Wipro seeks to save $300 mn in FY16 using automation, artificial intelligence

Bengaluru: Wipro Ltd may save $300 million (around Rs.1,900 crore today) this fiscal year by using automation and artificial intelligence (AI) in work like software testing, thus reducing the number of people deployed in these basic projects.

The attempt by India’s third-largest software services exporter to save about 20% of its $1.4 billion net income comes after it saved $200 million in 2014-15 by freeing many of its 158,000 engineers from manual, repetitive work in the more than 18,000 projects it does for its customers, two executives said.

“Last year, we reduced our operational expenses by about $200 million. This year, the target given to all heads is to make sure the company saves at least $300 million,” one of them said. “Under the three-year journey, where the focus is clearly on hyper automation and AI, we want to have industry-leading margins.” Both executives declined to be named.

The three-year road map is part of chief executive officer (CEO) T.K. Kurien’s plan to make the company lean by paring its workforce by about a third without resorting to mass layoffs of the kind that global technology giants such as International Business Machines Corp. and Microsoft Corp. announced last year.

Wipro wants to replace the so-called pyramid structure, which entails more people doing basic technology work, with an alternative system under which experienced engineers are engaged in value-added work. This is Wipro’s most ambitious reorganization effort since it first started selling computers in 1981.

An email sent to Wipro on Friday did not elicit any response.

Given that Wipro had an attrition rate of 16.5% in 2014-15, translating into about 26,000 employees leaving the firm in the fiscal year, the management says it does not have to issue pink slips to any employee and can selectively replace people who leave.

“On delivery, we see hyper automation reduce cost of operations significantly. In three years, people deployment will come down by 35% for the same scope of work,” Kurien told analysts in March in New York.

Wipro cut down a project’s processing time by over 90% and deployed 70% fewer engineers to execute it by using “hyper automation technologies”, Kurien said in a presentation shared with analysts.

Kurien, who took the helm in February 2011, along with its new chief operating officer Abid Ali Neemuchwala, are understood to have given “certain targets” to all service line heads to “hyper automate” work, the second executive said.

The company has a team of 250 executives that over the past two years has been working on building next-generation technology platforms focused on AI, with the firm having already started using some of them in a few of its service lines, including infrastructure management.

Wipro’s ambition of achieving industry-leading operating margins comes as cross-city rival Infosys Ltd pursues an audacious target of increasing profitability by more than four percentage points to at least 30% by 2020. Wipro ended the year to March with an operating margin of 22.2%, while Infosys reported a margin of 25.9%.

The poster boys of India’s $146 billion information technology (IT) sector are increasingly looking to free engineers from doing repetitive tasks, such as adding an update to a software application, and are working on latest technology platforms that will cut headcount and time, and make them more efficient. Infosys and Wipro have more than 200,000 engineers working on their delivery-side business, including software testing, managing IT infrastructure and writing code for customers.

“T.K. (Kurien) told us that the company plans to save $300 million,” said Peter Bendor-Samuel, founder and CEO of advisory firm Everest Group, after Kurien and Wipro executives met with analysts in Germany last month.

Since most large software services exporters generate more than 60% of revenue from the US, a stronger dollar aids their profitability as the vendors bill their clients in the US currency.

However, despite the rupee weakening by close to 40% in the past five years, operating margins at most technology firms have been declining, hurt primarily on account of pricing pressure in the commoditized outsourcing deals.

“It’s time that firms start showing what benefits they are getting from all this talk of automation and AI. It is another lever to increase profitability,” said a Mumbai-based analyst working at a foreign brokerage firm. The analyst requested anonymity.

Some experts are sceptical about the numbers, saying it’s difficult to quantify the savings made by embracing new-age technologies.

“On the one hand, Wipro (like most of its peers) had so far been very coy on the topic of process automation, presumably because nobody has yet a clear sense of the impact on revenue models. On the other hand, these statements appear to assume a significant traction in the market. At this point, the market is still in its infancy and services providers need to start educating the market on the implications of process automation,” said Thomas Reuner, managing director of IT outsourcing research at consulting firm HfS Research. “The introduction of Wipro’s cognitive platform Holmes could be a catalyst for doing exactly that.”

“However, the critical context should be the transformation of knowledge work and not just narrow notions of eliminating jobs,” Reuner said. “In parts, T.K. Kurien addressed this as he outlined that the envisaged 30% reduction in headcount would be addressed by both re-deployment and attrition.”