Macro-economic cues have continued to worsen over the past few quarters. How has the slowdown affected IBM’s business in India?
This time, the slowdown is pretty widespread. Typically, we see one sector getting impacted, but in the past two years, we have seen a relay of crises in different industries. For example, the first thing that hit us as a company was the disruption in telecom sector. That started two years ago with a new operator (Reliance Jio) entering the space. Given that we had multi-year outsourcing operations with the three largest telecom companies, Bharti Airtel, Vodafone and Idea, we had the responsibility to support them during their transition. It has been a tough journey. Our multi-year contracts took a major hit. The only good news I see at the end of two years is that they are still with us despite the merger. But it’s been a bruising time for everyone involved.
Just as we were coming to terms with what was happening in telecom, the airline industry faced a hit. While Jet Airways vanished, Air India is still in a very tough spot. For both players, we were the core IT providers. In hindsight, in that industry, we overleveraged, over-invested and we should have taken some calls early enough. But you understand the importance of technology in these industries. If the tech breaks down for even one hour, then the airline falls to its knees. So it was very difficult, as the elbowroom to do something different was limited. But we reconciled with the realisation that Jet Airways was going to go under and Air India is going to be in a tough situation for a long time.
Plus, the auto industry has not been in great shape as is evident from all the data points over the past four quarters. During such situations, companies first eliminate non-essential spends. When the auto industry was coming around, the banking industry suddenly started facing issues. Even if one bank goes down, the cascading effect of that can be very broad. These sectors — telecom, airline, auto and financial services — form the core of any enterprise technology company. So, it’s been a very tough situation.
Could you tell us about the measures you took to lessen the impact of the slowdown on your business?
IBM has gone through a multi-decade transformation. Many times, we seemingly hit the wall but emerged stronger as a different company. This time, again, IBM is going through a transition at many levels. If I simply look at what we have today compared to what we had five years ago, 50% of the company is absolutely new and 50% of the revenue did not exist then.
It is important to remember that slowdowns or challenges give us an opportunity to try new things, which we couldn’t have done in a growth environment. For example, if you try to transform the company when it is in a good zone, you won’t embrace the transformation levers as much. But the tough situation over the past two years allowed us to accept the changes much faster. It gave us the opportunity to bring automation to clients, drive our cloud business and have real conversation with clients on the use of artificial intelligence. All this accelerated our journey of transformation, which I believe would have been slower if the going was good. We have also reduced costs effectively. Again, we couldn’t have done it in a good environment. And to support our transformational goals, we constantly re-skill people and bring in new capabilities.
Thirdly, we have started approaching customers we didn’t before. Traditionally, IBM has always been focused on the top customers in India such as the top 500 BSE firms. But we actually pushed ourselves and decided to go to middle of the pyramid. We used to acquire 100 customers every year, but we pushed ourselves to multiply this figure. Now, we are acquiring 1,000 new customers every year. They are small, but they count and help us build a new muscle.
Between investing and cutting costs, what is a better approach to adopt during a slowdown?
There is no easy answer to what to do and not do. But investing during a slowdown is a no-brainer. If you freeze in that zone, you will not get out of it. Decisions you take when the company is growing play a role in how you can handle the slowdown. If you weren’t being cautious, then the adverse impact will be evident. I love the start-up ecosystem, but I am concerned about the sustainability and longevity of their growth. Similarly, who is to be blamed for the loss of Jet Airways? We have to understand that the decisions taken during periods of growth come back to bite us.
Could you explain this approach with an example of what IBM has done?
We are in the 108th year of being a company. During this tenure, we have taken some very bold decisions that have fundamentally rebooted the company. At times, people have raised questions about IBM’s survival. Just a year and a half ago, we actually made the biggest investment ever in the history of the company when we bought Red Hat for $34 billion. It is the largest acquisition in the software world. Just as the decisions you take during growth matters, you have to live with the decisions taken when you are in a difficult zone.
Another thing I feel we tend to overlook is the ‘people’ factor. Slowdowns allow you to build organisations with resilience. In the case of IBM, 25% of the global workforce operates in India. What the employees feel, how they come to work and and their attitude to work impacts the whole company. A pulse survey is a very simple method of determining whether they are happy or not. A slowdown or a disruptive environment is a perfect excuse for low morale. To ensure that their spirit does not flag, we challenged ourselves to go out, communicate and engage with our employees. It’s the perfect time to hold on to your employees and over-engage. It is not about giving positive news, but about giving clarity.
You recently tweeted that automation did not take away jobs, but simply made them better. Similarly, AI will not take away jobs, but just change them. Could you tell us how AI has been used effectively across verticals at IBM?
Whenever a disruptive innovation was introduced, there was a fear of jobs going away. This trend has happened throughout the history of the technology industry. The best example is how people reacted to the initial phases of computerisation. But, as we all know, it only created new jobs. Hence, we strongly believe that AI will not take away jobs. Of course, there are things that will get replaced. For example, in the call centre industry, we have proof that about 80% of the tasks are repetitive and can be done through AI. Wherever the human brain is limited in its power to process the necessary information, the machines will step in. But there will be new jobs and many people will have to be re-skilled.
At this point, what are the three major trends taking shape in the IT industry?
According to me, it is data, cloud and AI. At the core of digital transformation is data. All stakeholders are realising that the data sitting in incumbent organisations can really drive change. Secondly, you have infinite processing power at your beck and call. With the help of cloud, that ability allows you to be much more bold in transforming your business through IT initiatives. Finally, AI is now being adopted for scaleable use-cases across sectors.
My only advice is that, whether in IT or any other industry, during a slowdown every CEO needs to gauge the value of innovation by seeing its potential when scaled up. They should decide on adopting these technologies after imagining it scaled up, and not on pilots.
*This interview was conducted in November, 2019 when Karan Bajwa was MD, IBM India