may impact around 3,500 jobs, mainly in corporate functions

Global IT services company Cognizant has announced plans to restructure expenditure in two years and simplify operations for a post-pandemic work environment. It will invest in growth opportunities, amid economic uncertainties resulting in a year-on-year decline in revenue.

As part of its NextGen programme, the company expects to record costs of approximately $400 million. Around $350 million of such costs are anticipated in 2023 and $50 million in 2024. The programme may impact around 3,500 jobs over the next two years. The layoffs will mainly be in corporate functions and for non-billable employees, said Ravi Kumar S, Cognizant’s chief executive officer, in a press meeting after announcing the results for Q1 2023.

Cognizant, at the end of Q1 2023, had a headcount of 351,500: a decrease of 3,800 from Q4 2022. This compares to a decline of 3,611 and 1,823 employees at Infosys and Wipro in Q4FY23. (Cognizant follows the January-December financial calendar).

The NextGen programme will simplify the company’s operating model, optimising corporate functions and consolidating and realigning office space to reflect the post-pandemic hybrid work environment.

A structural shift in real estate costs will help the company eliminate 80,000 seats and 11 million square feet in large cities in India, according to Ravi Kumar. This is expected to reduce Cognizant’s annual real estate costs by approximately $100 million compared to 2022 by 2025.

“Our drive for simplification will include operating with fewer layers to enhance agility and enable faster decision-making. We expect the savings generated by the program to help fund continued investments in our people, revenue growth opportunities and the modernization of our office space,” said Cognizant.

The $400 million costs consist of approximately $200 million of employee severance and other costs primarily related to non-billable and corporate personnel, expected to be incurred in 2023, and approximately $200 million of costs related to the consolidation of office space, with approximately $150 million in 2023 and $50 million in 2024.

Cognizant managed to beat analyst expectations in the first quarter of 2023. But the company reported revenue from operations at $4.81 billion, a decline of 0.3 per cent year-over-year. Net profit grew to $580 million, a three per cent increase on a year-on-year basis. In constant currency, revenue grew 1.5 per cent against its own guidance of $4.71-$4.76 billion. On a sequential basis, profits increased by 11.2 per cent.

“We have to redistribute our physical workplaces. I believe we are going to enter a hybrid era of distributed life and work. Especially in India, our presence in smaller cities will be very important. A large number of our associates have moved to tier-2 cities and they will probably remain in tier-2 cities for the foreseeable future,” said Ravi Kumar.

Cognizant currently holds workplaces in tier-2 cities like Coimbatore, Kochi and Mangalore. The company will modernise its existing spaces in smaller Indian cities and will also expand to new real estate spaces. The Nasdaq-listed firm has the majority of its employee base located in India. Voluntary attrition in the IT services segment declined to 23 per cent from 26 per cent in Q4 2022 on a trailing-twelve-month basis.