layoffs: Cognizant to lay off around 3,500 employees as part of rejig programme

Cognizant on Thursday said it is going to terminate around 3,500 employees or 1% of total workforce and also rationalise its office spaces in a bid to cut costs in what is being seen as a challenging time for the IT services sector.

Layoffs at Cognizant follow that of Accenture, which in April announced that 19,000 employees would be let go globally.

“This (employee impact) will be across corporate functions, overheads who are non-billable workforce. Similarly, the real estate will be a structural shift in our costs. Not more than 10-15% of workforce come to offices in every company in India. Also, 30-40% of Indian IT workforce is in tier II and III locations. They have not come back. I have to create social capital in those cities,” CEO Ravi Kumar told ET.

The layoffs were happening as a result of a two-year rejig programme to the tune of $400 million, the company said.

The Teaneck, New Jersey-based software exporter which has a large portion of its operations out of India said the personnel-related actions of this programme would impact the employees and would also hurt operating margin for the year by up to 180 basis points in the current fiscal.

The company said it would incur $200 million in employee severance and other costs, which it said is primarily related to nonbillable and corporate personnel and expects to mostly incur in 2023.

Cognizant saw its headcount decline by 3,800 at the Q1FY23 from Q4FY22, and it now has a total of 351,500 employees. The company used to previously report its involuntary attrition numbers, but has changed its reporting metric this quarter.

Voluntary attrition on a trailing-twelve-month basis has declined to 23% from 26%. This figure relates only to tech services employees.

Kumar said Cognizant was ‘carefully monitoring’ what remains an ‘uncertain macroeconomic environment’ but said it remained optimistic about its long-term opportunity within the IT services market.

Speaking about the company’s drive for simplification, he said it would provide an opportunity to rationalize the workspaces across the world and especially in India’s largest cities where Cognizant was distributing some real estate to smaller cities to expand and to modernize some existing space. This reduction and expansion in smaller cities, primarily in India, is in support of Cognizant’s hybrid work strategy.

The company’s NexGen program includes $200 million of costs related to the consolidation of office space and approximately $150 million in 2023 and $50 million in 2024.

Cognizant does not anticipate these real estate actions will begin to generate savings until 2024 but by 2025, the company said it expects to reduce its annual real estate costs by approximately $100 million versus 2022.

“We expect the structural shift in our real estate costs to help eliminate 80,000 seats and 11 million square feet in large cities in India,” he said.

“This shift will also enable us to invest in collaboration spaces in smaller cities while creating structural savings for the future that we can invest in our people and growth opportunities. We expect this program to help enable us to deliver margin expansion in the range of 20 to 40 basis points in 2024 while supporting a large deal pipeline.”

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