Wipro's Turnaround Story Is At Risk Of An About-Turn

Two quarters into new Chief Executive Officer Thierry Delaporte’s tenure, Wipro Ltd. posted its best quarterly results in a decade. Exactly two years later, India’s fourth largest IT services firm warned of decline in growth.What gives?On the face of it, the turnaround promised by Indian IT's first non-Indian CEO seems to have run its course. Yet, two business restructurings in less than three years has prompted a spate of senior-level exits. That has prompted questions if decisions were ill-timed at the company that has seen four chief executive officers in the past decade and a half, according to multiple former Wipro executives BQ Prime spoke with..And Delaporte is only getting started with the task at hand—transformation by way of tough decisions and acquisitions to fill the gaps in the business. Except, these have yet to deliver accelerated growth..Delaporte took the helm of the Bengaluru-based IT services firm in July 2020, when a raging pandemic stalled all but essential activity in one of the world’s strictest covid lockdowns. Globally, companies scurried to move operations to the cloud to enable remote work for employees. Business, naturally, boomed for India’s IT services firms, as they drove digital transformation at scale for clients big and small..Then, Wipro’s Paris-based CEO, who hadn’t been to India yet, announced the first business realignment in November 2020—less than six months into his tenure..That was a "mistake"—a case of too much, too soon, a person who has worked closely with Delaporte said on the condition of anonymity, as he has moved on from the company. Delaporte reduced number of people reporting directly to him to just four, compared to his predecessor Abidali Neemuchwala.Whatever he did was correct—the consolidation of P&Ls—but the timing was off, according to the person quoted above. This was a big realignment and should not have happened this early, the person said..Effective Jan. 1, 2021, Wipro reorganised its seven strategic business units, service lines and nine business geographies into four strategic market units and two global business lines. The strategic market units were organised by geography and global business lines by capabilities. While the strategic market units own the P&Ls, delivery and practice were aligned with global business lines.The four strategic market units were:Americas 1, which included healthcare and medical devices; consumer goods and life sciences; retail, transportation and services; communications, media and information services; products and platforms; and Latin America. Srini Pallia, a Wipro veteran of more than 31 years, was put in charge as CEO.Americas 2, which included key client Citibank, BFSI, manufacturing, hi-tech, energy and utilities, and Canadian operations. Angan Guha, a Wipro veteran of 29 years, was put in charge as CEO.Europe consisted of six regions—the U.K. and Ireland, Switzerland, Germany, Benelux, Nordics and Southern Europe—and was responsible for all operations. Pierre Bruno, who was formerly with Dell Inc. and DCX Technology, was put in charge as CEO. Asia-Pacific, Middle East and Africa, or APMEA, included six regions—Australia and New Zealand, Middle East, Southeast Asia, Japan and Africa—and was responsible for all operations. SN Bala, a Wipro veteran of 19 years, was put in charge as CEO.The four leaders reported to Delaporte directly. Guha and Bala, however, have moved on since then to become CEO of Birlasoft Ltd. and join the board of Denver, U.S.-based consultancy Startek, respectively. Suzanne Dann of IBM Corp. and Anis Chenchah replaced them in the roles.Among global business lines, the first was called Wipro iDEAS (Integrated Digital, Engineering and Application Services) and included service lines of domain and consulting, applications and data, engineering R&D and Wipro Digital. The second was called Wipro iCORE, which included cloud infrastructure, digital operations, and cybersecurity services.Wipro Digital President Rajan Kohli was picked to lead Wipro iDEAS. He left in April 2023 to become CEO of CitiusTech. President Nagendra Bandaru, who took charge of Wipro iCORE, is still at Wipro in an expanded role.“It is a leaner model… We’ve reduced the number of P&Ls from something like 26 down to four, adding up at my level, four,” Delaporte said during an analyst call after the company’s Q3 FY21 earnings on Jan. 13, 2021. “So, that means a lot less walls inside the organisation, a lot less silos and a lot more opportunity for people to work together.”"The new model seeks to achieve just this. Besides ensuring adequate sector and domain focus in our go-to market and execution, the new operating model will help us drive the growth in the non-U.S. markets," Delaporte said.But that resulted in an exodus.According to a TOI report dated Jan. 29, 2021, the overhaul resulted in the exits of at least 75 senior vice presidents and vice presidents, and 300 general managers as of that day. Wipro had more than 200 senior vice presidents and vice presidents at the time. To be sure, this was during the pandemic when the 'Great Resignation' churned the technology industry for want of talent.Still, Delaporte went for a second round of restructuring earlier this year, but this time he doubled the number of global business lines to four.Wipro FullStride Cloud brings together the firm's entire suite of cloud capabilities under a fully integrated, full-stack offering. Jo Debecker, who headed Wipro's cloud vertical, leads this business and assumes the title of global head of Wipro FullStride.Wipro Enterprise Futuring offers clients distinctly forward-looking solutions for large-scale enterprise transformation. Nagendra Bandaru, the head of Wipro’s iCORE business, became the global head of Wipro Enterprise Futuring.Wipro Engineering Edge, launched in 2022 to advance the firm's position as a global engineering services leader, has become a standalone business. Harmeet Chauhan, who led Wipro Engineering, became the global head of Wipro Engineering Edge.Wipro Consulting aligns Capco, Designit, and Wipro's domain and consulting business under one banner. Capco CEO Lance Levy and Philippe Dintrans, global head of Wipro Domain and Consulting, continue to lead their businesses under Delaporte. Designit CEO Nicolas Parmaksizian has joined them as well.The changes came into effect on April 1, amid another exodus.Over the past one year, at least 14 senior vice presidents and presidents have exited the Bengaluru-based IT services firm. These include:Mohd. Haque, head of healthcare and medical devices.Ashish Saxena, head of manufacturing and hitech.Gurvinder Singh Sahni, vice president.Douglas Silva, Wipro's Brazil head.Tomoaki Takeuchi, Wipro's Japan head.Sarah Adam Gedge, Wipro's ANZ MD.Mohammed Areff, Wipro's Middle East MD.Angan Guha, Wipro Americas 2 CEO.Sanjeev Singh, chief operating officer.Satya Easwaran, Wipro India head.Rajan Kohli, Wipro iDEAS head.Kamini Shah, Wipro Americas 1 CFO.To be sure, the latest exits aren't because of Delaporte's working style, but non-performance, the first person cited earlier said. About half of those who have left the company recently were let go as they couldn't deliver, this person said. These include even those who Delaporte had brought from outside, but they couldn’t perform, the person said.Yet, the senior leadership is "spooked", especially after Haque's and Saxena's exits, a second person said on the condition of anonymity.There's fear that they are only as good as their last quarter, the second person, who has since moved on from the company, said. Wipro needs to instill confidence in them so that they stay invested in the company for the long run, this person said."Wipro is undergoing one of the largest transformations seen in the industry with the goal of driving long-term growth and competitive edge," a spokesperson for the company said in response to BQ Prime's queries. "The company’s 45% growth over the past 2.5 years—from $8 billion to $11 billion in revenue—and the significant increase in large accounts—from 11 to 20—are indications that the strategy is working."To Wipro's credit, the company has continued to add leaders to the top rung. Earlier this year, the IT services firm promoted 12 senior executives to the post of senior vice president, while 61 executives were elevated to the rank of vice president. These promotions were a recognition of their performance and potential, the company had said then.As on March 31, 2023, Wipro had an attrition rate of 19.2% on a trailing 12-month basis and an overall headcount of 256,921 employees. That, when Delaporte took charge, stood at 13% and 181,804 employees, respectively, as of June 30, 2020. The current attrition rates compares with that of TCS at 20.1% and Infosys 20.9%..According to the second person, the restructuring was timed well, in the sense that there's no point in prolonging a realignment that's aimed at making the company agile. The restructuring was also a consequence—a natural fallout—of the acquisition overdrive brought on by Delaporte..Mahantesh Sabarad, an independent market analyst, seemed to agree. "These acquisitions have opened up for Wipro a large clientele, particularly in Europe, with Capco Inc.—the biggest acquisition—headquartered in London."With the $1.45-billion Capco deal, Wipro wanted to do an Accenture: own the entire lifecycle of a client deal—from strategy to implementation, the second person said. At present, large consulting firms advise on strategy and then the IT services firms do what's advised. Only Accenture has nailed the full process so far.But the synergies are yet to show meaningfully. In fact, the revenue contribution of the consulting business isn't even mentioned in Wipro’s latest earnings statement. That's stark, especially when the company has acquired two more consulting companies—Convergence Acceleration Solutions and Rizing—after the Capco deal."Let's be clear on one thing: Capco was altogether a different business line for Wipro," Sabarad said. "They were not really into consulting in a big way, and Capco has opened up that sector for them.""So, come to think of it, there shouldn't be an integration issue (for which the restructuring has been done)," Sabarad said.What went wrong was the timing, the second person said. The wider IT industry has come off pandemic highs and is in the throes of a slowdown. "Wipro's DNA is not consulting, but consulting could've been a new growth area—one that sets it apart from the competition, a step to move up the value chain. Unfortunately, that hasn't happened yet."There’s still another fallout. The aggressive M&A strategy to plug gaps has throttled the growth momentum seen in the early days of Delaporte’s tenure. Wipro has spent nearly $2 billion on acquisitions since the new CEO took over. During the same time, it has added about $2.9 billion in incremental revenue..The underperformance of Wipro relative to its larger peers is because the integration is being questioned. There is some margin improvement, but nothing to write home about."The management harps on the fact that the company has grown by 45% over the past 10 quarters," Sabarad said. "If that’s the case, you should have annual growth upwards of 16%, that’s not happening. At least, that’s not what you are guiding for.".To be sure, Wipro's cup of woes isn’t the CEO's doing. Not entirely.In the quarter ended March 31, 2023, India's $245-billion IT industry clocked its worst performance since the beginning of the pandemic as the spectre of a slowdown—stemming from a banking crisis in the US and the Russia-Ukraine war—roiled dealmaking in financial services to telecom and retail. Software services firms have turned cautious on the demand environment as the likelihood of a recession in the U.S. weighed on discretionary spending. While bookings are still supported by cost takeout and efficiency deals, revenue growth is impacted by project deferrals, delayed ramp-ups and cancellations. The outsourcers are even more wary of the pricing environment.Management commentary has indicated that the first half of fiscal 2024 is likely to be a washout. Growth is unlikely to return in a hurry, at least not until the geopolitical headwinds ease in the second half of the fiscal.Wipro underperformed peers in this climate as well, barring Infosys Ltd. that saw “unplanned project rampdowns” at some of its clients.Net profit of India’s fourth largest IT services firm rose 0.93% sequentially to Rs 3,093 crore in the March quarter, on the back of revenue that dipped 0.17% to Rs 23,190 crore. For the full year, the top line grew 14.4%, while the bottom line fell. Moreover, the company has guided for 1%-3% revenue decline in April-June 2023.The fallout of the eroding profit showed in Chairman Rishad Premji’s total compensation for FY23—it halved year-on-year to $9,51,353. Delaporte’s salary remained largely intact at $10 million.Since July 2020 when Delaporte took over, Wipro has announced dividend payouts four times—three times Re 1/share and once Rs 5/share. In FY23, Wipro gave a total dividend of Rs 6/share. At the current share price of Rs 395.70, that translates into a dividend yield of 1.51%.The company has announced two share buybacks since Delaporte took over—Rs 9,500 crore in FY21 and Rs 12,000 crore now..The CEO has defended his stewardship of the firm citing deal wins."Against a weakening macro environment, our results underscore the efficiency and the effectiveness of our transformation and growth strategy and how far we’ve come in just under three years," he said in a post-earnings analyst call. "We are not only winning at a higher rate in the market, but the nature of the deals we are winning is changing."The slowdown has hit Wipro hard, more than its larger IT peers which have been resilient in the face of global headwinds. It will be at least two years until the company built by Azim Premji returns to 20%-21% EBIT margins, the second person cited earlier said."Our transformation journey continues, as we build a culture and business centred on our clients, strengthen our foundation and our leadership, foster a growth mindset across our organisation, and invest in areas where we see opportunities for long-term growth," the Wipro spokesperson said. The DNA of the company is changing, courtesy the realignment, and Delaporte needs to take the leadership in confidence for the promised turnaround. Otherwise, Wipro runs the risk of remaining a low-growth, low-margin company that's valued feebly by the markets..(Updates an earlier version to incorporate comments from a statement by Wipro spokesperson)

Wipro's Turnaround Story Is At Risk Of An About-Turn

A mid-tenure report card of Wipro CEO Thierry Delaporte shows that India’s fourth largest IT services firm is at the crossroads.

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Wipro's Turnaround Story Is At Risk Of An About-Turn

A mid-tenure report card of Wipro CEO Thierry Delaporte shows that India’s fourth largest IT services firm is at the crossroads.

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