Wipro banking on Holmes to become more profitable
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Bengaluru: Wipro Ltd expects its artificial intelligence platform Holmes to offset the pricing decline in commoditized outsourcing contracts, a development that could help India’s third-largest software services firm arrest falling profitability in the current financial year.
“We are currently deploying Holmes very aggressively,” K.R. Sanjiv, the chief technology officer at Wipro, said in an interview.
“Overall profitability is a function of many things, the pricing, how we structure the contracts. But certainly hyper automation should result in a beneficial impact and you can see the first meaningful impact by the end of March 2017.”
The comments should bring some relief to Wipro investors. The company’s operating margin fell to 17.8% in the June quarter from 19.7% in the three months to March.
Sanjiv declined to give details, including the number of projects in which Wipro is using Holmes or the exact quantum of profitability improvement tied to it. The company usually does not give any annual outlook on revenue or profit.
Wipro’s thrust on automating tasks, replacing engineers with intelligent platforms, is one of the six strategies laid out by chief executive officer Abidali Neemuchwala to put the company back on the growth track.
For the past few years, Wipro’s growth has lagged behind that of its larger rivals; in the year ended March, the company posted dollar revenue growth of 3.7%.
According to Wipro’s internal plans, the management expects to save up to $46.5 million and free up around 3,000 engineers from mundane software maintenance activities, and also generate $60-70 million in revenue by selling platform-based solutions to new and existing clients in the current financial year.
Sanjiv, who declined to disclose the savings projected by Wipro, said it is working on a two-pronged strategy under which it will automate tasks in managed service projects and also sell Holmes-based solutions to clients.
Holmes, or “heuristics and ontology-based learning machines and experiential systems”, is an intelligent platform, which promises to bring efficiency for clients by reducing errors.
Also, it helps Wipro save on wage costs by deploying fewer people to complete a task. “We are implementing Holmes to bring productivity, which straight away goes to our bottom line. By automating, we are increasing productivity of our people. We are taking Holmes-based solution into the market,” said Sanjiv.
Like Wipro, larger rival Infosys Ltd, too, expects to see the automation-related productivity boost to reflect in a meaningful way only from April 2017.
Home-grown technology firms are aggressively embracing automation platforms to retain profitability as most of the large outsourcing contracts are seeing pricing pressure.
Both Infosys and Wipro have made their proprietary technology-backed automation and AI-powered platforms like Mana and Holmes, respectively, the cornerstone of their long-term goals.
Infosys aims to improve its operating margins from the current level of 24.1% to 30% and increase its revenue from $9.5 billion to $20 billion by March 2021. Wipro aspires to improves its margin to 23% and increase its revenue from $7.35 billion to $15 billion by March 2020.
The embrace of automation tools by Indian IT firms could have wider consequences, according to experts.
“The emergence of intelligent automation underlines the disruption that is about to hit the supply side,” said Thomas Reuner, managing director of IT outsourcing research at HfS Research.
One of the big gains of large-scale adoption of automation tools is incremental growth in business for home-grown technology firms, which can deploy engineers to work in newer projects.
This particularly helps in the latter half of the calendar year when decision-making on traditional outsourcing contracts gets pushed back due to the year-end holidays.