Digital revenues are not only growing faster than the overall IT services business, but are also bringing in better margins for IT services major Cognizant. In a chat with BusinessLine , Debashis Chatterjee, President, Global Delivery, Cognizant Technology Solution, says the company is using co-laboratories to take these digital engagements to the next level. Excerpts:

You are offering automation solutions to clients; how are you using it within Cognizant?

We have several bots within Cognizant. They are mostly in the digital operations area. That’s where we are doing digital automation and creating a lot of bots. That’s been a big focus area.

If you look at the way we have been signing some of the contracts in the last three years, they have moved towards outcome-based contracts. When you have an outcome-based contract, there are multiple ways to get productivity, and one of the levers for productivity gains is going to be automation.

Whenever we get into an outcome-based services contract, we have tremendous opportunity to leverage bots and automation to get efficiencies. The focus is more on creating long-term, outcome-based services contracts. The market is pretty ripe for that.

Our target is to take the operating margins to 22 per cent by 2019. Right now, we are hovering in the 20-21 per cent range. Those are not possible unless we do automation internally.

Given the amount of investments into building digital practices and retraining people, have you reached the breaking point with digital deals and seeing them make more money than traditional services already?

From a revenue standpoint, we had 9 per cent growth in the last quarter, but digital revenues grew three times faster. And digital revenue definitely comes at a margin higher than company margins.

My focus is to increase the digital share of the revenue. Right now, the digital share of our revenue is 29 per cent. But the growth was 27 per cent year over year. There is still a long way to go in terms of digital transformation.

Digital deals typically require you to work closely with clients. Given the visa restrictions in several countries, including the US and the UK, how are you managing to stay close to the client?

We are continuing to internationalise. As a part of our strategy, we are looking beyond the US to expand our digital revenues. We have been focussing on building our business globally.

Moreover, we are working on co-laboratories (Collabs) where we get our digital experts, behavioural scientists and experts on human-centric design and engage with clients. When we spend time with clients in these labs, we end up designing new delivery models.

We also need localised models where clients require the team to be available in their geography to work closely with. We have been acquiring teams in Europe, Japan and Australia that are locally available to clients, and they are all available in the digital space. A lot of localisation is required at Cognizant Digital Business team. But at Cognizant Digital Operations and Digital Systems and Technology, I don’t think there will be significant localisation required.

We are also building some near-shore centres. But at a broad level, the digital business has to have people working closely with the client. This is where the digital disruption needs to happen very quickly. So the teams are relatively small but very high-end.

How are the co-laboratories helping you in your digital business?

The Cognizant Co-laboratory is a digital innovation space where we partner with clients to design, prototype and scale digital products and services in a globally connected digital innovation network. It is a space that enables clients, partners and associates to develop new digital solutions and craft digital strategies.

Collabs has been a great experiment that we have done. Earlier, it was difficult to get an audience beyond the CIO. But when I break out a business model, operating model and technology model, several client CEOs are pushing their teams to come and participate.

We are going to set up more co-labs. With the co-labs, we are getting clients to truly think how we can disrupt. Most of the co-labs have people from the companies we have recently acquired. The Co-labs are helping us get more business from within the existing client base apart from getting new clients.

In many of the digital deals, we actually get our clients to the co-labs — we come out with disruptive ideas, and then to implement those ideas, clients will have to disrupt their operations and technology and create new business models.

How do you see the demand for IT?

Demand for digital is going up all the time. But as digital demand is going up, pressure on legacy IT continues. We feel that we work with all the Fortune 500 clients on digital at scale, then we have the opportunity of framing their digital strategy and at the same time we are also able to help them carry out a huge transformation in terms of digital systems and technology model transformation.

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