Cognizant to lay off 3,500 employees and reduce office space to save costs

The New Jersey-headquartered IT giant Cognizant, whose operations are largely based in India, has said that it will lay off 3,500 employees and also give up millions of square feet in office space to save costs.

According to media reports, the company, which gets a majority of its revenues from the US, has also said that its revenues are expected to decline in 2023 due to the ongoing distress in the IT services industry.

The layoffs and reducing office space are some of the new measures to be undertaken by newly-appointed CEO Ravi Kumar S, who faces a huge challenge to revive the leading software exporter, who competes with companies like Accenture, TCS and Infosys, said a report in Money Control. Kumar had taken over on January 12 as CEO, after former CEO Brian Humphries was “involuntarily terminated” in a surprise move.

Revenues and profits

For the full year, Cognizant has provided revenue guidance of $19.2 – $19.6 billion. It represents a decline of -1.2 percent to 0.8 percent in reported terms or a growth of -1 per cent to 1 per cent in constant currency. In constant currency, the company predicts sales of $4.83 – $4.88 billion in the second quarter, a decline of -1.6 percent to -0.6 percent.

Also read: Cognizant names former Infosys president Ravi Kumar as CEO

Though the IT software services industry is facing several headwinds, this Nasdaq-listed IT major reported a 3 per cent increase in net profit on a year-on-year basis at $580 million and the profits went up by 11.2 percent. The company recorded a revenue of $4.81 billion, a decline of 0.3 percent year-over-year, or grew 1.5 per cent in constant currency, beating its guidance of where it expected revenue to be in the range of $4.71-$4.76 billion.

The layoffs

The layoffs at Cognizant come on the heels of Accenture’s announcement that it will let go of 19,000 people. As part of Kumar’s measures to enhance operating discipline, 3,500 jobs will be impacted in the company.

The company’s move to simplify its operating model and optimise corporate functions will be done under its NextGen programme, which will be flagged off in the next quarter of FY23. Under this programme, Cognizant will operate with fewer layers to enhance agility. In connection with the programme, the company expects to record costs of approximately $400 million with approximately $350 million of such costs anticipated in 2023 and approximately $50 million in 2024.

The company expects the NextGen program to impact around 3,500 employees.

Also read: IBM to freeze hiring, replace 7,800 jobs with AI: CEO

According to the company, their drive for simplification will include operating with fewer layers in an effort to enhance agility and enable faster decision making. We expect the savings generated by the programme to help fund continued investments in our people, revenue growth opportunities and the modernisation of our office space, added the company.

It will cost the company $200 million for employee severance and other expenses, which it said is primarily related to nonbillable and corporate personnel, and which they expect to mostly incur in 2023.

Cognizant will also consolidate and realign office space in sync with the “post-pandemic hybrid work environment”. By doing so, the company hopes to reduce $100 million in real estate costs by 2025, as compared to 2022.