Can Wipro Finally Awake From Its Slumber?
In the mid 90s when I joined Wipro BT as the CFO as a British Telecom nominee on the sensitive 50%-50% JV with no casting votes on either side, I was advised by a senior leader on Wipro’s Board that I, with my MNC background, would need a cultural realignment for this role. I was told that Wipro is an entrepreneur driven company with limited resources but soaring dreams, and is run on Indian middle class values with high quality, passionate, hungry people. With the benefit of age, hindsight and wisdom I can confidently state how accurate this was….and why it is still relevant to Wipro in the 2020’s.
Last week was busy for Wipro – a new CEO, Thierry Delaporte, drafted from France, the AGM with a new Chairman, and quarterly results. The theme was to project to the world the roadmap for a new Wipro. For it to take shape, though, it will need much more than these customary words we have heard for almost the past two decades. From its vantage position in mid 90s when both Infosys and Wipro were similar in size and profitability, Infosys has surged ahead manifold. Of course, TCS and Cognizant are now leaders by length. The quest for any sustainable roadmap for change, though, will need a close understanding of where the company lost the race to slip to a steady number 5 amongst the top 5 large IT companies.
One of Mr. Premji’s biggest assets has been his ability, and laser focus determination, to attract the best professionals from diverse backgrounds to manage the business as appropriate to its phase of growth within the conglomerate. So whist it was Ashok Narasimhan with his visionary zeal to kick start its foray into IT business in the mid 80s, it was Ashok Soota ( from a automotive background ) to build, and manage the transformation, of the technology business as it was still emerging during the 90s. At the turn of the century, at the height of the Y2K boom, he chose Vivek Paul from GE to clean up the operational chaos of unbridled growth and then build for scaling up. The choices could not have been better and perfectly aligned to the company’s needs at these specific inflexion points in its journey.
So what went wrong ? Vivek Paul, a brilliant manager and leader, was also outspoken, direct and very “American” in his approach. Years of haphazard, but hyper, growth hid a lot of operational inefficiencies in Wipro and had made the business unmanageable for the future. He took fundamental steps to rewire the company in terms of large scale computerization and building control systems to provide operational transparency to top management, driving accountability of business units to committed results, and building a GE type aggression in the sales force in a world where competition was getting severe from the relatively easy days of the late nineties culminating in the Y2K boom. He was also in favor of large acquisitions based strategy to fuel growth. Managing meaningful scale could not be achieved without robust processes and hence discipline, process rigor and repeatability became buzzwords to manage the business at every level. The initiatives were totally necessary to create a robust operational fabric for the company to compete in the high growth marketplace without leaving profitable growth to “chance” - especially where Infosys had demonstrated visionary leadership in investing very early on in an enterprise wide ERP to manage even the smallest of projects across the world to the minutest level of detail. This was the fundamental reason why Infosys could scale and was always in complete control of the business - and therefore the amazing, consistent accuracy of its guidance over the years leading to significant valuation premiums in the markets.
However, as Peter Drucker had famously said, culture eats strategy for breakfast. The empire hit back, Vivek was checkmated and Mr. Premji favored long term loyalty over the obvious competence of an “outsider”. This was the turning point. Both Wipro and Infosys were roughly the same size in terms of revenue of Rs. 4500 – Rs. 4800 cr in 2004. Today Infosys, despite challenges from 2011 -2018, is at Rs. 93,000 cr whereas Wipro languishes at Rs. 61,000 cr. And Wipro’s revenue has multiple acquisitions whereas the growth for both TCS ( Rs. 157,000 cr ) and Infosys have largely been organic. The fallout post Vivek’s departure was a disastrous two CEO model from its band of old faithfuls. The result- as I had predicted in 2005 - is evident a decade later. The point of a services business is precisely this : it is impossible to catch up after the jaw widens for a few years.
Hence, given the revenue gap ( with even HCL now overtaking Wipro at 71,000 cr ) Wipro will remain at number 5 in the sweepstakes unless it does a massive acquisition which will be difficult for various reasons of both culture, management styles and ability to absorb. Its bit sized acquisition strategy of niche based technology companies called “string of pearls” will not achieve its scale ambitions. It will be unfair, thus, to judge Delaporte on this parameter down the road. On profitability, too, being at just Rs. 9,000 cr today, it will continue to lag both TCS ( Rs. 32,000 cr) , Infosys ( Rs. 16,000 cr ) and Cognizant ( Rs. 13,800 cr). On market cap tables Wipro at Rs. 150,000 cr is unlikely to overtake Infosys ( Rs. 388,000 cr) or Cognizant ( Rs. 250,000 cr) let alone TCS ( Rs. 840,000 cr).
Thus, Wipro will have to keep running to stay at the same place in the relative rankings amongst the top 5 IT service providers. So Delaporte’s impact can only be assessed over time on the following parameters : (1) The improvement of key metrics like CAGR in revenue and profitability with respect to its own relatively low standards which he has inherited (2) Beat HCL to regain the 4th spot (3) Improve its relatively better market cap/sales multiple of 2.5x significantly to remain firmly at no. 3 behind the unassailable TCS ( 5.3x ) and Infosys (4.2x ). Given its unique capital structure (roughly 15% effective floating stock) this is eminently possible and I believe that this will be a priority based on steps taken to improve core operating metrics under (1) above.
For this, in my view, he needs to reinvent Wipro’s past strengths : its entrepreneurial culture, its strong innovation engine for value creation nurtured by Dr. Sridhar Mitta, and the sales engine of Vivek Paul to compete aggressively with a winning mindset in the market place. Deeper engagements with large accounts through effective mining and retaining strategic accounts will be levers to drive revenue productivity higher. However, it must move away from some of its inhibiting middle class values and take effective steps to remove loyal but ineffective managers at all levels, induct high caliber talent, incentivize its entrepreneurial culture with a much more market aligned wealth sharing scheme, and foster the fine balance between creativity and discipline in its pursuit for technology innovation concomitant with sustained value creation. Abid Neemuchwala, his immediate predecessor, did a commendable job to improve Wipro’s capability building and IT analyst ratings, and Delaporte can leverage this to increase the wallet share from many more Fortune 500 clients.
Delaporte has two favorable tailwinds in this formidable task. A new chairman in Rishad Premji and his opportunity to prove worthy of the post his father had always said will go to the most deserving "professional" & not to family as a matter of right. Secondly, our collective psyche of accepting leadership of a westerner during periods of painful transformation. Delaporte has a formidable reputation, but so had Vivek Paul & Vishal Sikka who were, at best, considered “brown sahibs”.
Wipro has experimented multiple times on leadership and change post Vivek Paul, the efficacy of which is best narrated by its relative performance with its peers. Wipro’s “problem of plenty” since 2005 has blunted its organizational hunger and, coupled with some of its middle class values, has created a “benevolent” giant with limited drive to compete in the contemporary world.
If he can help Delaporte make these fundamental changes, Rishad Premji can live upto his father’s expectations, if not his formidable reputation as a self made icon and business leader. For that he must allow himself to be unshackled from his perceived privileged status as an entitled inheritor – and imbibe the hunger, ambition and drive his father, and thereby Wipro, demonstrated in early 80s as an entrepreneur with limited means but the passion to consummate his most audacious ambitions. This is, after all, what distinguishes an able manager from a blue blooded entrepreneur.
However, if it does not work this time, and Wipro continues to slumber on, then we must brace for a corporate transaction with a global giant by end of this decade.
Interesting times beckon!
