Cognizant CEO allays growth worries, eyes 'SMAC stack' services

India's outsourcing firms have headroom for growth, says Cognizant's CEO. Can the company build successful services around social, mobile, analytics and cloud?
Written by Larry Dignan, Contributor

Amid worries about growth rates for Indian outsourcing players, Cognizant CEO Frank D'Souza said the industry's overall penetration is low for IT services and there's a lot of headroom to grow. However, offshore players have to invest in new services revolving around social, mobile, analytics and cloud computing (SMAC).

D'Souza, speaking at a JP Morgan technology conference Wednesday, was asked about growth for Cognizant and its rivals. Cognizant recently toned down its outlook due to a slowdown in discretionary spending.

He said:

If you look at penetration rates at one level and you say what is the share that offshore has of the global services market, whether that's the IT services market, whether it's the global business services market, depending on how you define it. That number is still remarkably low. And so, we think it's still in the single-digits. At best in the mid-single-digits you could argue. You could make a case it's in the low single-digits. So the penetration rate at the very highest level is still very, very low, which says that there's a tremendous amount of headroom left here.

Cognizant also said that the addressable market for offshore outsourcing is growing within industries. Cognizant's goal is relatively simple: Capture more customer wallet share.

He added:

I don't think it's reasonable to assume that that's going to be sort of a steady decline in growth rates over time because that's where the discretionary spending and other variables will start to kick in. So I think you'll certainly see the possibility that growth will -- well, growth will decline over time because of the law of large numbers, but there'll be an offsetting as we see discretionary spending patterns change.

According to D'Souza, India's services companies are in a bit of transition, but better growth will return. As for Cognizant, D'Souza and his company is developing new services to sell over the next three years that revolve around cloud computing, mobile and social management.

Those services are a far cry from Cognizant's initial application maintenance efforts and its consulting unit, but will account for more revenue going forward. Cognizant's application maintenance, ERP, integration services, consulting and business process outsourcing drive sales today. Tomorrow will be about other services.

D'Souza said Cognizant is focusing on new services around emerging technologies. "These are practices in the area of social computing, mobile computing, advanced analytics and cloud. We call it the SMAC stack, for social, mobile, analytics and cloud," he said.

In the SMAC stack, which has about 2,000 Cognizant workers devoted to it, mobile looks like it'll have the best immediate payoff:

I believe that we're just starting to scratch the surface on what the state of the possible is with mobile technology across most industries. I think there's a tremendous amount of innovation that's still to happen and a tremendous amount of headroom.

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