Will India’s desire for short-term profit trump the need to re-invest beyond the current market spike?

You won’t see a CEO being removed after achieving a double-digit growth rate too often, but that’s just what happened, when Wipro’s co-chiefs Suresh Vaswani and Girish Paranjpe stepped down last week.

Wipro eyes a new rhythm after Suresh Vaswani steps aside

And while I am personally excited to see TK Kurien take the helm, with whom I have had some excellent discussions over the years, I am concerned that some of the Indian service providers are so blinkered by today’s short-term explosive growth spurt, they may taking their eye off the long-term plan.

Remember, Mark Hurd was at HP for 5 years before leaving due to non-corporate activities, Sam’s been at IBM for donkey’s years, Vineet’s been leading HCL since 2005 and Frank D’Souza at Cognizant since early 2007.  All these guys have led their companies though short-term pain to establish their long-term plans, and I would be highly surprised if any of them stepped away from their roles for a while yet, provided they avoid any late night HfS parties, or dodgy game show panels at conferences.

Wipro’s in good shape… but that’s not enough for Chairman Premji

Whatever the reasons behind the leadership change, you can’t mask the fact that Wipro’s financial performance hasn’t stacked up as impressively as the likes of Cognizant, HCL and TCS, despite reporting third quarter earnings of $294 million, up 10 percent from a year ago, revenues up 12 percent from a year ago, and IT services revenue was up 19 percent from a year ago. However, as we laid out in our 2011 predictions, the offshore IT spurt isn’t infinite, and we fully expect it so slow to a more modest pace towards the end of the year.  So will Premji’s impatience to produce numbers as stellar as his competitors be rewarded, or has he already missed this phase of hyper-growth in offshore services?

Wipro has been at the heartbeat of the Indian IT services industry, and more recently BPO, during the offshore services industry’s entire rise to prominence.  The firm has been more ambitious than many of its competitors on the acquisition front, notably picking up Spectramind, Infocrossing, Enabler and Inbev’s LatAm BPO center in recent years.  Moreover, Wipro has today achieved a larger marketshare of the F&A BPO market than its prime India-headquartered rivals, Infosys, TCS and Cognizant. However, while Wipro delivers IT services as competently as most of the competition – especially with its capabilities around SAP, the company has suffered from a brand identity.  It has too often finished second in a down-selections and customers have often struggled to fully understand the firm’s DNA.

The seeds have clearly been sewn for a bright future for the firm, and it clearly provides a wonderful platform for TK to make some telling tweaks.  Let’s hope Premji gives him a bit more wiggle-room to take the company in a direction where he feels that Wipro’s not only pushing TCS et al. harder for marketshare, but also is readying itself for the next wave of offshore service growth beyond the current spike.  We’ve been promised an interview with TK soon… so stay tuned.

Wipro’s new challenges are industry-wide and not solely confined to them

All-in-all, the challenges facing India’s offshore industry are the same for all the service provides – both traditional incumbents and the expanding offshore firms.  These are challenges you can’t mask under a few quarters of rampant profit, they have to be embedded in the very infrastructure of the provider’s delivery model.  This means the winners over the long-haul are already re-investing some of these profits on the following areas:

*Moving beyond operational IT work to position themselves as service integrators for clients

*Developing industry domain knowledge to be true consultative partners to clients, and not simply effective implementers of Six-Sigma and LEAN

*Blending business process acumen with industry analytics

*Executing employee development strategies that cross-trains talent across multiple business process and IT disciplines to work proactively with clients to support their innovation roadmaps

*Developing true IaaS and PaaS development capability to take industrialized solutions into a Cloud (shared service) utility model

*Developing real BPO scale that can flex with client needs as deal sizes shrink

Suresh Vaswani (pictured above) steps down as Co-CEO of Wipro.  You can read our recent interview with him here.

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8 Comments

  1. Posted January 26, 2011 at 6:21 pm | Permalink

    There are some bigger issues here… 1. is whether the hot performance of others are accurate or involve non-operational performance gains like currency conversion/asset revaluation/and inter company transfers to name an few, and 2. we have yet to have an open dialog as to what is really happening in the supplier market (in India and elsewhere). Maybe the latter is denial but I am more inclined to think that it’s because it is a political hot potato, despite the reality that it endears. I guess in order to be willing to tell the truth, which is the equivalent to burning the bridge, one must be will to give that up IF society is willing to take action. Why would you do it if nothing happens?

  2. Alan Rogers
    Posted January 26, 2011 at 6:44 pm | Permalink

    Phil,

    An excellent analysis of the recent leadership change. Seems like “hyper-growth” is the only acceptable means for the owners, such as Premji. Who was it who once said “it’s a marathon, not a sprint”?

    Alan

  3. Daniel de Groot
    Posted January 26, 2011 at 6:49 pm | Permalink

    Your comments on the Wipro brand resonate with me. While you correctly remark that Wipro’s performance with clients is on a par with most of the other Indian suppliers, you have to say that Wipro has a curious badge, doesn’t deliver strong messages to the market, such as Infosys or Tata. Maybe TK Kurien will first address their whole branding / positioning first. I don’t envy his task!

    Daniel de Groot

  4. Gaurav
    Posted January 26, 2011 at 8:50 pm | Permalink

    Phil,

    A well-balanced discussion, which I enjoyed reading. I believe we’re operating in a short-term bubble where Cognizant has been the most aggressive at growing its market share and revenues, even though its profit margins are smaller than those of Infosys. Something has to give as the hyper growth cools – I expect to see Infosys,and potentially Wipro, start to look more aggressively at acquisitions.

    Gaurav

  5. Talons
    Posted January 27, 2011 at 1:35 am | Permalink

    Phil, thanks for the promised interview with TK. It would be interesting to read his views. More so about his views on BPO – a division that he single handedly rescued and built to a very respectable scale, but since his exit, has moved into another abyss. The other interesting part would be TK Kurien’s views on BFSI – consdiering there is surely no derth of BSFI talent at Wipro. Luckily Kurien is well versed and networked with the BFSI world, and that should change the fortunes of Wipro – provided he brings in fresh management. It’s an open secret that Wipro’s BFSI clients have dealt with the same leadership, have seen the same face and dealt with same ideas for far too long.

  6. Lakshya
    Posted January 27, 2011 at 1:38 am | Permalink

    Your headline says it all. In a recent interview in Mint (WSJ), Gordon, the CFO of Cognizant said it succintly.

    To sum up, he said, there are two “legitimate” strategies that global sourcing companies have adopted: maximize margins or maximize revenue growth/marketshare. By definition the focus can be on only one and not both.

    Infosys are Cognizant are two great examples of the two strategies. Infosys beleives in being the most profitable company and focuses on maximizing margins. On the other hand, Cognizant runs its operating margins in the 19-20 percent range (lower than Infosys) but uses the privilege of lower margins to be the industry-leading revenue growth player thereby gaining marketshare.

    Unfortunately Wipro is caught between the two. That’s the problem.

    HCL Technologies best illustarted this over the last several quarters. While it has done well in terms of increasing revenues (though not at the pace at which Cognizant has done), its operating margins have seen a free fall: almost from early twenties to about 13 percent. Financial analysts, one after the other, are downgrading HCL Technologies for this free fall in margins which is lower than Tier 2 Indian IT companies today. Some are woriried that the company’s free cash flow (FCF) is down to almost 30 percent of revenue and could impact meeting regular expenses. So much so, in this quarter earnings call, Vineet publicly stated that HCL will focus on margins at the cost of growth!

    It’s evident that focus on the long-term is key even if it’s at the cost of short-term profits.

  7. Prasanth Nair
    Posted January 27, 2011 at 5:54 am | Permalink

    For all you know Phil, Azim Premji might have done this, to asceratin the feasibility of one of your predictions for 2011 – that of an India centric provider acquring a large legacy provider.

  8. Posted February 2, 2011 at 12:10 am | Permalink

    Giants grow, but they also eat giant portions to grow. If you are a racehorse, do you really need to grow like a giant? Maybe not.
    If you want your company to be a race horse, and not a giant which is a big ecosystem that feeds so many creatures dependent on it, then the need of the hour is also for a leader who can train the company to develop the right muscles, shed unwanted fat, and run the race fastest.
    Smart leaders like Premji recognize this in advance, unlike many giant corporations across the world who now exist just to feed an ecosystem dependent on it, but not living healthy. From what I have heard from those who love or hate TK, he seems to be the right man at the right time for Wipro.
    The name of the game is organizational efficiency.

3 Trackbacks

  1. [...] This post was mentioned on Twitter by Phil Fersht, Tom Milligan. Tom Milligan said: Will India ’s desire for short-term profit trump the need to re-invest beyond the current market spike? http://tiny.ly/fEd4 [...]

  2. By The defining outsourcing moments of 2011 on December 25, 2011 at 9:01 am

    [...] but that’s just what happened, when Wipro’s co-chiefs Suresh Vaswani and Girish Paranjpe were replaced by TK Kurien…  So will Premji’s impatience to produce numbers as stellar as his competitors be [...]

  3. [...] of talent through his acquisitions and direct hiring from competitors.  In services, snagging Suresh Vaswani to lead Dell’s services shortly after he was displaced as Wipro’s CEO is proving a [...]

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