A day after Wipro announced its results for the first quarter ended June 30, 2013, its Executive Director and Chief Executive Officer T. K. Kurien spoke to The Hindu about the company’s challenges and its coping strategies. Excerpts:
Your operating margins declined by one percentage point in the last quarter. In fact, it was at its lowest level in the last five preceding quarters. Where were the pressures coming from on your margins?
First, wage hikes, which we implemented in the last quarter, are always a pressure on margins. We did not benefit from the headwinds of currency movements (rupee’s slide) to the same extent that our competition benefited.
Why was it so?
Our hedge book is very consistent. We base our book on the basis of an estimate of how long it will take the company to adjust to currency movements, whether it is up or down. Our view is that this typically takes about six months to adjust our business model. We lost about $15.8 million from our top line because of the currency movements and the hedging strategy we adopted; that is about one per cent of what would have been our growth. We gained 50 basis points (0.5 percentage points) because of the exchange rate. I also lost 50 basis points because of salary increases.
During this quarter, there will be wage increases in two of the three months. We have to make up this loss through pricing and better operational efficiencies.
Involuntary attrition was at 4.9 per cent during the quarter, 170 basis points above the same quarter of the previous year. What explains this rather big spike?
In fact, attrition will continue for another quarter, so do not be surprised. As we have gone through our performance assessments, the first thing we have done is to change the benchmarks. In the past, it used to be about getting people who could do the job. In the future, it is going to be about people who can think and execute. The ability to conceive a solution to a problem is going to be a critical component of our staffing. Of course, some people will not make it.
So, are you saying that your staffing policy is a clean break with the past?
The model is changing.
What are the elements of the business model?
We are moving to a more outcomes-based model. We continue to recruit freshers, and we are not cutting back such recruitment. But we now make sure that those who have hit the end of the road are churned. We are very clear about this.
There is a lot of talk about outcomes-based models, but you still do not give numbers that gives us a sense of where the company is heading? When will you do that?
We made a beginning by not giving out figures on price and volume separately for the last quarter. We think that is a people-based model.
Over the next few quarters we will start giving data on outcomes-based performance. I think that is important. All the companies in the industry are still learning. But maturity in this area depends partly on us and partly on customers. But if I had to take a bet, I would say that five years from now 60-70 per cent of the market would be outcomes-based. We are experimenting and I am sure we will make mistakes. But we are ready to takes risks.
One of our main positives is a terrific cash flow. Not utilising it would be a big mistake. Would you use it to pay someone for an acquisition or would you invest it in-house and create something valuable? That is the dilemma. As for me, I would go with the latter rather than the former.