Software services companies are shifting their focus towards digital solutions with market forces driving their customers to become digital enterprises. Digital, for instance, contributed to 39.6% of Wipro Ltd’s total revenues. In an interview, Jatin Dalal, chief financial officer, Wipro, shares the initiatives taken by the company to boost its digital business and improve margins. Edited excerpts:
What initiatives has Wipro taken to achieve higher growth, and what is your role as the CFO?
One key strategy we embarked upon is what we call the big bet strategy, wherein we have four areas—digital, cybersecurity, engineering and cloud—which will drive disproportionate growth for the industry and for the company. So, we are investing in a big way in all of these.
Clearly, the role of the CFO is to balance growth—capital or growth expense that some of these entities need. We have to balance the need for the investment and also have the right calibration so that the investment is most productive.
The second initiative is clearly around the big deals, because our business has, what I call, the normal flow of businesses. And, on top of that, if you want to grow faster, you will have to do a few large deals. You have to maximize the value for your customer and for yourself. That’s very clear, and these are the two big initiatives. Both are very critical for the organization’s future growth prediction.
How do you compare the demand environment for your traditional business, versus digital?
The demand environment is superior for the new-age businesses, which is reflected in the growth rates. For example, digital has grown 29% year-on-year. Cybersecurity has also grown similarly. So, clearly, growth rates in the new-age businesses are very different. Therefore, the demand environment is certainly superior to the traditional services.
What about the deal sizes of the digital businesses?
Whenever we start a new service, we start small-scale because our customer is also sort of experimenting and learning as we go. So, the deal sizes are certainly smaller, but that doesn’t mean the scope is small. It’s just being tendered out in smaller chunks. But effectively, it’s still a large piece of work that goes digital, and it is a way of developing an experience for either the internal or external customer. Currently, digital contributes to 39.6% of our revenues.
What are you doing to improve margins?
One big lever is, of course, utilization. Second lever is automation on work done by bots. In the parameters we use, in the June quarter, it was 15.3%, which is now 16.5% for our fixed price projects. This means 16.5% of what was traditionally done by humans three or two years ago, is now being done by bots. The trend will only continue.
The third lever of operating margin is clearly the pyramid structure. No matter how the industry operates, we have to have the freshers at the bottom of the pyramid, who will gradually build experience and become project managers, delivery heads and business leaders. The final lever is pricing, wherein some of the new service lines must be able to command a superior margin.