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Tale Of 2 Icons Nokia Cognizant

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A small caselet. Good for Management discussions

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Tale Of 2 Icons Nokia Cognizant

  1. 1. An interesting pair : One was undisputed and perceived to be Invincible. Other, a young organization giving sleepless nights to the top 3 Indian IT firms. A must read. (Will love to hear your views. Happy reading)Leaked memo from CEO: Our platform isburningWhat Nokia boss Stephen Elop told his staffFeb 11, 2011 1:41 AM | By Times LIVESThere is a story about a man who was working on an oil platform in the North Sea. He woke upone night from a loud explosion, which suddenly set his entire oil platform on fire.BOLD STEP: Nokia CEO Stephen ElopHello,He barely made his way out of the chaos to the platforms edge. When he looked down over the edge, all he could see were the dark,cold, foreboding Atlantic waters.The man had mere seconds to react. He could be consumed by the flames. Or, he could plunge 30m in to the freezing waters.He decided to jump. After he was rescued, he noted that a "burning platform" caused a radical change in his behaviour.We too, are standing on a "burning platform", and we must decide how we are going to change our behaviour.And, we have more than one explosion - we have multiple points of scorching heat that are fuelling a blazing fire around us.For example, there is intense heat coming from our competitors, more rapidly than we ever expected. Apple disrupted the market byredefining the smartphone and attracting developers to a closed, but very powerful ecosystem.In 2008, Apples market share in the $300+ price range was 25%; by 2010 it escalated to 61%. It is enjoying a tremendous growthtrajectory with a 78% earnings growth year over year in Q4 2010. Apple demonstrated that if designed well, consumers would buy ahigh-priced phone with a great experience and developers would build applications. They changed the game, and today, Apple ownsthe high-end range.And then, there is Android. In about two years, Android created a platform that attracts application developers, service providers andhardware manufacturers(Read Speed here…). Android came in at the high-end, it is now winning the mid-range, and quickly it is goingdownstream to phones under à100. Google has become a gravitational force, drawing much of the industrys innovation to its core.Lets not forget about the low-end price range. In 2008, MediaTek supplied complete reference designs for phone chipsets, whichenabled manufacturers in China to produce phones at an unbelievable pace. By some accounts, this ecosystem now produces morethan one-third of phones sold globally - taking share from Nokia in emerging markets.
  2. 2. While competitors poured flames on our market share, what happened at Nokia? We fell behind, we missed big trends, and we losttime. We thought we were making the right decisions; but we now find ourselves years behind.The first iPhone shipped in 2007, and we still dont have a product that is close to their experience[3 years and still not done]. Androidcame on the scene just over two years ago, and this week it took our leadership position in smartphone volumes. Unbelievable.We have some brilliant sources of innovation in Nokia, but we are not bringing it to market fast enough. We thought MeeGo would be aplatform for winning high-end smartphones. However, at this rate, by the end of 2011, we might have only one MeeGo product in themarket.At the midrange, we have Symbian. It has proven to be non-competitive in leading markets like North America. Additionally, Symbian isproving to be an increasingly difficult environment in which to develop to meet the continuously expanding consumer requirements,leading to slowness in product development and also creating a disadvantage when we seek to take advantage of new hardwareplatforms. If we continue like before, we will fall even further behind.At the lower-end price range, Chinese OEMs are cranking out a device much faster than, as one Nokia employee said only partially injest, "the time that it takes us to polish a PowerPoint presentation". They are fast, they are cheap, and they are challenging us.And the truly perplexing aspect is that were not even fighting with the right weapons. We are still too often trying to approach each pricerange on a device-to-device basis.The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of thedevice, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unifiedcommunications and many other things. Our competitors arent taking our market share with devices; they are taking our market sharewith an entire ecosystem. Were going to have to decide how we either build, catalyse or join an ecosystem.This is one of the decisions we need to make. In the meantime, weve lost market share, weve lost mind share and weve lost time.On Tuesday, Standard & Poors informed that they will put our A long-term and A-1 short-term ratings on negative credit watch. This is asimilar action to the one that Moodys took last week. During the next few weeks they will make an analysis of Nokia, and decide on apossible credit rating downgrade. Why? Because they are concerned about our competitiveness.Consumer preference for Nokia declined worldwide. In the UK, our brand preference has slipped to 20%, which is 8% lower than lastyear. That means only one in five people in the UK prefer Nokia to other brands. Its also down in traditional strongholds: Russia,Germany, Indonesia, UAE .How did we get to this point?At least some of it has been due to our attitude inside Nokia. We poured gasoline on our burning platform. We have lackedaccountability and leadership to align and direct the company through these disruptive times. We had a series of misses. We haventbeen delivering innovation fast enough. Were not collaborating internally.Nokia, our platform is burning.We are working on a path forward - a path to rebuild our market leadership. When we share the new strategy today, it will be a hugeeffort to transform our company.The burning platform caused the man to shift his behaviour, and take a bold and brave step into an uncertain future. He was able to tellhis story. Now, we have a great opportunity to do the same. - Stephen
  3. 3. atfl1~esfl1eproud we fl1ade. significant gr ,. •• OR Francisco DSouza, 42, who joined Du~ & m In the long run, he who F Bradstreet as a management associate nearly twcf decades ago, rising through the ranks at Cognizant Technology Solutions has been a long and arduous journey. DSouza, who took over as the CEO ofCog· nizant in January 2007, now considers managing growth as his biggest challenge and says his company will continue to grow better than rivals. Excerpts: What measures that Cognizant would be taking in the coming days to maintain, or even improve, mar- gins? With demand in the IT segment picking up has the best customer How sustainable is this growth at Cognizant? companies are facing bumps like high attrition and The answer to this question should be separated into two wage inflation? How are you going to face this? called th• • relationship will win. parts. The first one is the business modeL As we already We feel very comfortable with our ability to manage our technolo You need to have the repeated in our earnings call because of our strategy of margins in the 19-20%, non GAAP operating margin their life, reinvestment. That is the ability that we had in maintain- range. As long as we run the business there are head- nessmo right set of customer ing our operating margins, non-GAAP operating margins winds and tailwinds to the margins. Wage inflation is not inglyvirtt in the 19-20% range rod then reinvesting everything something new. It is something that v.!ehave dealt in the ing togeth relationships and the back into the business. What I think is we have an archi- past. We have a series of levels that we thJDk we can use to markable • right set of services and tectural kind of growtli because we are able to mvest m offset that including price increase which we have been working over the last few years, In 2010, during Me We are at that this ( ~owth opporturuues ahead of where many of our com- capabilities to keep petitors can. , fourth quarter we had an upward bias in pricing. We will sawwher We manage margins to a target level and then invest have the same trend , 2011 as well. in At Cog long-lasting customer for growth. But again having the fundamental architec- people, " ture isnt necessarily enough. What matters is are you in- Your rivals like Infosys and Wipro have witnessed a And that I relationships. I also vesting in the right kind of opportunities that are going to shift in leadership in the recent past Many others very clos deliver that growth and where you elm get your return are have been talking about management change. proactive think the global on investments that youre making. This is the second Is Cognizant looking at anything like that? Can we things me delivery model among I part of the story at Cognizant and the industry overall, see some structural changes at Cognizant? involved We are very much at a point of inflection -- both in our For us, it all starts with the client. First and focemost, kDowhm the top firms needs to minds as well as in our industry. Historically, if you look youve got to understand what is going on with your walk a ill back we think that economic recession has actually been . dients, You got to be able to understand whats hauuen- againstth be a differentiator. a catalyst for reaching this point of inflection. You can go ing in the marketplace and then translate that into a set at ers who ( back to the recession of the 1990s, you can look at the 9fferings for the marketplace. ~ There are some things dotcom recession which catalysed the industry further. We fundamentally believe that our industry is going The recession thatwe are coming out of isanother catalyst through a point of inflection. This point of inflection is be- lbere is that we do , for another point of inflection. Coming out of this recession, ing driven by three big trends that we collectively refer to woes in I differently when we see two ortbree big trends thatare going to drive growth. as Future of Work. The three new trends are a whole new Its very ir And we think that at Cognizant, we have made the right set of technologies that are available in the market like revenues, compared to others kind of investments to capitalise on those growth opportu- cloud computing, sodal computing, mobility and so on. the UK an nities going forward. So, overall we feel very optimistic. You see a whole new set of consumers and workers maryfoot
  4. 4. meprou is iliat in 2010, I.ificant gro ,flawlessly. And when we spoke to our clients in those coun- I tries, we realised that the challenges in the euro zone dont appear to be having any impact on their ded- sion making. There was no major shift in their IT I budgets or their plans for 2011. But certainly it is a concern. I was at the World Economic Forum two weeks ago and spent time with business leaders from I Europe and other parts of the world. , Certainly is it a concern but I dont see clients tight- ening or slowing down their IT budgets and spending I pattern as a result of whats unfolding in Europe right now. This is something that we want to keep an eye on but at this point of time we dont see clients pulling back or slowing down. You have been on the right side of re~overy - es- pecially in the banking and financial verticals. And since you are focused on a select few verti- cals with over 70% business coming from the US, is that a good balance to have? . We have to look at this in two pieces - when we think about the vertical strategy we are very comfortable with our current footprint of verticals. There is still a tremendous amount of growth still left in deepening our penetration in these verticals that we serve today. So, I dont think we are going to significantly see an expansion in our footprint when it comes to verticals. But we will explore areas that are adjacent to our current verticals. For example, in healthcare we have not really served the provider market. We have started looking at it now as a source of growth. We feel good that our invest- ment cycle in Europe is coming to tail end and we have established a good footprint in Europe at this. point of time. m Around 18 to 24 months ago, we turned our attention to Asia, the Middle East and Latin America as the new growth geographies for the company. And Im quite hap- py that ill a relatively short period of time these new ge- As long as we are investing ahead of com etition and if ographies are contributing to the companys growth.we able to grow aster t an e mar et over it is sus- We fundamentally believe that our industry is During the quarter, 77.2 % of revenues came from clientstainable. The market opportunity is vea large and under in North America, Europe was 19.2% of total revenuepenetrated~ As far as there is market for growth we can going through a point of inflection. ThiS point while 3.6% came from the Asia-Pacific, Middle Easternw.ow faster than our competitors. of inflection is being driven by three big trends and Latin American markets.What measures that Cognizant would be taking in that we collectively refer to as Future of Work The way companies are changing models and re-the coming days to maintain, or even improve, mar- FRANCISCO DSOUZA structuring operations, it looks like a make orgins? With demand in the IT segment picking up break year. What will decide who wins?companies are facing bumps like high attrition and Ip the long run, he who has the best customer relation-wage inflation? How are you going to face this? called the millennial generation that has grown up with ship Will win. You need to have the right set of customerWe feel very comfortable with our ability to manage our technology and use technology as a very natural part of relationships and the right set of services and capabilities I _margins in the 19-20% non GAAP operating margin their life. And then you have a new generation of busi- to keep long-lasting customer relationships. I also thinkrange. As long as we run the business there are head- ness models that are increasingly globalised and increas- the global delivery model amongst the top firms needs towinds and tailwinds to the margins. Yage inflation is not ingly virtual. So, you have got these three big trends com- be a differentiator. There are some things that we do dif-something new. It is something that.,Je have demt the in ing together and we call these the Future of Work. Its re- ferently when compared to others.past. We have a series of levels that we thiIiJ( we can use to markable to watch the role that technology has played. Our Cognizant 2.0 platform is a significant differentia-Offsetthat including price increase which we have been We are at the cusp of a point of inflection and, we think tor. The global delivery model is necessary but no longer Iworking over the last few years. In 2010, during tIfe that this change is going to be as big as the shift that we sufficient. In terms of building customer relationships, dofourth quarter we had an upward bias in pridng. We will saw when the internet first came out. you have the ability to continue to invest to stay relevanthave the same trend in 20 11 as well. At Cognizant, we are looking for people, and we have to your customers and bring in new services to market, to I people, who are deeply connected with the customers. innovate with new products and services and consulting,Yourrivals like Infosys and Wipro have witnessed a And that has been a fundamental thing for Cognizant. Be programme management that are necessary to competeshift in leadership in the recent past. Many others very close to the customers. Our consulting team to . on a global scale. If you can do these things then you canare have been talking about management change. proactively go to clients and understands how to deploy drive a degree of customer intimacy which is necessary toIs Cognizant looking at anything like that? can we things more effectively. Start with leaders who are deeply succeed in the long run.see some structural changes at Cognizant? involved with the customers. And leaders who wouldFor us, it all starts with the client. First and foremost, !mow how to putthemselves in the customers shoes and What,keeps you awake as a leader? ~youve got to understand what is going on with your walk a mile. This translates into the ability to execute Growth continues to be a key challenge that we are al-clients. You got to be able to understand whats happen- against these new opportunities. We are looking for lead- ways managing. One thing that makes me proud is thating in the marketplace and then translate that into a set at ers who caD. stay connected with customers and at the in 2010 we made significant growth, flawlessly. Growth9fferings for the marketplace. same time make good changes. came back much faster than we had antidpated. ~ We fundamentally believe that our industry is going , we came into the year we antidpated a growth of 20%through a point of inflection. This point of inflection is be- There is a lot of concern over macro-economic year-on-year. Butat the end of the year. we did 40% yearing driven by three big trends that we collectively refer to woes in Europe. How are you coping with this? on year growth. Iwill never take my eye off the growthas Future of Work. The three new trends are a whole new Its very interesting. If you look within Europe and at our and managing the growth. Cognizant is well positioned:set of technologies that are available in the market like revenues, 20% ofitcomes from Europe. Itis 50:50between to capitalise any opportunity that comes our way.cloud computing, sodal computing, mobility and so on. the UK and the Continent. And within Continent, our pri- You~eawhmenewsetofcon.~~~mn~llk~ __ ~~~~~~a£wll~~~~~~~~~u- ~~~;~HA~UU~~dW~~LW~Uil~ _

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