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The Change Of Guard At Wipro

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T.K. Kurien evokes two responses: either intense loyalty or intense dislike. Loyalty — for his no-nonsense approach to management. And dislike — for his sharp tongue, for he speaks his mind." That is how a senior Wipro executive describes the newly appointed CEO of Wipro's IT business.

IT services firm Quatrro's chairman and managing director Raman Roy, to whom Kurien reported for two years when Roy was handing over charge of Spectramind to Wipro after selling it, says Kurien can't be faulted for that. "You have to be God's gift to mankind if everybody loves you," he says. "He has tremendous energy and focus."

The man whom Wipro's 65-year-old chairman Azim Hasham Premji has handpicked to help reinvigorate the company's 30-year-old IT business has a huge burden of expectations to carry. He takes charge as the sole CEO after Wipro flirted with the co-CEO structure with Suresh Vaswani and Girish Paranjpe for four years before dumping it this January. Vaswani and Paranjpe will handhold Kurien through the transition period until the end of March 2011, after which they will announce their own plans. This time, rumours did not precede the new CEO announcement, as is usual in the case of Wipro. Hence, the naming of Kurien as a CEO came as a surprise to many.

How Kurien and his mentor Premji steer India's third-largest IT firm from here will be closely watched as neither of them can afford a mis-step. The fourth largest, Cognizant Technology Solutions, which was smaller by $383 million two years ago in the quarter of April-June 2008, is now perilously close to overtaking Wipro. In the quarter ended September 2010, it closed the gap to barely $56 million (Cognizant is yet to declare numbers for the December quarter). More importantly, it continues to grow faster — in the quarter of July-September 2010, Cognizant added $112 million to its revenues against Wipro's $69 million. In fact, the inability to grow faster than — or even at the pace of — rivals is believed to be the key reason for the departure of Vaswani and Paranjpe.

"Premji takes financial performance seriously, and his benchmark is always the competition. He does not take into account absolute growth rates. So, those close to him were expecting these changes any time," says a former colleague who worked closely with the chairman. "In any case, the joint-CEO model was supposed to have been a stop-gap arrangement, and could not have lasted beyond this year. So this change would have come in any case. But the comparatively poor financial performance accelerated the decision."

Faith On Pedigree
Kurien's track record seems to give Premji the confidence that he is the best man for the job. Premji has a history of choosing the CEO from within the organisation. "Kurien has over the past 10 years spearheaded the growth of Wipro's IT business. His track record with customers, passion for excellence and rigour in execution make him uniquely positioned to lead Wipro through the next phase of growth," says Rajan Kohli, chief marketing officer, Wipro Technologies. A bachelor of engineering and a chartered accountant by training, Kurien has worked as the CFO of GE Medical Systems when Wipro's former vice-chairman Vivek Paul was its CEO.

Kurien was the CEO of GE X-Ray between 1997 and 2000. At Wipro, his biggest achievement is believed to have been the turnaround of the company's BPO business. The division was not doing well and Premji wanted to change its over-dependence on plain vanilla voice-to-businesses with more value-added such as back-end processing. He entrusted Kurien with the responsibility. Kurien increased the margins of the BPO business to over 20 per cent, almost on a par with software services. He also headed the integration of Spectramind into Wipro until Roy exited to set up Quatrro. Kurien also reduced the attrition levels in the BPO business by almost one-third. He analysed the reasons for attrition in great detail, going into about 400 parameters thoroughly. These included every conceivable factor: reasons for taking up a BPO job, family background, age, career interests, etc.

Kurien later went on to build a consulting business and Wipro bought niche players such as American Management Systems' global energy practice in 2001, and handled the telecom business as well. Those who watched him closely during this period testify to his ability to rigorously implement plans, and also monitor people who are responsible for this implementation.

Kurien moves fast, and so one can expect a large number of managerial and procedural changes soon. One of the changes in the offing is empowering managers with more decision-making powers, which is in keeping with Kurien's management style.

Kurien's Onerous Task
Like all organisations under the spotlight, Wipro too is going through its fair share of scrutiny. And observers and analysts are beginning to pick holes in the company's strategy. But to start with, there are no answers coming from either Kurien or Premji. (Both of then were travelling when this story went to press and regretted not being able to react.)
Many reasons have been ascribed to the poor show, among which the most important could be slow decision-making. "Wipro may have had a good strategy to tackle time after the recession, but it seems to have faltered in implementation of this strategy." Among the biggest criticisms is that the company never focused on building a high-profile consulting business — once considered the panacea for moving up the value chain from commoditised businesses Indian outsourcing firms were associated with.

Beginning 2002, Infosys, for instance, made a conscious decision to develop consultancy capabilities, which would become the fore-runners of its business. Wipro, however, decided to stick to its traditional form. While Infosys went the Accenture way, Wipro did not develop consulting as a practice and rather followed IBM's model of services plus hardware.

Today, Wipro's consulting revenues (incidentally, headed by Kurien at one point) at 2.9 per cent are way behind Infosys, which earns about 25 per cent from consulting and package implementation. Wipro gets about 13.5 per cent from package implementation. But consulting and package implementation are high-margin businesses where billing rates are as high as $200 per hour compared to $70-80 per hour for application and maintenance jobs. Wipro's closest competitor Cognizant's standalone consulting revenues are 10-12 per cent, probably among the highest in the industry. Wipro's inability to get hold of a good consultancy unit and getting into large-scale package implementation has caused the lag, note industry experts.

Traditional application development and maintenance is getting commoditised and firms increasingly bank on ‘transformational deals', which bring in higher margins and require high level consultancy and package implementation. Transformational deals are those through which the IT client is supposedly doing a complete or a partial business change and requires higher degree of processes. During these deals, the IT services company takes charge of the process and shares the risks. "Such deals bring in a lot of ownership to the (IT) vendors and the risks and the rewards are also higher," says Nikhil Rajpal, partner at Everest Group, a global outsourcing research firm.

Wipro also has some gaps in its portfolio when it comes to the industries or verticals. It has lower exposure to verticals such as BFSI (banking, financial services and insurance), that have experienced an upsurge in the West soon after the downturn of 2007-08. Inarguably, Wipro was caught off guard when the recovery began.

Financial services contributed 26.9 per cent of Wipro's revenue in the second quarter of FY 2011 and 26 per cent in fiscal 2009-10. For Infosys, it was 35.4 per cent and 35 per cent, respectively. And for TCS, 44 per cent and 45 per cent. Also, unlike TCS and Infosys, Wipro does not have a core-banking solution, which is a natural magnet for the BFSI business.

HCL Technologies, too, has a lower exposure to BFSI, with only 26.3 per cent, but compensates with manufacturing, which is another high-volume vertical with 27.4 per cent of revenue contribution in the September-ending quarter. The flipside, however, is that Wipro was also the most cotton-balled during the global financial meltdown because of lower exposure to BFSI, which got hit the most.

Wipro has higher exposure to media, technology and telecom, and has signed a number of deals. Telecom contributed 8.2 per cent to its revenues in the second quarter of 2011, and media and technology was as high as 25 per cent. But analysts say these areas have not brought in high volumes in the past few quarters. "Wipro focuses on technology, telecom and media, which are not seeing high IT spends such as in retail, BFSI and manufacturing," says Shrishti Anand, IT analyst at Angel Broking — a brokerage firm. "It is a structural problem in the business if one has more exposure towards clients who are not spending so much."

Wipro is facing competition even in its stronghold — telecom — and TCS and Tech Mahindra now derive 12 per cent and over 90 per cent of their revenues, respectively, from telecom. Around 13-14 per cent of Infosys's revenues comes from the telecom vertical. But analysts feel that the order booking for the telecom vertical will start picking up in the next six months and Wipro might get a fair share. "With LTE (long-term evolution, the latest standard in mobile technology) and 4G making rounds, there will be quite a bit of outsourcing in the telecom space and Wipro will benefit from it," says Pankaj Kapoor, IT analyst at brokerage firm StanChart Equity Research.
Wipro's challenges do not end there. Its attrition stands at 24 per cent, against TCS's 16 per cent and Infosys's 14 per cent. "For the past four quarters, Wipro has been trying to tackle this. But in vain, even after salary hikes," says Vijay Gautam, senior equity analyst at JayPee Capital. This has resulted in lower utilisation of employees, which pressurised profit margins more.

The other area that requires focus is its client base, which analysts say is not well defined. Infosys earns its revenues from about 870 clients, TCS has about 850 clients, whereas for Wipro, its revenues come from 1,030 clients, but most of them are very small customers.

Industry leader TCS had 420 clients below the $1-million mark. Infosys had 337 and Wipro (with the lowest revenues of the three) had 425 clients in the same range in the second quarter of FY2011. As for the high volume clients, TCS had eight clients above $100 million, Infosys had 12 and Wipro had only one. "Infosys and TCS have a policy of account mining. They want to do as many processes as possible for the same client," says Gautam.

The Premji Factor
Entrepreneur-promoters who head their organisations often find it tough to let go of control. But that has hardly been a problem at Wipro where Premji and his foundation own nearly 80 per cent of the company. Because Premji himself has headed the IT business for about two years (2005-07) from among the 30 years Wipro has been in IT. So much so that Ashok Soota, who headed the business for 16 years, was often considered the owner of Wipro.

But, ironically, for an entrepreneur of his standing, say his close associates, risk-taking does not come naturally to Premji. This dislike for high-risk growth gambles is believed to be the cause of the departure of two of his most successful CEOs — Soota and Paul, both quit as Wipro's vice-chairmen. While Soota is believed to have left because Wipro was oblivious to business opportunities in non-technology areas, Paul quit due to differences with Premji over high stakes M&A plans to take Wipro from the $1-billion club to the $4-billion club.

"His aversion to risk constrains CEOs. Certainly it had constrained Ashok Soota when he tried to get into new businesses and Premji was unwilling to make the investments," says a former colleague of Premji. Incidentally, Soota had been unhappy for a while and wanted to leave earlier, but he was apparently persuaded by Premji's wife Yasmin to stay on.

Fast-growing Cognizant Technology Solutions led by CEO Francisco D'Souza is just one threat to Wipro's $4.4-billion IT business. For others, growth is being driven by aggressive mergers and acquisitions on one hand, and organic growth on the other. The fifth-largest IT firm, $2.7-billion HCL Technologies, for instance, added nearly as much to its revenues ($66 million) as Wipro ($69 million) in the July-September quarter. Then, Wipro also has to contend with resurgent rivals such as the Tech Mahindra-Mahindra Satyam combine, which together pack in over $2.2 billion in revenue. Not to forget the iGate-Patni combine, which is a $1-billion company now.

On his part, though, Premji himself is believed to set high standards of financial management, integrity and professionalism. He travels economy on domestic flights. His elder son Rishad had to send his CV to Wipro through the HR route, and had to sell his shares of Wipro to pay back the loan from his father. "He sets high standards and you are expected to follow them. We don't fly business class on domestic flights — some things we learnt when we became part of Wipro," says Quatrro's Roy. For his philanthropic activities, Premji opted for a clean deal to transfer shares worth $2 billion to the Azim Premji Foundation rather than keeping them in a separate company.

How well Premji's conservatism gels with Kurien's firepower will really be the big test for Wipro's growth. But there is a lot more than their reputations at stake here. In the high-growth world of IT offshoring, mis-steps can be suicidal as Soota (co-founder and former executive chairman of MindTree) or Narendra Patni of Patni Computers would testify. Wrong moves make the difference between promise and performance. Or, greatness and mediocrity.

Roy, for one, is one of those who is not shaken yet. "I have not sold my stock. I do not intend to. I believe in what that company does, but believing is not always agreeing with it. Still, nobody has a bigger stake in the firm than Premji. I am sure what he does is right," he says.

With inputs from Sunny Sen and Hari Pulakkat

(This story was published in Businessworld Issue Dated 07-02-2011)