‘Enlightened owners don’t shoot themselves in the foot’

‘Enlightened owners don’t shoot themselves in the foot’
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First Published: Tue, May 29 2007. 05 17 AM IST

Updated: Fri, Jun 01 2007. 02 15 PM IST
Azim Hashim Premji, the 61-year-old chairman and CEO of Wipro Ltd, owns more than 80% in the company, which transformed itself from making vegetable oil to a global software services business with annual revenues of around $3 billion (Rs12,300 crore).
In a wide-ranging interview at Wipro’s Bangalore campus, Premji, who chooses his words very carefully, spoke candidly about Wipro’s acquisition strategy, its ambitious plans to establish centres in the US, the ongoing controversy over H1B visas in America as well as how being “humble” and not being an overt posterchild of Indian technology is actually helping Wipro differentiate itself from rivals. Edited excerpts:
Listen to the Interview (Part I)
We find many Indian companies today expanding their global footprints by making big-ticket acquisitions that are over $1 billion in size. What is your philosophy for inorganic growth?
Unless it has a lot of strategic value for us, we will not look at a $1 billion kind of acquisition. But we are looking at acquiring companies larger than the eight firms we have acquired in the past, certainly those between $200 million and $300 million in size. We are looking at companies employing 50-300 professionals. Good companies are never cheap; the issue is whether they can add value to our company in terms of the existing customer base, or a new technology.
Listen to the Interview (Part II)
Even though you serve global customers, your workforce is still almost 90% Indian, based in the country. What is the offshore story beyond India?
What is an Indian company and what is an American company?
Take Accenture, for instance. They have around 37,000 professionals in India today. At the end of this year, they will employ 40,000-45,000 people in the country and there are around 42,000 employees globally. So, is Accenture an Indian company?
IBM has already got 48,000 people in India, and they say that they want to go up to 75,000 professionals in the country. They are downsizing in America and laying off people in other locations. So, what is IBM two or three years from today?
I think we need to get ourselves branded as a global company, which works in a global set-up and has a workforce which is reasonably global. Today, we employ around 3,500 people in Europe out of which around 1,300 are locals. Foreign workers outside India account for 7-8% of our total workforce currently, and we would like to take this up to around 20% in the coming few years.
India is still a predominant centre because the cost economies and the talent economies are just unbeatable. You can’t move out just for the sake of it, you do it because you have to have insurance. You cannot ignore the prospects of China, but India is still very high value. We now have a centre in Shanghai, and are looking at another one in China. We have a centre in Romania, Brazil, and Mexico. We are now looking at three centres in the US. There will be cost savings because they will not be in mainstream New York city and even the state governments are willing to give a package of grants for setting up these centres.
We will also become huge, huge local heroes by employing the local people (there). This will help in combating whatever anti-offshoring sentiments are there. This also gives you insurance for new visas. Not only are you doing a community sensitive service, you are also generating local talent. You also globalize the company by these initiatives.
Today, business models require your people working on the customer sites, so we would have around 10,000 professionals working on customer sites in Europe, America, Japan, Middle East and Asia Pacific. These professionals are paid local salaries standard in those geographic locations because the laws demand that. In order to achieve cost benefits there, we are doing local hires, who could be brought back to India for training.
The three centres coming up in the US will employ anywhere between 250 and 1,000 professionals in each of the states.
One of the advantage companies such as IBM Corp and Accenture Ltd have over you is their business and management consulting expertise, which helps them in getting those long-term engagements with clients. Do you find it a challenge to get into the consulting space?
We have today about 2,000 people in the consulting division, which accounts for about 6.5% of our revenues currently. Our objective is to have 15% of our revenues coming from consulting in three to four years.
We have a central consulting team for Europe and America, headquartered in Boston. We also have embedded consultants in each of our verticals, who work with the customers.
We have around 300 consultants in our quality engineering division, apart from a 300-member strong India consulting team that serves customers in India and the Middle East.
At present, we are covering IT consulting, domain consulting and process consulting. We are now trying to build our expertise in management consulting and strategy consulting, which will have a broader perspective. We are hiring consultants from Accenture, IBM Global Services and Deloitte Consulting.
What keeps you up?
Maintaining the solidarity of the company’s culture is a huge challenge, which requires huge amount of time and effort. I spend a lot of time doing this at open forum, question and answer sessions with employees even when travelling. Fighting complacency and retaining the same hunger with the growing size are other big challenges.
At the macro level, what is this all nonsense going about the visas? They want us to open our retail, and we have around 20 million retailers. Eventually it will help around 80 million of Indian farmers with better margins. But those 20 million retailers would get hurt because of this.
These are very, very bold decisions, which the Western world must see and realize. They must realize that we are creating markets, and their companies will grow by accessing bigger markets.
That is why the biggest lobby for services globalization is the American companies because they have their vested interests. IBM was the largest recipient of H1B visas this year; while we (Wipro) were No. 3 with Infosys probably at No. 2.
You and your family own around 80% of the company. Will you have a significant say in the company going forward?
We have a significant stake in the company and its strategy going forward. I think you need to divorce the ownership issue from management of the company. Enlightened owners don’t shoot themselves in the foot. We have consistently displayed a very high degree of professionalism, in spite of very high concentration of ownership.
Why don’t you look at Infosys, which is owned by institutional investors? They own around 50% in the company. These investors control the markets today; they can make and bring down the markets. The retail investors hardly have any say. I don’t think ownership is a bad thing. Look at our top 25 leaders in the company and see the variety, and compare it with our competitors.
How sustainable is the restructuring of your top management that resulted in four CEOs for each of the business units? Will you ever have a group CEO or a similar position at Wipro?
There is no immediate succession plan for me, nothing immediate that we will announce. The idea is to engage with clients more comprehensively. The software model is getting very complex now, situations are very dynamic, global requirements are very intense. Our model of having around four functional CEOs for our different business units works better because it builds knowledge and depth in terms of customer proximity. This model works well when you are growing more.
In the global software services landscape, many India-based vendors such as Tata Consultancy Services Ltd, Infosys Technologies Ltd and Wipro Ltd seem to be facing the challenge of differentiation? What is Wipro’s strategy for differentiation?
I think there are three drivers of differentiation as compared to our competitors: the Wipro way, which is our integrated quality management system, is the first one. I use the term quality management carefully, because it’s not just the way we write software programs, but it’s more about understanding customer requirements, the way we solution the customer and manage all our processes. We integrate (quality benchmarks) to deliver measurable benefits to our customers. We believe this puts us ahead of all our competitors.
The second driver for differentiation is our deep investment in innovation: about 10% of our revenues this year will come from innovation. Last year, we got around 7% of our revenues from innovation. Innovation for us means a new market segment, a new product that could be licensed and can be applied to solve business problems.
Analysts are saying we will do around $4 billion in revenues this year: 9-10% of those revenues will come from innovation, and that's a substantial amount. We are not talking small investments; some of these projects will pay back this year, while some others the year after.
We have a central innovation council, which champions innovation projects and funds them centrally at my level. Then we have a 'quantum innovation' centre where we are changing the game. We have five projects running, and we use external consultants to help us facilitate them. We will do six more innovation projects this year, in the areas of people productivity, infrastructure services.
First we form project teams, which are given incentives based on the commercial success of an innovative idea. They have a variable component as part of their compensation that takes into account the profit their initiative may have generated for the company. Another level of innovation is based on our centres of excellence, which are very embedded in each of our verticals (industries that Wipro groups its clients into).
The third area, which we believe is an important differentiation, is the fact that as a company we are more humble. We listen to our customers all the time, and are more sensitive to them, which I think is a very important attribute and philosophy in this services business. I could have told you more differentiators, such as our specific domain skills, or training programmes, but those are all incidental. These three attributes are fundamental philosophies, which we think differentiate us from our competition.
We are always trying to be two years ahead of the competition; it is difficult to build a lead time beyond that period. There are superior companies in this field, and India is definitely mainstream for these companies.
As you continue to grow your revenues exponentially, and also expand your employee base, what happens when you become, say, a 150,000 people company? Wouldn't you like to pursue non-linear models of growth and address the productivity challenges?
I think the industry has to drive non-linearity in this business, I don't think we are necessarily doing a great job of achieving this. If you are talking about 75,000 people, it (the growth) can still be managed over the next three years. I can’t, however, tell you what happens beyond 2010. But we believe it's a scaleable model, the talent is available, and we can change skill sets by de-skilling at times. In one of our innovation projects, we are actually addressing these very issues because they are strategic for us.
When you deskill people, it is cheaper than hiring qualified engineers, and there are significant cost benefits; there is no doubt about that.
One of the ways for driving non-linearity is to establish platforms on which common services could be delivered. Take financial and accounting platform in business process outsourcing, for instance. They deliver these processes to different customers. Around 90% of these services are common for most of their customers. Even SAP solutions and services have almost 70% common services for most customers.
When some large customers do not want their projects to be delivered through a common platform, they have to pay a price, because everything has to be custom-made for them. There are many technology customers today who are not clear about the final architecture of the solutions they want to be delivered. They say that we cannot even do a fixed-price projects with you, and would rather do projects based on the number of hours put in by our professionals. We are not necessarily doing 'donkey-work' in such projects.
As you move beyond serving large customers, such as General Motors Corp, to serving relatively smaller outsourcers looking to leverage offshore advantages, is there a challenge in terms of attuning to the specific needs of these smaller companies?
We have a unique advantage in terms of dealing with such customers, thanks to our product engineering business, which accounts for around one-third of our total revenues. While on the one hand, we deal with 11 of the largest telecom companies in the world, we also deal with companies that are around $500 million in revenues. This experience has helped us in successfully delivering to the smaller companies.
We have a qualification system for identifying 'must have' customers. We look at the business we could be building with a customer, in order to avoid a lot of customers who we can keep adding every year without any repeat business! It's very expensive to have such customers in the service business. If a customer does not have what we want in our ‘must have’ list, we say ‘no.’ We have turned down customers in the past.
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First Published: Tue, May 29 2007. 05 17 AM IST
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