Cognizant, the US-based IT services company with a significant presence in India, has announced plans to lay off around 4,000 workers, which amounts to approximately 1% of its total workforce. The move comes as the firm looks to reduce costs by $500m after its revenues failed to meet market expectations during the last quarter. Cognizant has reported bookings growth of 28% in Q1 2021, and bookings rose 9% to $25.6bn on a trailing 12-month basis, representing a book-to-bill ratio of around 1.3x. However, the company’s Q1 revenue declined 0.3% YoY to $4.8bn.
The reduction is part of the company’s NextGen program, designed to streamline operations and improve decision-making. The program aims to simplify the company’s operational model, consolidate corporate functions, streamline office space, and accelerate digital capabilities to help generate cost savings. Cognizant expects to record costs of approximately $400m for the program, with a large proportion of expenses expected to be incurred in 2023.
The primary goal of the program is to facilitate a reduction of around 11 million sq ft of real estate and 80,000 seats in India by 2023, alongside an annual reduction of approximately $100m in real estate costs by 2025. Cognizant CEO Brian Humphries anticipates slowing revenue growth in 2023, and the cost-cutting program aims to address this issue.
The company has noted that the layoffs are not related to employee performance. Instead, the firm is attempting to simplify and optimize the organization to focus on higher-growth areas. Cognizant recently awarded its staff three pay rises within the past 18 months. However, the program’s ambitious goals aim to transform the company and improve overall profitability.
Cognizant’s attempt to restructure and reduce costs again illustrates the challenging economic climate faced by many companies worldwide due to the COVID-19 pandemic. The company anticipates significant cost savings from its NextGen initiative beginning in H2 2023, and real estate changes are expected to generate savings in the following year.
In conclusion, Cognizant is planning to reduce costs by $500m in the coming months. The company will lay off approximately 4,000 employees, equivalent to about 1% of its workforce. The layoffs will not be based on employee performance but rather to streamline corporate functions and optimize the organization. The NextGen program, which involves employee severance and office space consolidation, is expected to generate cost savings. Cognizant is committed to returning around $1.4bn to shareholders in 2023 through share repurchases and dividends.
