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April 11, 2023
Ravi Kumar S, CEO of Cognizant, talks with Phil Fersht, CEO and Chief Analyst of HFS Research, at the HFS Horizons Summit-London on March 23, 2023.
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This transcript was auto-generated from the original recording and lightly edited for readability. We've done our best to catch errors, but names, technical terms, and company references may be misspelled or imperfectly captured. For the definitive version, please refer to the original audio or video. Views expressed are the speakers' own.
Hopefully we’ll have an exciting conversation. It’s been one long day — probably one of the first industry events we’ve had since 2019 in this space, so a lot of folks have stuck around to hear a few words from Ravi Kumar.
Sure, thank you. You know, this is my last meeting for the day before I board a flight. I thought the traffic in New York was bad, but London was worse.
But we’ve just done a deal — we’ve extended the train strikes, right?
Yeah, the train stations are good. The trains are better than New York.
They’re better than New York, for sure. Good stuff. So obviously, some of you know Ravi, some of you will not. I’ve known Ravi for many years, and he recently became the new CEO of Cognizant, which is an $18 to $19 billion — close to $20 billion — company. Well, it keeps growing. I was lucky enough to be at his coronation recently in Abu Dhabi, and it’s been an exciting time for the company. But maybe, Ravi, do you want to just tell everyone a little bit about yourself and your career and what you were doing to get to this point?
So I joined Cognizant in January. I think it’s such a wonderful platform. Tech services companies of our size normally take 40 to 50 years to get to that size — all of them I know of that size have taken 40 to 50 years to get there. Cognizant got there in 25 or 26 years. So it’s a company built on entrepreneurial spirit, great camaraderie, and a founder’s mentality — very, very empowered, decentralized, but equally very closely knit. So it sits at the confluence of the two, which makes it a very beautiful combination. It’s also one of the first companies which, in some ways, like what Amazon does, flipped a cost center to be a revenue center. That’s how AWS was born. Cognizant was born from a captive which was serving a corporation, and they flipped it around to make it a revenue-generating engine, and that’s the spirit of Cognizant. It’s also one of the first companies which actually built a confluence of industry and technology. It doubled down on technology, so you have players on the spectrum all the way from deep technology to deep domain. Cognizant always had this unique confluence of technology and domain, and hence an extraordinary depth of capability in healthcare, life sciences, and financial services, and hopefully we can do that in other industries. It’s important in the times we are living in, because every industry is becoming a tech industry, so that confluence is really going to help us serve our customers much better. It’s also one of the best examples of local capability merged with a pool of global talent, of course, from centers in India. We actually have the second-largest workforce in India after TCS — TCS is much bigger than us. So it’s a confluence of so many things which came together to create this unique, differentiated spot in the market, and in these times, when every industry is a tech industry, I’m pretty sure that confluence is going to help us stay differentiated. So I’m very excited about this platform and the heritage of this company. It’s a closely knit group, so the good news spreads fast and the bad news spreads faster. So we’re excited to serve the firm.
What inspired you to take on this new adventure?
I can’t think of a better platform to express myself. I actually think it’s a company which deserves more multiples. It’s a company which deserves top-quartile growth, and my endeavor is to actually take it back to that position.
So let’s talk a bit more about the industry — good to get your perspective on this. We’re in a situation where a lot of enterprises are very determined to pay pre-inflationary prices and drive down costs, but they want to transform really fast now, and they want innovation at the same time. So how do we actually deliver on this? What do you think needs to change in the model of services to move things from where they were to where they’ve got to go?
There’s a kind of digital dichotomy, if I may. Digital technologies were used for creating an extended reach to enterprises — that’s what happened in the last 10 years, and it was focused around the consumer, and probably now it’s going to be focused around the employee because of hybrid workplaces. Classical technologies were what was outsourced on lock, stock, and barrel managed-services contracts, and classical technologies were always commoditized; they’re constantly evaluated for productivity and cost takeout. That’s why the outsourcing industry was one which constantly focused on reducing cost for our clients. This was an era of globalization for the last 40 to 50 years — enterprises were globalizing and technology was just an enabler around it, and that enabler of technology was outsourced, so it was mostly non-core for businesses. I hate to call it non-core, but it wasn’t the core product or core service. So when you do something like that, you’re looking for leverage, and labor leverage was the reason why there was so much offshoring combined with outsourcing. I call this a dichotomy of sorts because right now, on those classical technologies, you apply new-age digital technologies to take out more cost — not just related to traditional leverage like offshoring, or traditional leverage like labor arbitrage, but more by actually making it a human-plus-machine endeavor. So the application of automation technologies, the tooling and instrumentation you have now at your disposal, gives you a bigger opportunity to take out cost and be more productive and more real-time. In fact, I can go to the extent of saying you could even digitize operations of companies. That’s one of the reasons most BPO services are back in vogue — not because of cost, but also because you could make them much more digitized and tech-enabled. So the technology you apply on the stuff which is enabling your business is always going to be powered either by new-age digital technologies or more labor arbitrage or a bunch of things. There are new tools now related to digital, so that part of the digital story is still about taking cost out and making more productivity. There is a second part, which has evolved in recent times beyond just using digital technologies for an extended reach to enterprises. That second part is also about changing the core of companies. An automotive company today outsources, as an example, the first part — takes it away and gives it to providers, and asks providers like us to do managed services, and hopes that we don’t just do labor arbitrage but apply digital technologies. Equally, the same automotive company wants the connected-car initiative to be co-created along with us, in a different operating model, with a different demographic of people and deep programming skills. But they wouldn’t outsource it — they would co-create it along with us. They would use us as a partner to amplify their potential, because that is their core. They don’t want to give it away to somebody and not be part of the iterative process it will go through. So the two swim lanes which have got created both need digital technologies, but they serve different purposes for companies. Therefore I think there is this dichotomy: one used to reduce cost, and the other used to create more innovation capital. Sometimes the smarter clients are saying there are two swim lanes: take the savings of the first and underwrite it to the second. We are not going to fund it — if you can commit and underwrite the first, you fund the second and take the risk on your end. So that’s how digital technologies have a role to play on both sides, and you could take bold steps of underwriting those savings and making it worthwhile for your clients.
Obviously, a lot of this is about creating big learning organizations within providers, and you’ve built a career out of partnering with academia, striking deals and opening new centers and all sorts of things. But what do we need to do next in terms of bringing talent into this industry — getting them excited about working in services versus going to the next startup or going into the businesses, and that sort of thing?
You and I discussed this at one of the other events. Most of the hiring which happened in the technology business last year was also hoarding of talent, which is getting offloaded now. If you look at productivity in 2022, there are world productivity metrics which actually say productivity went down — not because people were working less, but because everybody had more human capital than they needed, and they started to offload it. In some ways, enterprises were worried there would be a shortage of human capital. The tech services industry, because it traditionally catered to classical technologies with lower cost, transitioned over the last 40 to 50 years from tier-one schools to tier-two schools to tier-three schools to probably now tier-ten or un-tiered schools. They weren’t the most attractive employers if you wanted to build a career around technology, because it was a downward slide. Now I believe the smarter ones have created swim lanes inside where you can actually work on deep programming, on core product engineering, and you can build a career equivalent to what you’d build in a digital-native company. So the cross-pollination of talent between startups or big tech companies and tech services companies is actually going to be higher than ever before, because you’re going to have people with deep programming and software engineering skills available doing product engineering that you could potentially have done otherwise in these companies. If you look at the attrition metrics of tech services companies, you’ll see the loss of people — the two big tickets where people used to go were to other peer companies or to business schools for higher studies. Between April and June is the highest attrition month because people go to business schools. That is going to change now. People can crisscross between tech services companies and startups, tech services companies and digitally native companies, and large enterprises which want to set up their own captives in countries like India. India is going to add 2 million IT professionals in the next 3 years. One third of them are going to come from 300 global capability centers which are going to be set up in India. These are companies who think tech is so core to them that they will not outsource — they will insource. Car companies are outsourcing their HR systems; they’re building their own captives for connected cars. So that cross-pollination of talent will happen because we have software engineering and core engineering. It’s a good and a bad thing. The good thing is we could attract from that, because they’re all offloading people now. The bad thing is we could lose — if we are not a good employer — not just to other companies who are not like us, but also to our clients. Our clients we can lose. In fact, our clients now want to build-operate-transfer with us, because they want to build the maturity along with us, and they want us to transfer the people once they establish their global capability center. Frankly, that’s not cannibalization, that’s a strategic opportunity, because you don’t oppose what is right for your client — you have to do it because it’s strategic for them. So that’s one reason you’ll see cross-pollination. The second reason is that in the past, tech services companies only hired algorithmic and, I would say, programmatic skills. Now they are hiring heuristic and creative skills, because when you’re working on digital technologies and co-creating with your clients, you’re also hiring heuristic and creative skills. So the breadth of capability tech services companies have means you could cross-pollinate more. Creative skills can be cross-pollinated to other industries; heuristic skills can be cross-pollinated to other industries. I don’t believe STEM skills are the only skills needed — non-STEM skills are needed more. In fact, if automation technologies and AI technologies — ChatGPT — are going to write Python code, what are we going to do? We will then have to start thinking about the next big problem, and think about finding problems versus solving problems, which is an endeavor workplaces never had. Workplaces were built, from the industrial revolution onward, to solve problems and not to find new problems, but we will end up finding new problems so that the machines can solve them. So that will allow us to cross-pollinate. Plus, the tech services industry has the biggest learning infrastructure in the world — there is no other industry which has so much B2B learning infrastructure. So if somebody else is offloading, we can reskill and repurpose and build it. There are only 28 million IT professionals in the world, and if every industry is a tech industry, where are we going to get people from? We have to get them from other industries — mid-career shifts from other industries: a teller at a bank, a check-in counter at an airline, where there is no upward mobility of jobs. All this great resignation which was happening was happening in industries which did not have upward mobility. Even today in the United States, 4.5 million people are leaving every month. Everybody keeps wondering where they’re going. But where are they leaving from? Healthcare, hospitality, hotels. They’re fed up doing $20-per-hour jobs. They’re okay to do it for a few years, not all their life. So somebody has to create a bridge, and we think the learning infrastructure of tech services companies — and all of us have experimented with it — we can scale it. The world needs not just 27 million developers; the world needs maybe 50 to 60 million developers in the next 4 to 5 years. Where are they going to come from? They’re going to come from unrelated industries where upward social mobility is low. And the digital divide which technology has created can actually be bridged.
That’s right. A lot of people dropped out of the workforce during the pandemic, and the government in the UK have now announced increased child support to get people back to work.
Labor force participation in the UK is 60%, and labor force participation across the world is in the range of 60 to 63%, because work is orchestrated full time, eight hours a day officially, so everybody is not available for eight hours a day. They have other things to do. Workplaces were not built to be diverse and inclusive, because if you have to go to a physical workplace for eight hours a day, not everybody can access it. So, going back to what you just said, if we reset the whole format — and hybrid workplaces are a reality now — it’s going to be harder to be hybrid; it was easier than we thought when remote was the model. When we reset to hybrid workplaces, we’re going to see labor-force participation going up. People who’ve retired will come back for a few hours — actually, the number of people who have retired in the last 3 years across the world has gone up. So people who have retired will come back and do a couple of hours. People who could not access work because work was in urban centers — work is now in tier-two cities. Back in India, 50% of the tech services workforce is in tier-two cities. They’re not going to come back; they’ve actually gone back to their parents’ and families’ homes, and they find it convenient. So they’re not going to come back. And if you call them back, they’ll go and join a peer of yours who will give them a job for the same client — so they’ll see the same person on Zoom and get a different paycheck. So they’re not going to come back. Cognizant wants to redistribute its real estate from tier-one cities to tier-two cities; we’re going to repurpose and redistribute it. We’re going to create collaboration centers. In the United States, 25% of the bookings on Airbnb are for work — these are people who are fed up with their living spaces, so they go to another Airbnb to work, but not to the workplace. So you’re going to see more redistribution of lives and work. Work is going to move to tier-two cities, and when that happens, access to work will be much greater and labor-force participation will go up. I think the tech services industry can lead that narrative for some of the other industries to follow. Every industry can’t do this, because some industries are physically orchestrated. The other day I was at the National Governors’ Conference talking on workforce, and I heard a very interesting comment: Microsoft was looking for some data centers to be established, and they were trying to set them up where construction workers are available, not where technology workers are, because construction workers are not available. But why would somebody go into the construction industry if it’s going to be so hard to have a good living? You can only do so provided you can create bridges to other industries which have upward mobility. So I think that’s the template which will follow.
So, one last question, around your first big job as CEO of a $20 billion provider — where do you think you can impact the most, both short and long term?
This is an interesting industry. The first thing I’ve figured out working in it is that between clients and employees we have self-reinforcing virtuous cycles. If employees are happy, they stay with you; the clients will come to you. Clients will come to you if the employees stay with you. It’s a self-reinforcing cycle, and you have to put them onto that cycle. If you’re on that cycle, it’s a very easy job; if you’re not on that cycle, it looks like you can never be on it. So that’s my job — to be on that self-reinforcing cycle of clients and employees. Actually, today one of my clients was saying, more than a client, you should have fans — we are a fan of yours. I really liked it, because I said, wow, this is a different template: you almost have to make them fans. Our clients have to be fans of Cognizant. The second thing I believe is you have to see what others are not seeing in your company, because you’re at a vantage point to cross-tabulate and connect the dots across the people you meet — policymakers, clients, employees. That’s not a big virtue; because of the vantage position I will see what others don’t see, I will see what is coming. The bigger virtue is if I can make them believe what I’m seeing that they’re not seeing — that’s a bigger virtue, because you can create a multiplier on that. The third piece, which is true for most tech services and true for Cognizant, is that 25,000 to 30,000 people run our programs and projects. They walk the corridors of our clients; they talk to our associates every day. We have to build trust with them, otherwise there’s no chance to create a multiplier effect. Our associates go and ask them, by the way, I’ve got this job — should I leave? I want them to say, don’t leave, I’m hanging around here. If they start to say, you know what, I’m also looking out, you should leave, then there’s nothing I can do, even if I’m the CEO. So building trust with that layer, and making them live the microcosm of Cognizant, I think is a big virtue. These are a few things I’m excited about. I always feel that once you do this on a rhythm, employees and clients will be in those self-reinforcing cycles.
Good. And then — for ambitious professionals who dream of leadership roles in the future, what do you think are the personal traits that make you who you are, that other people need to understand?
Being vulnerable is a good trait. Whenever I’m vulnerable, I can expose my weakness, and I can punch above my weight, because I’m then paranoid, and I create positive energy around it, and I actually do much better than I should. So being vulnerable is not a weakness, it’s a strength. Ask for help — that’s a big learning for me. You could be in your own skin and feel comfortable about it, and you could actually embrace rejection. If you can do that, you feel very liberated, because you’re not under pressure, and then whatever you deliver, you’ll feel good about it, and you’ll always punch above your weight. Surrounding yourself with people who are not like you, and feeling happy to work with people you disagree with — I think that’s something we all should learn. We all should be surrounded with people who are not like us; we should be able to disagree with them but still feel happy to work with them. Growth will come in heterogeneity, and that heterogeneity is to surround yourself with people who are not like you, working in uncomfortable zones and making yourself comfortable about it. These are things which I have always embraced, and it has really helped me personally. Have fun working, and make work your passion. Whoever said go and follow your passion — I’ve not figured that out. I would rather take whatever comes my way and do it with my passion. If I follow my passion, I’ll never make it; I would rather follow my work, which becomes my passion. These are things I’ve used, and it’s worked so far. I feel much better about being vulnerable and paranoid.
This is great. Does anyone have a question for Ravi before we — I know he’s got to get to the airport soon. Good to see you again, and congratulations. So, you talked about this on the plane: if you take our industry, we’ve all been in it for 20-odd years. It’s gone from being organized by technology, to being organized by geography, to being organized by vertical. And now we talk about swim lanes, where there are theses that companies are building around — clients are an auto company, and the telco is converging on connected car, and so on. So where do you see this industry being organized or structured, say, three or four years from now, in terms of structures?
When I joined Cognizant, the first thing people asked was whether I was going to do a reorg, or bring in my own people. It’s very easy — the first thing any CEO does is trash the predecessor, or baseline it by saying we need to do a reorg. It’s hard to say which structure will work, because some structures work in some companies and the same structures don’t work in others — the culture of every company is so different. The one thing I’ve always figured out, when I’ve moved jobs in my previous organization and in the current one, is this: if there are layers in the organization, then it is a flawed organization. There’s no other principle I’ve used. If there are only two constituents in my organization — employees and clients — and to get to an employee you have to go through multiple layers, or to get to a client you have to go through multiple layers, those layers build up over time, because every organization creates layers to keep people happy. So de-layering that setup to get close to your stakeholders is the only organizational structure I’ve felt is going to work. Once you put that principle in, then you go to the culture and do what will work for that culture. That’s been my principle, and I think that’s the easiest way to know whether it all works or not. Otherwise, every week you get a new story about the org structure which might work. But the design principle of saying I’ll de-layer it as far as I can to get closest to my stakeholders — and then the rest is about the cultural nuance to fit it.
Good, good. One more — how do you balance the speed of execution with being sensitive to the organization and the teams at the same time?
That’s a great question. Clock speed is the biggest thing. Tech services is a fast-follower industry — it’s not an innovation industry. Anybody who thinks it’s an innovation industry is getting it wrong. It’s a fast-follower industry; it takes tech cycles, tech waves, and follows them, and whoever relentlessly executes wins the race. You don’t need to invent another tech cycle — you just have to wait for the next tech wave and follow it, predict it early, follow it again, and just go behind it. So clock speed in this industry is much more important than in any other industry. If you go to a software company, the development cycles of software are a different velocity, and the speed at which you sell is a different velocity; but in tech services, the clock speed gives you the market share and the wallet share, and then it starts to level-play, and then you look for the next one. Now, executing to a change, you always have to pace it with results on the way, versus waiting for the results to come at the end of that period. Nobody has patience — employees don’t have patience, clients don’t have patience, and investors are the ones who don’t have any patience. So you will have to pace the results and create reasonable leading indicators to show you’re actually going in the right direction. Then everybody wants to stay invested into it, because they see it’s going to happen. So my biggest challenge is that I have to pace the results in a way that keeps all my stakeholders invested into the narrative I’ve presented. If you just say the results are going to come, hang in there — nobody is going to wait. So quick wins and pacing the results is the most important way to get clock speed, or pace of execution. Once people buy into it, then it’s easy, because employees are going to hang in with you and clients are going to hang in with you. That’s the challenge of any change you go through.
You have two questions. This one is around the tech services industry: do you see a role for a Chief AI ethics officer, especially in companies like Cognizant that are heavily into AI?
Very good question. Most AI technology which is going to be built can do two things: it can replace humans, or it can amplify humans. If it amplifies humans, it creates jobs of the future. If it replaces humans, it also creates jobs of the future, but it takes away jobs of the past. The biggest challenge is that if it really replaces humans, then it has to be ethically responsible — it has to be responsible AI. Most of the work done so far by big tech companies building AI hasn’t focused on the responsible piece; they’re focused on building it and discovering use cases, and system integrators have supported them to discover use cases. The third leg of the race is the responsible-AI piece, which nobody has worked on. That is the consulting piece which will show up in what I call the re-engineering of the enterprise. It’s the new wave of re-engineering of the enterprise, which is going to happen now. Enterprise software 30 years ago re-engineered enterprises; you’re going to see a second wave of re-engineering using AI, and responsible AI is a huge consultative opportunity, which I don’t think has been researched enough. Frankly, if you really think this is going to become mainstream, that is the piece missing. So you’re absolutely spot on — that is the piece missing. The judgment of who you give a mortgage to, for instance — a human deciding on giving a loan or a mortgage, versus a machine deciding based on data — there is going to be an element of responsibility attached to it, where you don’t want to be biased on a bunch of things you see in the data. That piece is less researched, and I believe that will be the missing link to make it more mainstream.
Well, Ravi, this has been — I can do one last one. What keeps you awake at night on the professional front?
I sleep well. I don’t lose my sleep — that’s the last thing you should do. This is a long haul; you don’t run it like a sprint. If you run it like a sprint, you’ll get a big break, because you’ll lose your job and you can sleep enough. But you can never be in that state of saying, I want to lose sleep on something. Of course you should be paranoid about things, but I’ve realized it’s also physically very onerous, because you’re traveling, you’re not with your family, you’re going from one meeting to the other, you’re always managed. So it’s almost like a snow day or a rainy day — a Friday afternoon when a meeting gets canceled, you feel so happy. It’s almost like going to school and thinking, oh, it’s raining today, we won’t go to school. Those small breaks make you feel good. So you shouldn’t lose sleep — you should be in it for a long haul.
Thank you so much. Good job, that’s great.
The interviewer plays an important role, because if you say something for the first time in your life, then you start to believe it’s the interviewer and not you.
Thank you.
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