The Hindu Business Line : `Opportunity of a good recession...

A successful consultant tends to draw the envy of the average businessman. Always slickly dressed and with that unmistakable swagger in his walk (a swagger more perceived by observers than real), he is always the man with the dream job.

Try saying this to Mark Livingston; after a minute's silence, in which time he is trying to locate a metal badge attached to his luggage, he produces it to show you `5 million miles' printed on it. "I am not sure if everyone would envy this kind of a job ." says the highly-frequent flyer half-in-jest!

Livingston joined Cognizant Technology Solutions last year as Senior Vice-President, Consulting, after spending 27 years in the consulting business. He, with Natarajan Radhakrishnan (Nat), Vice-President, Consulting, chatted up eWorld on why this is the best of times for consulting.

The last year was a great time, or the worst time, to start a new chapter in your career, what with the economy going through a downturn. Your view?

Mark: I was telling my wife the other day and I sent in a note to Frank (CEO Francisco D'Souza). I said how fortunate it was for me that I had the foresight or insight to join a company like Cognizant because when I first started interviewing, our (Cognizant) stock price was anywhere around $30 a share, and then it went to $24. By the time I got on board, it was $15 a share. I will have to say I thought, "Oh ho, what have I done?"

And now the stock is $40 plus a share. It was an interesting time to join a company when it was predicted that the world economy was going to collapse and probably wasn't a good time to be in consulting business. But it has actually worked out very well.

Nat: The consulting demand has been at the highest point ever in the last three-four years.

But wouldn't `consulting' as a service, such as marketing and branding be the first off clients' priorities when they cut costs?

Nat: It is a discretionary spend and so you generally cut it off. For us, it's been the other way around. The utilisation there used to hover around 50 per cent in consulting. Today we're at 70-71 per cent.

Mark: We started out the year fairly slow and we're at a rapid pace now. To a great extent we have a lot of pent-up demand inside Cognizant. We've improved our consulting model, become better with the exposure of our consulting model within our 550 client accounts. We have a pretty good account base to go work. And on the HR front, it's a good story to go out and recruit. While a lot of consulting practices are retrenching, we're actually growing.

Experiences with customers in last years? How have customers come back with concerns?

Mark: When the IT budgets were changing slightly, there were still a variety of different kinds of IT optimisation type of projects. And probably more than ever, the CIOs were figuring: "how do we retool ourselves so that when we come out of the recession we are better performing companies"?

You hate to lose the opportunity of a good recession. That's really true. We have found CIOs were actually more selective and the market more competitive.

There are a number of projects still out there for consulting businesses.One of the things that's helped us is that the markets are changing. A lot of companies are consolidating their base outside providers and technology firms.

Since Cognizant has done a nice job over the last 14 years of building up a pretty solid client base, we have the highest customer satisfaction in the industry and being that kind of natural choice for accounts signed, you've done good maintenance work, you've done good application management work. I think the clients are opening up doors and asking us for a chance to extend our services.

Nat: Recession has provided three different kinds of opportunities.

One tendency is to optimise on cost, if you have a solid IT cost optimisation offering, that gives you a tremendous opportunity. The second has resulted from a bunch of takeovers, mergers and amalgamations, of which some are for business reasons or survival reasons and any M&A results in integration challenges and opportunities.

Third, for many companies, the fundamental nature of business has changed. For example, for someone in the sub-prime mortgage business, they cannot be (busy) in that business anymore. They have to do something else.

This, probably, is the best time for transformation consulting. These three things have given us tremendous opportunities. In retailing, for example, the pricing model is very different now from the past. And we have had customers working with us in finetuning the discount pricing models. These are actually opportunities coming from recession. On a normal day, they wouldn't be there.

What have you done differently in the last one year when the rest of the industry was not growing?

Nat: Whenever we do consulting, we optionally follow it up with implementation. It's not that we are selling consulting just for the follow-on work.

We do both. Follow-on work is important, at the same time, we tend to keep it advisory. The fact that we have the capability to back with implementation has worked for us, definitely.

Second, I think we're among the pioneers in implementing the onsite-offshore model of consulting which gives you a much more attractive value proposition - Call it a blended pricing or value proposition. It's not as expensive as buying consulting services, let's say, from somebody else. This has really helped us.

We have not restricted the set of consulting offerings to just the plan phase of IT development projects but gone beyond that. We can help our customers in solving some of their business problems, some of the more strategic issues.

It's not always application development or management; it's often more than that.

One good example would be the retail pricing paradigm and how it has changed over the years. This has nothing to do with IT to start with, IT comes much later.

Mark: Also, a fundamentally different market model makes it work here for us. What we've done at Cognizant - while I've seen a lot of other consultancies have failed when trying to build a consulting practice inside a technology company - is that we have not separated our consulting practice.

Our consulting is not a stand-alone business that doesn't have a lot of relationship with the delivery side of the organisation. We have a nicely integrated consulting model inside the verticals.

Our consulting practice has got the strongest vertical, content-rich expertise. This is a more valuable selling proposition. In other companies, the IT group, the BPO group, the consulting group, all fight for the same space, competing against each other. We have a single point of contact to the customer in the vertical - the client partner, and since we've integrated ourselves well into the verticals, we're part of the business, not trying to fight in meeting the client.

Our ability to expand our model is limited only by the number and quality of people we've got.

As a priority area, I spend about 50 per cent of my time and Natarajan is spending a lot of time, around recruiting and finding more senior people to bring in.

We have got 1,700 people in our consulting business and our model is only restricted by how quickly we can hire at the top, because with 550 accounts, the differentiation and the go-to-market strategy will alone make it work well.

I got a chance in my prior firm to see how it does not work well when it's not integrated or that the organisations are not harmonised. Cognizant has a very efficient matrix model. It's complex, but it's the only way to make it work inside a technology company like Cognizant.

The impression that the average client has is that he is paying through his nose for technology but is not seeing desired results. Are they demanding change?

Mark: We really understand the intersection between business and IT and we understand how to take that to market. So I think we're not selling for technology's sake, but we actually focus on the value proposition and the benefits. And so, for example, we get a project for retail, we were basically hired to look at the pricing systems and pricing applications, so it's a kind of a technology rejig project and out of that project we were able to really identify that technology wasn't the limiting factor, it was the processes. So we wanted them to do a series of two additional projects, the way they were optimising, the way they do pricing and also optimising the way they do mark-downs. So, we've taken an IT project, flipped it over and now we are doing much more process, classical kind of process changes. That to me is maximising the value of IT. Typically the limiting factor is not how technology has been implemented or configured, it's really around the way it's been implemented and has a poor business alignment.

Nat: We also have an IT effectiveness measurement offering, which measures: How good is the technology spend; How good is the return on my technology spend; Can the dollars be diverted from run-the-organisation to save-money-for-the-organisation? I wouldn't say that the demand has been more or less at the same level for this particular offering. It's not any more than before or any less than before. It's been a fairly consistent theme over the last four to five years.

What is the kind of demand you are seeing in the marketplace? Do new clients seek you out or do your sales people rope you in for existing clients?

Nat: It's a little bit of both. Some amount of consulting work done for completely new set of customers and also we've also moved up the value chain with the existing set of customers. Obviously of our 550 customers, if we can get the top 50, pretty much my next three year target is met. It's a little bit of both. One thing in consulting, it's a principal-led model. It's not so much sales force. Sales Force is only for opening the door. After that the detailed selling is by the practitioners-partners and the principals.

Mark: We're implementing more effectively. We're not just selling stand alone consulting assignments. One of our goals is: How do we change the transformation outsourcing agenda for Cognizant. So, when we get request for proposals (RFPs) for IT-centric, BPO-centric deals, we get involved from the consulting side. We try to flip the story around, put the higher value proposition to it depending on the client needs. That's our challenge to figure out and say that what you've asked for, is not what you actually need. Transformation outsourcing is what the market is demanding now.

Industries that accept consulting more readily than others?

Nat: I will give you an example of one large retail company. These guys have taken over a bunch of other small retailers. They tried to integrate and the business part of integration was fairly simple. On the systems side, they finally ended up with 19 different management systems for managing a particular large business process. The initial temptation was to manage all 19 systems, do onsite offshore, rationalise the vendors and so on and so forth. That would have given them limited benefit. There was a transformational way of addressing this and that was the challenge where we got invited.

We got started with a very small assignment to look at a particular application, look at getting data in one place. When we looked at it, we asked: Is it the question of getting all this data in one place or do we need to have all 19 disparate applications? How do we do it without disrupting any of the systems? It looked more like a Transform-while-perform kind of model. We told that customer that we will give them a cost effective maintenance solution and take care of enhancements and parallelly without disrupting their systems, we'll also transform these 19 into a set of three applications. That in my mind is a pretty good example.

Is the customer willing to wait in such instances?

Nat: The `lights on' is not disrupted because that's their priority. Fortunately the customer is still very profitable.

Mark: Another example from the Consumer Goods industry. We had this typical Two-in-a-box strategy of an Offshore Delivery Lead and an Onsite Client Partner (who face the client). We have introduced this Three-in-a-box and we're introducing a third person on some of these accounts, which is the Consulting Partner. We're putting experienced consultants on accounts to focus. And what we are trying to do is supplement the technology services and build more senior relationships and sell higher value of services. In one of our large customers, we have aligned a consulting partner. One of the things we've done is to help them build the whole innovation programme. The CIO there was pleased as punch. Having this focus of consultants on some of our core and top accounts will also drive us to additional type of services that will complement our delivery services.

Mark, when you came into this job, you must have had some goals in mind?

Mark: I think we've done a really nice job of organising our consulting business. We have added eight-nine different vertical consulting practices for the industries, and also some specialised horizontal consulting practices. We spent a good part of this year getting business organised. Significantly we've also enhanced and upgraded our skills, improving training and quality of junior staff but also we are trying to hire a number of senior people in the industry to come in and fill critical roles in retail, consumer goods, manufacturing or logistics. We're up-skilling the top of the pyramid. We've also taken a look at service offerings we`re providing, and figuring out how to rationalise and provide a whole set of new service offerings capabilities and also trying to build new ones. The key for our go- to-market is our client partners. The biggest things we've done is educating our client partners on the type of work we do, the value we can add to clients, how we could collectively work together along the three-in-a-box model and make it work. If I can show a client partner how to be more successful and help them drive a more strategic agenda and sell some services they couldn't sell before, then that's our key to success. In the whole scheme of things, if you compare the consulting revenues of a client to maintenance revenues or managed services revenues, it is significantly small. It is not the size of revenue, but quality and the value you driving in building more strategic discussions and more strategic relationships.

Are the clients comfortable with the Three-in-a-box model?

Mark: When I first came into the organisation, that (3-in-a- box) strategy was already built by Frank and the board and my job was to go execute it. Initial feedback from analysts was that we may be confusing the clients, they wouldn't know who to go to, and it would be awkward. I don't think we have seen that at all. First, when we talk about this model we make sure it's a receptive client and a receptive client partner and we talk about the consulting partner and his role, In fact, I had lunch today with one of our current clients and their question was how soon we can get a consulting partner assigned to them. I think more of an issue is, we need to figure how we could get more senior people aligned to these accounts. Because, the clients are quite demanding. In some cases, the client partners are demanding. So, it means there is not so much confusion between these two roles. We have not seen any client partner saying "excuse me, we're client partners, can you remove the consulting partners off?"

Consulting projects tend to produce a ripple effect for other projects. How does this fall in perspective for a business development manager?

They actually come to us. If a Business Development or account manager or a client partner senses an opportunity, whether it's a pure play consulting or where we have done a project and the follow-on requires a consulting opportunity, they immediately approach us. The only difference is they don't try to select offerings themselves. It is too complex.

In some ways, it's been easy so far, because all the initial leads and opportunities have come from our client partners. We didn't even have to bid for it. So we're just responding, and at some point when we get bigger and bigger, we would need to push more. It will actually get much easier for us, if we educate the client partners, and the account managers out there every single day. I don't want to call the Sales Force everyday. They are the good lead generation force for us. If we perfect our model, we have more consultants who can spend more time on the accounts. I think then we can start building opportunities of our own because we're going to get involved in more discussions. I don't think it's always going to be a pull model.

Most consultants in Indian IT companies talk about solid delivery engine behind them. Everyone has it. So, where is the differentiation?

Mark: For the delivery guys the global delivery model is absolutely key and how effectively they use it. For us in consulting, we are one of the few firms that run a successful global onsite/offshore delivery model for consulting. We're also in Europe. It allows us to give 24x7 coverage. We take the consultants that are offshore to onsite on consulting assignments. It gives us a better blended rate so we are able to price our job much more competitively than other firms. If things would ever get slow. In US, we have some people sitting offshore and it actually helps in our whole cost equation. That piece of our global model works very well.

In terms of the link between delivery and consulting, most organisations have both. But how well is it integrated is the key question. Are they running as two separate entities? If it is two different divisions that are not talking to each other, they won't be successful. Our success is because of federated matrix model in the organisation. We are glued into our view. If they sneeze we know and they know all our capabilities.

Is that not how most companies have structured consulting and delivery?

Mark: I like the fact that the head of our BFS practice is going to wake everyday thinking about how to keep the hundreds of his verticals consultants busy. So, it is not just our job to figure out how to do this. I've somebody else also thinking about it. We're not worried about how do we push ourselves and beg for permission, it actually helps them to keep them busy. That's the matrix model we're talking about. I don't think there are too many other consulting firms that are running their business that way and I think that they are very disconnected, but we have ours tightly coupled. That's the real advantage we've got.

What is the client focus on "run the business" or "change the business"?

Nat: There's not too much of discretionary spend available. We still see opportunities on `change the business' phase simply because people are forced to drop their core business and move on with life. They got to think differently and do things differently. Those opportunities have continued to remain. The run the business side, things like the conventional, the usual suspects like sourcing strategy, continue to be there. Those offerings continue to pour in.

For acquisitions by Cognizant, how significant a role does the consulting arm play? For instance, were you in the thick of things during or before the UBS back office acquisition?

Nat: We try it all the time. That's the short answer. At the same time, we have to be careful on that. What's the thought process, whether its core or no core is something we evaluate. We try to access it if it is really core to them.

Mark: We have the methodology basically in here to find out what's offshoreable. When we get those opportunities, we convince the client that we can run the captive side better than they do and it is not the business that they need to be or it is not the core to their business and why they need to do that. I think this whole Core vs Non-Core is at the heart of the theory that we try to push to the client.

How are client IT budgets likely to pan out for 2010?

Mark: One thing's for sure. We're going to get a clear signal as to what the budgets really are well before the time we got last year. I am not so sure that we are going to see any big change in budgets but it is going to be set a lot earlier.

What's the gauge of optimism that companies are having, where do they think they are in the upgrade cycle, I think it's going to be directly dependent on how successful someone's business is and how are they improving. But, regardless of this, I expect the budgets to be set a lot quicker as there is a bigger level of optimism that the market is starting to get better.

This whole concept of Virtualisation, social media, the whole industry segments are getting redefined and every time it happens, it creates for us more opportunities as long as we can make sure we are not behind the power curve. As long as we are at the front end of it, it actually creates more opportunities.

What is the consulting strength that you have currently? And what investments have you made in training them?

Nat: 55 per cent in customer location in US, Europe. 45 per cent offshore. The headcount is 1,700.

In terms of training, there are specific Cognizant training programs such as Tools and processes training. There are bunch of consulting-specific training like Boot camps, when they enter into the consulting group and when they are slightly more experienced consultants, there is whole communication skills workshop which is delivered by a large US university with whom we have tied up. They have customised it for us and deliver it for us. They even have capability to do that in India. They actually come down. At senior levels, we've a consulting project management and Client counseling and development kind of programs.

We've a three tiered consulting craft skill development program at various lifecycle stage of consultant. We've a scaled down version of this consulting program which we do in B-schools. It's a 2 to 2.5 days of program that we do in the B-schools which is hugely popular.

Mark: I would split training into two functions. One is formal Classroom training and the other is on- the-job training. To me, the only way they really train upcoming consultants and to have a viable consulting practice is by having an apprenticeship model. Classroom training is only going to supplement it by say, about 10 percent of what they need, and 90 percent of real training is by working onsite beside senior/experienced consultants who can teach them good consulting skills. So this apprenticeship model is something I am emphatic about.

That's why we insist is that our senior people have to work on engagements to teach the junior consultants.

What changes do you think have happened in Consulting since you first entered the industry?

I think that clients are not going to pay high dollars for consulting by hiring a bunch of junior MBA students with a year's experience doing some work. They are looking for senior guys like us to be there hoping to get some pretty good advice. So, this apprenticeship model that we talked about is having the senior consultants working and billed by the clients and guiding the junior consultants will drive our whole consulting program.

Every project has to have a principal partner attached to it. Otherwise this model won't work. Every large project will have a senior level guy, and a consulting manager or senior manager managing the day to day affairs and then the team members. This pretty much works.

Insights into what profiles you hire?

Nat: Our general range is one-six years. If you take our weighted average is its about 3 « to 4 years at entry level. There are three different types of hiring. Approximately one-third of hiring is by all B-Schools (Top10 or 12 Indian B schools) and top Asia Pac B-schools. We go to Singapore, Dubai and Manila and to a smaller degree from European and US B schools.

The second type of hiring is subject matter experts from user industries. They'll actually have experience in retail, banking or manufacturing industry. This pretty much accounts for 50% of all lateral hiring with significant experience, in user industries with at least 10 years plus experience.

And the Top 15 per cent come from top consulting firms - the Big 5 and pure play boutique consulting firms. This way we have a nice blend of consulting talent, subject matter experts and smart workers. This has really worked well for us.

Cognizant acquired Pepperweed, a consulting firm recently. In the area of consulting what do you look for in a target? After all critical manpower could well move out?

Nat: Two motivations. One, this was the area of service offering which we did not have in IT IS consulting. Two, Customer references.

Mark: With our rate of growth and growth strategy, and spending 50 per cent of our time in recruiting, being able to identify a small acquisition like this that fills the gap in our service offerings, that is easy to integrate, and you don't have to worry about any significant fallouts. It's a nice complement. To me, Pepperweed is the best example of a good acquisition.

And I think the one before that we acquired SVC, which is a former Accenture group of consulting in the media and entertainment area. Those are the types of acquisitions we want to make as opposed to big ones. It doesn't fit us. These small ones are one way to help us supplement our organic growth.

Mark, you have been in consulting for so long. In the last one year, have you had to unlearn what you learnt earlier?

Mark: To me to being able to put experienced, qualified consultants who have worked in the industry, and have the content, is the key to making things work. Too often in consulting, you take smart guys, they think that they are smart and they can go and figure anything out and we're actually seeing that clients don't buy that anymore. You have to prove that you've done it before. That you have got deep industry expertise. The markets are getting more competitive. So, the general consultants that have never done it before and don't have the industry knowledge or can't prove they've done the exact thing 4 or 5 times before, I just don't think that sells any more.

I also think that there is going to be more consolidation in the industry because people are starting to think about how to buy consulting services.

The other thing we did is a really good job over the years of educating our clients in terms of how to strategically source consulting services. So, consulting is now another category no different from buying your Fedex. Now, clients want to have consultants to furnish rate cards, tell us what's your rate is by the hour and almost get it preapproved. Now we are going to go into the classic kind of outsourcing selection process, in that kind of a weird way, to buy consulting services because what we want to do is show value and charge to show value through a standard RFP process. Depending upon the subject, clients want to really hear about how you can invest and what can you do and where can you take some other risk.

bharatk@thehindu.co.in

Related Stories:
Cognizant keen to tap domestic opportunities
Cognizant, Invensys sign co-innovation deal