Wipro's Premji: The publicity-shy Chairman is using his personal fortune to answer the call of his conscience by making a commitment to primary education

Wipro's sprawling red brick campus at Sarjapur, 12 kilometres from the heart of Bangalore, seems an oasis of peace. Stone sculptures set amidst acres of manicured lawns and artificial water bodies present a picture of poise and harmony. But it's a totally different world outside. The approach road is pockmarked with potholes and a drive to the campus can be a bone-jarring experience. The traffic is chaotic and power failures are commonplace. This contrast is not by chance. Today, Wipro almost seems to be on autopilot as it scales new heights-the result, company sources points out, of a carefully thought out and well-executed strategy. "We have always been customer-focussed. Yes, there were many challenges in the past, but Wipro has always adapted itself to meet customer expectations," says Azim H. Premji, 59, Chairman of Wipro. But things weren't always this rosy.

There was a time in the late 1990s when Wipro seemed to teeter on the brink. Several senior executives like Ashok Soota, then President of Wipro Infotech and currently the CMD of MindTree Consulting, Sridhar Mitta, CTO of Wipro Global R&D and currently Managing Director of e4e India, and Ashok Narasimhan, President of Wipro Systems and currently CEO of July Systems, left the company to start their own ventures. Would Wipro be able to manage the departure of so many senior executives? everybody wondered. Premji tided over the crisis by deftly capitalising on the huge Y2K opportunity at that time and Wipro emerged from the crisis a lot stronger. The company also leveraged the window of opportunity thrown open by the Y2K scare to become a full-fledged services provider. "Wipro was one of a handful of companies that was able to convert this entry point to emerge as a critical partner for several of their international customers," points out S. Subramanyam, MD of Ascent Securities.

But the 2001-02 dotcom bust in the US again hit the company hard. Wipro has traditionally been a significant player in outsourced R&D, technology and telecom vertical segments; these were hit the hardest during the bust. The impact of the slowdown immediately showed up on its bottom line. In 2002-03, even as revenues grew 24.2 per cent from Rs 3,492 crore to Rs 4,338 crore, the net profit actually fell nearly 8 per cent from Rs 885 crore to Rs 820 crore. This opened Premji's eyes to a critical weakness-Wipro had too many eggs in too few baskets. Result: A rush to diversify the company's product portfolio. Prof T.R. Venkatesh, Director of ICFAI Business School, Bangalore, points out: "This is when Wipro was forced to broad base its market offerings. It could do that in two ways: Build or buy. Where time to market issues were involved, Wipro chose to grow inorganically by acquiring other companies.

Team Wipro: (clockwise from top left) Pratik Kumar, Corporate VP (HR); Suresh Senapaty, Corporate Executive VP (Finance) and CFO; Vivek Paul, Vice Chairman & CEO, Wipro Technologies; Anurag Behar, MD, Wipro Fluid Power and Corporate VP (Mission Quality, Brand & Communication); Suresh Vaswani, President, Wipro Infotech; and Vineet Agrawal, President, Wipro Consumer Care & Lighting

Wipro unveiled its now famous "string of pearls" acquisition strategy in July 2002 to a mixed press. The management projected it as a move to broad base its portfolio of offerings, but market analysts saw it as a defensive move to "buy growth" in a tough market. Defensive or not, the issue was carefully thought through. Explains Premji: "We look at whether we can build competencies internally and also whether there is time to market issues and other challenges. Only when we find a target, which is a strategic and cultural fit and also adds value, do we go ahead with the acquisition."

In July 2002, Wipro swooped down on Spectramind and bought it for an eventual price of $95.5 million (Rs 453 crore at the then exchange rate; it was done in two tranches). Again critics sniggered that the price paid was too high and that integration would be tough. Today, Wipro BPO (as Spectramind has been renamed after being fully integrated into the company) has 23 active clients; its revenues and profit for the nine-month period ended December 31, 2004, grew 48 per cent and 23 per cent, respectively, over the previous corresponding period. The company followed this up over the next two years by acquiring GE Medical Systems Information Technology, Ericsson's Indian R&D labs, NerveWire, and the energy practice of AMS for a cumulative sum of more than $50 million (Rs 220 crore) to plug gaps in its portfolio of offerings or to strengthen an existing business. With the telecom and the outsourced R&D services market reviving, Wipro is sitting pretty. "These acquisitions have already started paying off for Wipro," says Subramanyam of Ascent Securities. Clearly, the string of pearls is a smart piece of strategy.

But what is it that sets Wipro apart from its peers? Lots. In R&D outsourcing, for instance, it provides services from evolution, deployment and sustenance over an entire product life cycle. It is extremely difficult, if not impossible, to replicate this capability because proprietary intellectual property is at the core of these offerings. That's why its revenues from the telecom and inter-networking (read: telecom equipment manufacturers) business zoomed 42 per cent in the third quarter of the current fiscal, while its embedded systems and production engineering grew 33 per cent over the same period. Little wonder then that Wipro today boasts marquee clients like Sony, Dell, Nokia and GE. This ability to offer differentiated services even as it aims to be a one-stop shop for all IT services gives it a key edge. Another factor is its ability to make the right acquisitions at the right price and integrate the new company into itself.

All this has meant that the company has set a giddy pace of growth. Since its launch in 1945, its revenues, net income and market capitalisation have grown at a compounded annual growth rate of 21 per cent, 30 per cent and 30 per cent, respectively. Its share price (face value Rs 2), which had reached stratospheric levels of Rs 2,100-plus during the dotcom-induced global IT gold rush-it was at Rs 1,701.33 on April 3, 2000, the first trading day of the period considered in this report-now reigns at around the Rs 675-700 levels, giving it a market cap of around Rs 50,000 crore. Premji apart, it has created hundreds of dollar millionaires and a few rupee billionaires too-a clear one-to-one relationship between sound management practices and the creation of shareholder wealth.

However, there are a number of issues that can still trip the company. Like its peers, Wipro will face growth challenges. It is relatively easy for a small company to grow at an annual clip of 40-50 per cent. But a billion-dollar-plus corporation like Wipro will find it difficult to sustain this pace quarter after quarter.

Also, Wipro has high attrition rates. In BPOs, this is nearly 30 per cent while in it the figure is 15 per cent, compared to the industry average of 10-12 per cent. This is worrying, especially in an industry where people are key. Premji, though, feels that such comparisons are unfair. "Wipro earns 35 per cent of its revenues from technology while others (read: Infosys) get only 15 per cent of theirs from this segment," he says. The implication is that the higher turnover of employees is in line with the industry segments it addresses. Company sources point out that Wipro has to compete for talent not only with its Indian peers, but also global leaders like Cisco and Microsoft.

BEST PRACTICE

Creating true value: Employees also contribute to Wipro's literacy mission Azim Premji is one of those billionaires whose heart is as gargantuan as his wealth. And he's shovelling in considerable amounts of the latter to fulfil the call of the former. The Azim H. Premji Foundation (AHF), which focusses only on primary education, is funded entirely out of his personal wealth. Its annual spend: Rs 25 crore. This is in addition to Wipro's contribution of Rs 3 crore every year. Premji firmly believes that "the education system should foster creativity rather than rote learning". Since 2000, this literary mission has financed 7,000 schools in Karnataka, Andhra Pradesh, Tamil Nadu, Himachal Pradesh, Madhya Pradesh, Punjab and Rajasthan. More than 18 lakh young students and 29,000 teachers have benefited from this programme. The mission was recently extended to Uttaranchal at the invitation of the state government. Wipro and HAF say they will go to other states if the government is willing to work with them to improve the education system. To ensure that those who run the system have a stake in it, Wipro and the foundation-which put in 50 per cent of the cost-insist that their partner organisations cough up the rest. Wipro employees are also encouraged to participate in the company's literacy mission. Premji's business acumen helped India become a knowledge powerhouse. Now, the call of his conscience may well help create the base to sustain this comparative advantage.

Wipro, like most technology companies, tries to retain talent with the help of a so-called golden handcuff. Its employee stock option plan has already created a number of millionaires in the last few years. But its competitors also offer similar packages and Wipro needs to differentiate its rewards system, if only to ring- fence itself against predatory poaching. Premji admits this obliquely. "We have repositioned our compensation mechanism to reflect market realities," he says. This has helped bring down attrition to around 12 per cent compared to the high teens it was earlier.

Another area that needs attention is the BPO business, which, despite its rapid growth, still depends on voice for 86 per cent of its business. Premji himself admits that the attrition here is very high. Unless it moves towards transaction process outsourcing where margins are higher, Wipro might be squeezed on profitability even though its topline may grow.

Succession could be another issue in the company, as Premji personally owns 83 per cent of the company. He has two sons, neither of whom are directly involved in the business. All that the Chairman himself is willing to say is: "Wipro is a professionally-managed company. At any point of time and for all levels, at least three people are being groomed for succession". The company also has a strong second line of employee talent that can fill in the gap should the need arise. Its systems and processes are also strong enough to integrate outsiders into its senior management cadre. It proved this several times since that fateful phase in the late 90s when several top managers left.

But succession is not expected to be an issue anytime soon. For now, Wipro is sitting pretty. Premji himself sees issues like managing the challenge of scale, and integrational and cultural issues-as Wipro becomes a truly global corporation-as key to the company's continued growth. The one-time vanaspati manufacturer has indeed come a long way.