Nasdaq listed IT company Cognizant, which outperformed its Indian rivals in the recent quarterly results, has undertaken a series of steps to rein in costs and meet its operating margin target. Company appears set to cut at least 6,000 jobs, which represents 2.3% of its total workforce, as it struggles with growth in an IT environment that is fast shifting towards new digital services.
According to sources familiar with the matter, the variable payout to employees for 2016, is expected to be adversely affected. The layoffs are likely to be more than this year than routine annual exercise that removes out the bottom 1% of the workforce for non-performance as determined by the annual process that ends in March.
Cognizant is said to looking to cut roles that become redundant due to impact of automation on IT jobs. Last year this cut off were 1-2 %, and two years ago this layoff was about 1%. Company currently has 2,60,200 employees globally and out of which 1,88,000 which is nearly 72% is only based in India.
However it was not immediately clear that how many jobs in country or which roles would be made redundant. Cognizant IT services CEO Raj Mehta is learnt to includes measures such as cut down in travel expenses and hiring, with every extra hire requiring approval at the highest level.
A Cognizant spokesperson said in an email response to TOI,” As a part of our workforce management, we conduct performance reviews to ensure that we have the right employee skill sets necessary to meet client needs and achieve our business goals. This process results in changes, including some employees transitioning out of the company.
The company faced most challenging time during last year, and with the full year growth down to 8.6% single digit figure ,after years of strong double digit industry leading growth. Cognizant has been growing at faster rate than any other Indian rivals in recent years, mainly due to its strategy and sales focus where it was able to maintains operating margins at 19-20% and reinvests the excess into the business.
There are a couple of factors that explain why Cognizant has undertaken a cost savings exercise. During last three quarters, its sales, general & administrative expenses cost as a percentage of overall sales has gone up from 19% to 21%. Further its employee utilization numbers in the last quarters has come in much lower than peers.
The IT industries are not booming with jobs as several companies are slimming down on staff. Snapdeal cutted off nearly 600 people in February 2016. Many other IT giants like IBM, Microsoft, Nokia also cut down on staff in 2016, during Post demonetisation.