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In the last seven quarters, for instance, Wipro’s revenue from manufacturing and hi-tech customers grew by only 7.1%, compared to more than 24% revenue growth by rivals from such clients during the same period. Photo: Hemant Mishra/Mint (Hemant Mishra/Mint)
In the last seven quarters, for instance, Wipro’s revenue from manufacturing and hi-tech customers grew by only 7.1%, compared to more than 24% revenue growth by rivals from such clients during the same period. Photo: Hemant Mishra/Mint
(Hemant Mishra/Mint)

For Wipro, a long wait for a turnaround

Wipro continues to lag rivals despite becoming more aggressive and increasing the number of big-ticket customers

Bangalore: Last month, top leaders of Wipro Ltd, led by chief executive T.K. Kurien and head of strategy Rishad Premji, spent two days in San Diego, US, with former head of Hewlett-Packard Co.’s (HP) printing business Vyomesh Joshi, who was appointed as an independent director on the company’s board last year.

Usually, strategy discussions at Wipro happen at three levels every year, the first one where different business units present annual plans to the CEO, the second one where Kurien presents a strategy plan to the company’s billionaire founder Azim Premji and thirdly, the final plan vetted by all is presented to the board around January.

Meeting with Joshi, who joined HP as a young researcher in its printing division and built the company’s $25 billion printing business, was not one of the usual series of strategy discussions at Wipro that take place in a normal year.

“The agenda was to listen to Joshi and understand what strategic bets to prioritize and how," said one of the people familiar with the discussions that took place in the meeting. The person requested anonymity because the details are confidential.

The company, however, still continued to lag rivals in overall growth and barring energy and utility business segment, it failed to become a leader in the fast-growing banking and financial services and manufacturing sectors.

In the last seven quarters, for instance, Wipro’s revenue from manufacturing and hi-tech customers grew by only 7.1%, compared to more than 24% revenue growth by rivals from such clients during the same period.

“For years, Wipro has had the size of a tier-1 (company), but they behaved like a tier-2. And honestly, that continues today," said Peter Bendor Samuel, founder and CEO of Everest Group that advises outsourcing customers on buying services.

“The difference in performance is quite stark. In calendar year 2012, manufacturing vertical revenues increased merely 5% for Wipro compared to 13% for Infosys, 20% for TCS (Tata Consultancy Services Ltd)and 25%+ for Cognizant," said Viju George and Amit Sharma of JP Morgan Asia Pacific Equity Research in March this year.

The report added that it’s the mix of business within the manufacturing and hi-tech vertical that’s causing the problem. For instance, Wipro’s revenue from R&D business decreased 3% annually in calendar year 2012. On absolute basis, R&D revenue decreased from $182 million in the fourth quarter of fiscal year 2011 to $165 million in the third quarter of fiscal year 2013. “Product engineering revenues are also (almost) stagnant at $119 million (in the third quarter of fiscal year 2013) compared to $115 million in 4QFY11," the JP Morgan analysts said.

In April, this year, Wipro forecast revenue in the range of $1.57-1.61 billion for the quarter ending June, weaker than analysts’ estimates, triggering concerns about its ability to regain flagging revenue growth momentum.

“When TK took over, he was to drive them towards a more streamlined industry focus, with a focus on large accounts. That was the strategy they put in place—now, first of all that strategy took a long time to implement," Samuel of Everest said.

The problem, experts said, is that of timing and executing it well enough. “You have to ask two questions—is this the right plan? And how are they going about executing it? From an execution standpoint, it’s mixed. The other problem is everybody else is executing the same strategy," Samuel said.

“Cognizant and TCS have similar strategies, but look at their performance—their execution is much better. Wipro has been late to implement these strategies and now they’re facing a lot more headwinds than TCS and Cognizant did when they launched their strategies," he said.

Another problem, experts said, was to do with Wipro’s positioning. Traditionally, Wipro was known for its high-end R&D services and deep technology skills. Customers such as Target Corp. are now looking for deeper engagements and help from companies such as Wipro to solve business problems, Sudin Apte, founder of outsourcing advisory firm Offshore Insights, said. “There is a gap between what clients want and what Wipro thinks market wants. Many clients tell Offshore Insights that they (still) find Wipro focused on technology and productivity. While these aspects as well as other Wipro strengths like delivery or quality are important, these factors are now considered by many as ‘table stake’", Apte said.

Experts such as Phil Fersht, founder of US-based outsourcing advisory firm HfS Research, said the success of rivals TCS and Cognizant in getting business especially from banking customers has hurt Wipro’s fortunes.

To be sure, Wipro was ahead of Infosys Ltd in at least discovering its problems.

“It’s clear Wipro has been experiencing its ‘come to Jesus’ earlier that its prime competitors, namely Infosys, TCS and Cognizant. This is a blessing in disguise as all the Indian-centric providers with over-dependency on European and US clients for their growth are going to suffer (and some already are)," Fersht said. Some experts added that turnarounds take longer, and Wipro may be positioned for better times ahead.

Already, Wipro’s number of customers giving $100 million or more in annual revenue has improved multifold since Kurien took over. From just one such customer in February 2011, Wipro now has nine clients giving $100 million in annual business.

“Wipro is trying to bring fundamental changes to its portfolio for long-term stability of revenues and to deliver consistent high growth. It is taking slightly longer to deliver quarterly growth rates, but these are changes in the right direction," George and Sharma of JP Morgan said.

On his part, Kurien has poached some of the top executives from rival firms and even customer organizations to infuse some fresh approach. In June, Wipro hired former Lloyds Banking Group executive Ganesh Balasubramanian to create a new unit focused on banking products and platforms. Former Infosys leader Shaji Farooq and Satish Doraiswamy of TCS are among people Wipro poached in the past one year.

In another organization change this month, Wipro created a group led by company veteran A. Amarnath to focus on getting large outsourcing contracts. Amarnath will report to Kurien. “Wipro confirms that it has set up a Deal Advisory and Large Deal Pursuit Management group called the Strategic Mega-Deals Team," a Wipro spokesperson said. Clearly, it’s taking longer for Wipro to regain its lost momentum and catch up with rivals. Until it shows visible signs of a turnaround, it’s going to be a slow burn.

And investors and experts would be looking for any early signs of the turnaround when Wipro and its rivals announce their April to June quarter earnings later this month.

“Sometimes, it gets frustrating when you’re following the new vision and putting all efforts, and yet, there’s nothing to showcase to the world," the second person, familiar with the discussions that took place in the meeting with Joshi in the US last month, said. “Hopefully, that will change this year."

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