Demand environment for IT budget flat to negative: Wipro CEO

Abidali Neemuchwala, who will take charge as the new CEO starting February, said his focus would be on strengthening the frontline team.  “Consultative selling and demand creation is our focus,” he said.Below is the transcript of TK Kurien, A Neemuchwala, Jatil Dalal and Saurabh Govil’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: The performance has come at the dollar revenue at the lower end of your guidance. That is a bit of a disappointment. If you can tell us what caused this lower performance?Kurien: Very quickly, I just want to clarify that. What we have done is that we have come in at the mid-point of our guidance in constant currency. And, if you look at our growth, versus our peers, we seem we are more or less in line or above the guidance we have given. So, to that extent, it has been a fairly satisfying quarter. The most important part of it is it has been a quarter where we have had tremendous headwinds. We started the quarter knowing we had headwinds in terms of furloughs. We were completely surprised by what happened in Chennai and I do not think people have understood the magnitude of what happened in Chennai. Our facility was under 11 feet of water with 20,000 people affected by that. We had to relocate 10,000 people. 7,000 of them had to be flown out of Chennai. That has clearly impacted our margins. We have managed to kind of mitigate the impact to a large extent on the topline, but the margins have been affected by that. Plus, in terms of deal wins, we have had six new deal wins this quarter and this has been one of our best quarters in terms of new deal performance. We have done well on our digital site, our digital growth has been in double digits and it is not the low teens when it comes to double digits. It has been a decent growth. And this is the third quarter where we have had growth. In terms of automation, we have today managed to take out 4,000 people out of our headcount and those people today, are sitting on our bench and they are getting redeployed. So, in many ways, it has been a performance where we have done well in the quarter. We have invested in the long-run to make sure that we do not give us growth in the future and plus, from an economic perspective, we have looked at markets that are going to grow and aligned our acquisition strategy to that.So, overall, fairly, I am quite satisfied with the quarter itself.Sonia: I wanted to start by asking you, once you take over as CEO, what would your strategy be and how will the business model likely change once the transition process takes place?Neemuchwala: It is a privilege to start leading Wipro from February 1. Right now, we are putting together an ambition and a strategy that that I am working with my top leadership team. What I can tell you is that I have been helped with a very stable team and we have within Wipro, certain strengths which take us through a cusp of an opportunity in terms of how technology is changing. Wipro has been always a very technology, innovation, pioneering and engineering organisation and all of these are things that are required to be able to dominate in the digital future, so as we put together the strategy, I am also focusing on our plans on rigorous execution of that strategy.In the next 1-1.5 months, as we put that together, I will be ready to speak publicly about it. Right now, we are working with our teams, and our teams are very diligently working on putting together a four year ambition. I think, there will be a level of continuity in our strategy, both on the run side where we will look at how do we drive industrialisation, how do we drive simplification for our customers and how do we make cash available to our customers to be redeployed on the digital transformation and change side of the business. We are investing on digital, we are investing in mergers and acquisitions (M&A), we are also investing in intellectual property (IP), so that we can take solutions across tax to our customers to be able to provide them a faster time to market in digital transformation.Reema: This will be the last time perhaps, you will be explaining about the guidance, so let me ask you this. What has gone into the Q4 guidance of 2-4 percent A] in terms of the demand environment and B] in terms of the contribution of the recent acquisition? If you could also tell us what the organic guidance would have been. Kurien: Let me quickly break up the question into two. One is in terms of what is the demand environment by itself. The demand environment, the way we see it is it is going to be I would say flat to marginally negative when it comes to total IT budget, at least that is the first indication that we are getting from customers. And the reason behind that is pretty simple. We are seeing that there is going to be pressure on US companies, primarily because of the stronger dollar. US profitability is going to get affected and to that extent, we see increasing opportunities for cost consolidation in our customer base. That is one big thing that we see happening as far as the US is concerned. Europe, we see a little different kind of a scenario playing out. We are going to see European corporate profits going up and to that extent, primarily because of the weaker euro, and we see more elbow room, if you may, for discretionary expenses. As far as Asia is concerned and emerging markets are concerned, frankly, emerging markets that are commodity led, we have seen the end of one massive commodity super cycle, and to that extent, we see emerging markets under pressure. Places like India which has been a strong part of our portfolio, we are still hoping to see purse strings kind of opening up and for India especially, with the low oil prices, we have a historic opportunity to do more on the capital side.So, overall if you look at it, flat to slightly negative. If you look at the budget break up between run and change, we see the run business being under pressure, we are seeing increasing amount of reallocation happening from the run side of the budget to the change side of the budget. And the change side of the budget, we see digital and security as being the two biggest areas of opportunity.As far as the guidance for the next quarter is concerned, I will not go into the specifics, but broadly, if you look at our Q3 performance in terms of new deal wins, that is reflected in our guidance for Q4. Now, in terms of the execution focus that Abid Ali Neemuchwala is going to bring, that is going to transform the organisation in many ways, because I guess, from a leadership transition perspective, when I took over the role, the top three questions were very different from the top three questions that I have today. Then it was all about attrition, customer satisfaction and the fact that leadership transition was messy. Now, we are sitting in a place where leadership transition is smooth, attrition is the question that nobody really asks for and as far as client satisfaction is concerned, year-on-year we have grown client satisfaction, so it is a very different environment.But, what we need now is the nuts and bolts of execution. And having known Abid for the past two years, all I would say is that he is the right person to lead the company into the future, he just brings very complimentary skill-sets that I did not have that he has. And to that extent, I think it is going to be a huge positive having him here in Wipro leading the company.Reema: To Abid now, the first few questions have to be on energy, because energy revenues in dollar terms have declined for five straight quarters for Wipro. For how many more quarters do you see pain? When do you expect it to bottom out?Neemuchwala: I wish I knew the answer for oil prices. Every time we thought that oil prices will stabilise and hence our energy and utility customers will start spending, the oil price goes down further. As you know, it has touched under USD 30 per barrel. So, the good news in there is we will stay the course. We have unique strengths in the energy and utility segment. We dominate the market. We are also focused on the share of the valet in a lot of vendor consolidation that some of our large clients have undergone. We have been on the positive side of the vendor consolidation and we are able to dominate the space in some of our large oil companies. I think the commodities business cycle, while it takes longer, it will definitely bottom out. As the production levels in some of the Organization of the Petroleum Exporting Countries (OPEC) countries goes down, we do see uptick in oil prices and when the spending starts, we will see our oil and energy and utilities business coming back.Sonia: I have one follow up question. Would you at any point think of changing priorities, perhaps, towards verticals, perhaps increasing your presence in the Banking, Financial services and Insurance (BFSI) space or something that your other peers have done and reducing in both energy and in telecom that has also been a sore point?Neemuchwala: Let me tell you, as we sit together and brainstorm and we have had a few sessions already and we are in the process of formalising it, there is nothing in the organisation that cannot change. So, we are looking at all the aspects whether it is focus on certain verticals, focus on geographies, investments and M&A, looking at various service lines, developing intellectual property, all of those things on a very holistic basis are under consideration. And when I am ready to speak about them, I will talk to you about it.Latha: Still, what your investors would want to hear from you is what might be different. What is the spaces in which you want to change either priorities or culture or the way of doing things. Would it be something like a zero bench? What would be the initial vision or goals that you would chase?Neemuchwala: That is a great question. From a culture perspective, some of the things that, I have been in the company already for nine years, so I will stay the course, so we have simplified the organisation and we will continue to empower our frontline, our client partners at the customer. We will increase the level of consultative selling and demand creation that we do because historically, we have been a very strong hunting organisation which reflects our strength in demand capture. We are investing now in the frontline to do more of demand creation which them helps us to do better farming at the customer. We have empowered our frontline teams and accounts to carry the bench with them, which helps us invest in our customers ahead of time. For example, the 4,000 people that we are training which have come and you see a dip in the utilisation, they are being trained on accounts specific technology stacks, so that they can be of value to our customers. So, a lot of focus on empowering our frontline teams, simplifying our organisation, improving the velocity and the agility of the organisation so that we start looking more like a startup and we are able to respond to our customers’ needs, highly customer-centric, flawless execution when we take engagements. We have been pioneers in being able to deliver what we call as the distributed agile model where all digital deliveries happening through that and we dominate some of the customers’ engagements in the banking, financial services industry and the retail industry, bringing in complimentary skills so that we are an end to end provider to our customers. Designit is a very good example where not only we bring technology strength, but also bring design strength and creativity to be able to re-engineer the user experience within our customer. So, all of these will essentially form part of our strategy and I talked about IP development because as we go forward, the business model is going to change significantly. It is going to be as a service business model where IP developed by us and embedded into the solutions and services that we provide. We will continue to invest in Wipro Holmes which is a very superior product in terms of hyper automation and augmented intelligence. We have already got some very successful pilots and some live sites now. We have got about 12 engagements which are ongoing where we have deployed Holmes in different use case, across different industries. And all of that, we need to accelerate and scale up and as TK Kurien rightly mentioned, the key will be in terms of execution of our strategy.