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Wipro Appoints New CEO: What Does He Face, and What Might We Expect?

The first working day in 2016 started with the announcement of the appointment of Abid Neemuchwala as CEO of Wipro, with TK Kurien’s elevation to Executive Vice Chairman, still reporting directly to Azim Premji.

Today’s announcement was not a huge surprise; Neemuchwala’s arrival from TCS in March 2015 as COO was perhaps more unexpected in that he was an external appointment, as Wipro has historically favored home-grown talent. (When T K Kurien was appointed as CEO of its IT Services business exactly five years ago, he was already a Wipro veteran, having formerly led Wipro BPO, also its telecoms service provider business, which began to secure large outsourcing deals during his tenure, and had also set up Wipro's consulting unit). Indeed, one of the closing comments in NelsonHall’s latest Key Vendor Assessment on Wipro, in referring to his appointment, several more recent departures and promotions of senior execs, and says “There may be other moves at the top”.

Neemuchwala will have had nearly a year to get his feet under the table when he formally assumes the CEO role; he will have a clear idea of what he wants to do.

Firstly, it should be highlighted that he is taking over a company that in many respects is in good shape and has been working hard on its evolution and transformation. Wipro has enjoyed constant currency y/y revenue growth of above 8% for over a year, with revenues that are well balanced across geographies, service lines and verticals. And he inherits a strategy that is clearly articulated as being based on two themes:

  • ‘Turbocharge the Existing Business’ (Run Strategy): focusing on a defined set of accounts and core markets
  • ‘Dominate the Future’ (Change Strategy): themes include Digital, open-source computing, AI, cognitive computing and automation.

Furthermore, he will benefit from three strategic acquisitions announced so far in FY16, for a combined investment of ~$300m:

  • In support of the Change strategy, the acquisition of DesignIT, while not a major investment in itself, is significant in Wipro’s evolution from software engineering and traditional IT services to being able to offer human-centered experience-driven design services.  Wipro is one of the first Indian oriented service providers to invest in acquiring this kind of capability. Another investment in the Digital space has been the opening of Digital Pods in Bangalore, London and San Francisco
  • The December announcements of cellent AG (which will increase Wipro’s presence in Germany) and Viteos (which services the alternative investment management sector) both support the Run strategy.

(This is an acceleration in M&A activity; Wipro did not make the level of acquisition that Premji indicated back in May 2012 - $1bn by end 2013).

And Wipro has also been investing for some time in IP such as Wipro HOLMES, an AI platform built on open source technologies, to drive automation in service delivery. Wipro HOLMES leverages semantics, machine learning, pattern recognition and knowledge modeling technologies.

Nevertheless, the fact remains, that, in spite of the clarity of its strategy and various new initiatives in the last few years, Wipro has continued to trail the other large Indian Oriented Service Providers in both topline growth and margin expansion.

So what are the challenges that he faces – and what should we expect to see?

One obvious comparative weakness has been gaining wallet share in the largest accounts: there has been little expansion in the last four and a half years in the numbers of $20m+, $50m+, $75m+ and $10m+ accounts. Conversely, hunting appears to be stronger: Wipro has succeeded in winning some large new logo infrastructure services deals, aided by its ServiceNXT operations framework.  We would like to see an increased investment in sales & marketing, which, as a % of revenues, trails TCS and Cognizant; we are certainly likely to see a renewed focus on account mining, particularly in the Mega and Gamma accounts.

Looking at some of the other challenges he faces:

In the geos, growth in the U.S. has slowed down in the last two years. And the $195m spent in H2 2014 to buy the Atco I-Tek captive in Canada was unlucky in its timing (see below). In Europe, Wipro surpasses Infosys in terms of revenue, and cellent will boost its presence in Germany in 2016 - although its on-and nearshore delivery capabilities lag those of TCS and Cognizant

Looking at the portfolio, Wipro remains dependent for growth on its Global Infrastructure Services unit, where the pressure to maintain margins in an environment of price sensitivity is strong, and on Business Application Services. Lack of growth in its traditional Applications Services business is impacting overall revenue growth by about 1% (conversely, for TCS ADM activity continues to be a major revenue engine). Wipro Digital is still a very small unit and is likely to require further inorganic investment. And Wipro Analytics needs some investment

Looking at the industries, Wipro’s Energy, Natural Resources & Utilities group has been a big revenue engine for Wipro since its acquisition of some units from SAIC, and until recently continued to be so with the captive acquisition from Atco. But with collapsing oil prices, the Energy sector is currently very soft, with discretionary budgets slashed. However, Wipro is well positioned for new outsourcing opportunities driven by energy companies looking to strip out costs.

The $130m acquisition of Viteos Group will bring in a proprietary platform for post-trade operations which Wipro could – and will be looking to - leverage to launch BPaaS offerings to other capital market segments. Viteos’ background is in the buy-side; Wipro intends to expand its BPaS business into the larger asset management industry, so there is the potential for substantive growth of this business - however, this will require a lot of attention. Wipro does not appear to have leveraged its acquisition two years ago of Opus CMC to build a significantly larger scale technology-enabled loan BPS business.

A lack of local client-facing personnel in international locations has to some extent impeded Wipro’s positioning as a global vendor: while Wipro has a good profile in some emerging markets (in the Middle East and parts of Africa), the company is regarded by some as more Indian in mindset than other Tier I Indian headquartered vendors. This can work to its advantage at times, but enterprises today are expecting a lot more from their large IT services providers.

One thing that may be a contributory factor to Wipro having been outpaced in recent years by some of its peers may be associated with its ownership and the organization’s strong culture. Nearly 75% of its shares are still held by the Promoter Group - and if we look at the Board, there is just one non-Indian national. An external appointment may be what is needed to shake things up internally, with regards to attributes such as innovation and initiative. Perhaps the board is looking to Abid Neemuchwala to sprinkle some of the fairy dust from TCS.

So what else might we see at Wipro?

  • Will there be a greater willingness to invest?
    • There are very likely to be more mid-sized acquisitions in the near future, including further investments to expand Wipro Digital or that, like Viteos, will bring in IP that can be leveraged for an industry-specific BPaaS offering in a target sector, perhaps in U.S. healthcare
    • The $100m Wipro Ventures fund looks measly compared to Infosys’ $500m fund - will this be increased?
  • The automation drive will certainly continue, and at pace
  • We may see more IoT offerings coming out of the engineering services business
  • There might be more senior local hires in the U.S. and Europe.

We will certainly continue to follow Wipro with interest.

NelsonHall published a comprehensive (90 page) Key Vendor Assessment on Wipro on December 23, 2015, accompanied by a shorter Exec Summary for busy execs. The KVA looks at Wipro’s Strategy, Financials, Target Markets, Key Offerings, Strengths and Challenges and Outlook. It will be updated in February following the release of its Q3 FY16 results later this month. For details, contact [email protected]

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