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BE Corporation
 
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WIPRO: AZIM PREMJI
Is Azim Premji Destroying Wipro?
For a Rank Outsider Coming from The Vegetable Oil & Soaps Business, Azim Premji has Led Wipro to Great Heights with his Exemplary Leadership. But is that Same Leadership now coming in Wipro’s Way?
Issue Date - 09/06/2011
 
Ever since India’s IT entrepreneurs decided to embark on the global stage to set some delightful precedents, IndiaInc’s road map was never the same again. Their unbridled aggression helped them tap the opportunities as they presented themselves, and their passion for excellence ensured that they went the distance. Today, India’s IT/BPO sector, that’s worth around $76 billion in turnover as per NASSCOM estimates for FY 2010-11, and amounts to around 4.75% of the estimated Indian GDP of $1.6 trillion for the same period, has a lot to thank these entrepreneurs for. The likes of Narayana Murthy, Nandan Nilekani, Azim Premji & Shiv Nader (Ramalinga Raju being the only notable and unfortunate exception) have not only showed the path to go global; they have also defied conventional business growth trajectories and developed world class systems for business management and corporate governance that have been examples for the rest of India Inc.

Azim Premji stands out in the midst of these IT entrepreneurs in a number of ways, right from the time he made the dramatic diversification from vegetable oils to computers. As per the Forbes list of richest Indians for 2010, Azim Premji is at third position with a net worth of around $17.6 billion. The next IT entrepreneur on the list is Shiv Nader at a distant number 15 and a net worth of $4.8 billion. Discounting TCS under the Tata group, Wipro also remains the most diversified among the top players, wherein it handles traditional businesses like consumer care and lighting as well as the futuristic venture Wipro Eco-systems. Besides, he has been hailed for his charitable initiatives, including a transfer of 213 million equity shares to Azim Premji Trustee Company Pvt Ltd. last year. As per the closing price on May 24, these shares would be valued at around Rs.93.73 billion, even though he retained the voting rights of those shares. But events and trends of the past few years have also put Wipro, in particular, in the eye of a storm; be it with respect to numbers, long term strategy or retention of top talent. And like Premji has been responsible for Wipro’s meteoric rise in the IT world, there are reasons to believe that he has a lot to do with the perplexities that the company confronts at the moment. While efforts are being made to undo the damage, B&E analyses why, in the face of these developments, Wipro could easily end up undoing decades of meticulous enterprise that brought it to these heights.

The debate obviously starts with retention of talent at top levels. Before that, it has to do with the promoter shareholding at Wipro, which remains at around 79.28% as on March 31, 2011. Ex-employees of Wipro (and there are a number of them in prominent positions) do reveal some of the character traits that Premji possesses. They are unanimous about the fact that he is extremely passionate about results and about being the best. However, the critical issue that appears to plague Premji, as it does for a number of iconic founders, is the need for control; evident in the shareholding structure. Former Stanford faculty and renowned business thinker Jim Collins and his team did a spectacular analysis of 11 companies that went from producing stock market returns at par or below the stock market for 15 years; and then produced cumulative returns at least thrice as high as the stock market for the next 15 (1985-2000); a work that features in his bestseller Good to Great. And one thing he found common in such companies is leaders who were not as interested in being celebrities as they were in building lasting leadership legacies for their organizations.

 
When you look at Wipro, that hasn’t really happened; the only legacy that is visible is the not-so-gradual ascent of the founder’s son Rishad Premji to the ranks of Chief Strategy Officer. When it comes to retaining its CEOs, in particular, Wipro has failed miserably. Ashok Soota and Subroto Bagchi left the company in 1999. The high point was the exit of poster boy Vivek Paul in 2005, who has had a lot to do with the manner in which Wipro established itself in the US market. And the recent exits of joint-CEOs Girish Paranjpe and Suresh Vaswani have exemplified the point. Peer company Infosys, in comparison, has hardly faced issues with CEO succession over its history, apart from the recent public comments by T. V. Mohandas Pai, who exited as its HR Director and complained that experience was preferred in the company over merit when it came to career progression. Moreover, Infosys’ founders do not retain such a fanatical hold over their company as Premji does; no one holds more than 10% stake. In HCL Technologies, CEO Vineet Nayar has risen through the ranks since he joined the company in 1985 after completing his management degree from XLRI. Relations with founder Shiv Nadar haven’t been a cause for concern, even though promoter & promoter group shareholding in HCL Technologies is also quite high at 64.65% as on March 31 this year. As far as TCS is concerned, there has been no issue with the succession from S. Ramodarai, who retired at 65,to N. Chandrashekharan.

The new CEO T. K. Kurien seems to be very much Premji’s man. Reports in the media suggest that he is going for a lot of centralization and cost cutting; and is also trying to get rid of the non performers. Wipro has actually bled talent seriously in the recent past. Although the attrition at 20.9% for Q4, 2010-11, is an improvement over the 23% level for the same period last year (Morningstar), the figure is still high enough to cause concern.

It is not surprising that the company is going for some desperate measures and business process reengineering under the new CEO, though the results would take at least a quarter to be visible. The latest dope on the strategic front is the fact that Cognizant is fast closing in on Wipro. In terms of revenues, TCS improved its rank from 24 to 21 in the top IT service providers globally in 2010 with revenues growing by 18% to $6.98 billion. Infosys came up five positions to take its rank to 28 as revenue grew by 19.9% to reach $5.33 billion (Gartner). Wipro, in comparison, grew by only 16.4% yoy over its already low base to post revenues of $4.75 billion; taking its rank from 35 to 31. And for Premji, whose obsession with being the best is legendary, Cognizant is emerging as a very daunting challenge. The company grew by a massive 40.1% yoy in 2010 to take its revenues to $4.41 billion and its rank from 44 to 34. Overtaking Infosys and TCS may be far fetched, when Wipro’s current rank is under serious threat. Also, in terms of revenue per employee, a key metric that Indian IT players are looking at to break away from the linear relationship, Wipro at $42488.86 lags far behind Infosys at $46170.31, HCL Technologies at $44946.88 (FY-2010-11) and Cognizant at $44134.61 (2010 revenues); even though it is slightly ahead of TCS at $41286.11. Priya Chetty-Rajagopal, Vice President & Partner, Stanton Chase International opines, “Wipro is going through its own lessons... The market has become very competitive and even the landscape in the overseas market isn’t the same post-recession. Hence, pressure to perform is enormous.”

          

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