Wipro, India’s third-largest software services firm, announced in April the appointment of Girish Paranjpe and Suresh Vaswani as the company’s co-CEOs. At the 2008 Wipro Mandala event (an annual meeting that brings together Wipro employees and clients), held in Miami last month, India Knowledge at Wharton and Ravi Aron, senior fellow at Wharton’s Mack Center for Emerging Technologies, spoke with Wipro Chairman Azim Premji about the company’s new leadership structure. The following is an edited transcript of the conversation:
India Knowledge at Wharton: Let’s start by talking about the reorganization at Wipro recently. What do you see as the principal leadership challenge that Wipro faces today and how is it better served by having two CEOs rather than one?
Premji: The principal challenge we face is to go up the value- and domain-skill chain and build a strong consultancy front end and, also, to globalize our leadership much more. We have done a decent job in globalizing the population which works overseas. I think the next challenge is to globalize our leadership much more.
The reason we did this reorganization was to put people who run the company in the saddle. We believe that two people who have worked together for more than 10 years and been in the company for more than 15 years would be able to work very well as a team. The fact that 75% of our revenues come from global markets, the fact that we are growing at 30% a year in a service, highly people-intensive industry, we figured that a two-man team at the top would be stronger than one man at the top. I continue to be Executive Chairman, but they are the joint CEOs of our IT business. It also gave us an opportunity to marry together much tighter, our domestic and Middle East IT business and the global IT business. We’ll be able to bring across synergies to the two businesses much stronger.
India Knowledge at Wharton: What pros and cons did you weigh in deciding upon your current leadership structure? How do you envisage the division of labor between the two co-CEOs working in relation to you than it was, say, when you had one CEO — Vivek Paul?
Premji: In a way, I became the co-CEO with Vivek Paul because he was based in California. He made about seven visits a year to India and spent less than 15% of his time in India. So I don’t think that’s really a fair comparison. The other fact is that we were less than one-third our size at that point in time, and he never looked after the domestic and Middle East IT business. His operations were limited to the global IT business, which was one-third the size at that point of time.
The cons, I suppose, are that we must make sure that the two people work as a team. If they don’t work as a team and they don’t work seamlessly, it can be harmful to the organization. We must ensure that the teams under them, the direct teams under them, also work as teams and don’t play cross politics in the process of having two co-chief Executives. We have formed a single council consisting of myself and them, and we plan to meet for maybe an hour every month, to go over issues that require to be discussed.
Though this is not a conventional model, maybe about 5% of global companies do have a system of joint or co-chief executives. Oracle has such a system now — and the company’s most brilliant success of Oracle come through this revised structure. Larry Ellison is the chairman but he does not run the company any more; two co-chief executives run the company. The same thing now has been announced by SAP. There are many other companies also that have this system. Interestingly, many Indian companies where there’s a father-and-son combination are being run as joint CEO organizations because the father has not given up running the company and the son is actively involved in running the company, and there is division of responsibilities.
We have been careful to see to it that certain functions are jointly managed. We believe functions like finance, HR, strategic planning or technology have to service both of them seamlessly. But there also are businesses they run where they have single-point responsibility for that business on their shoulders. I think that arrangement will work well. That is my personal judgment because I have seen them working well together. When they work as a team, the sum of the parts will be more than one plus one.
Aron: You mentioned family businesses in India where the father runs the company but the next generation also is actively involved in the company. What’s interesting about India is the disproportionate number of IT firms that have joint CEOs of some form of a collective leadership model. At Infosys, for example, [former CEOs] N. R. Narayana Murthy and Nandan Nilekani work closely with the new CEO, Kris Gopalakrishnan. Mastek has a collective leadership…
Premji: There are three joint CEOs there — it’s actually a fact.
Aron: Cognizant was set up with a North American head of business and an Indian head of business. What is it about the nature of information technology companies in India that they seem to have a disproportionate number of these collective leadership structures? Does it have something to do with the nature of these companies, or India, or both?
Premji: One reason is the stability in top management which these firms have had for many years. As a result, many of the people who eventually become the joint CEOs have worked with one another for long periods of time. That is certainly the case with Wipro, and also with Infosys and Cognizant, where the people have worked as a team for a long period of time. So, the dynamics of how well they get along with each other has not been a major consideration. The dynamics of shared responsibility has not been a major consideration. There have been other organizations where that has not happened, where the people have not worked together, so they had to have a third person who’s an arbitrator, sitting with the two of them to make them work together. I believe this happens because these relationships are team-oriented and have been built over a long period of time.
Aron: Culturally, do you see that there has been a significant difference between companies that you mentioned now — Cognizant, Wipro, Infosys — and Accenture, EDS, and IBM?
Premji: At Accenture, William Green is the chairman and CEO. Green’s prime focus is customers — he focuses on Accenture’s top 100 customers. The chief operating officer is Stephen Rohleder, and he virtually runs the company, A to Z, including sales, delivery, and the technology function. It’s almost equally divided between two compartments. I’m not very familiar with the structure of IBM. IBM is probably a little more conventionally organized. But I do know Green at Accenture, and I know how he shares the responsibility for running the firm with the COO. He’s on the road 200 days a year.
India Knowledge at Wharton: You recently reorganized your consulting business and brought your consultants under one roof. I have two questions. The first is, what was the thinking behind that move?
Premji: The first reason was that we needed to have common practice; it was just getting too fragmented. It was not getting an adequate enough critical mass. We were not doing enough career planning, career enrichment, career training, consultancy training. We were getting too silo-ed. For example, we had quality consulting, which did quality, and then a mixture of something else because that’s what the customer asked for. We had domestic consulting, where we had 300 consultants addressing the India and Middle East market. It just focused on domestic and did very high quality work. In addition, we had consultants embedded into our verticals, very high quality people who just served that vertical or a sub-segment of that vertical.
We went through a sieve and identified consultants who would qualify as consultants — and not as program managers or architects or domain specialists — and we put them under a common umbrella, under one of our joint CEOs. We pulled this together from the point of view of developing common practices, common approach, common pricing and most important, common brand. We are taking the next step now in terms of building much stronger leadership for the whole team and building consulting as an approach, which we use as a major facilitator in growing, expanding and going up the value chain in our accounts. A high proportion of our consultants are being embedded into our accounts team, serving our top 75 accounts. We will use the balance of our consultants for building expertise in specific areas where we will sell consulting services.
India Knowledge at Wharton: My follow up question is, how much of a challenge is it for a firm like Wipro, which has traditionally focused on design, implementation and execution of IT services, to start doing the kind of consulting that, say, Accenture or IBM — through acquisition of PricewaterhouseCoopers — would do? Do you have to acquire a significant amount of talent from the domain in which your customers exist, which is North America and European Union? Like, there’s a senior executive from CAP Germany who was introduced today. So, do you expect to see a lot more of that happening? Acquiring talent from the US, adding from there?
Premji: If you were to classify it in a strict sense, only about 20% of Accenture’s total revenue comes from consultancy. I mean, if you use ERP consultants and you call them consultants, we have many ERP consultants, we have 5,000 of them, but we don’t call them consultants.
So, you have to go through a sieve. If you go through the sieve and apply the standards we are applying, 20% of Accenture’s business comes from consultancy. And that’s been borne out by analyst reports also. If you analyze it, about 3% of our revenue comes from that definition of consultancy.
What we are doing is we are putting in significant training into the people we have currently to upgrade their skill resources, upgrade the presentation resources and upgrade what we expect from them in terms of not business as usual. We are also recruiting. We are recruiting from campus and we are recruiting from peer groups where we find consultants who have got a more integrated approach to solutions like we require.
So, typically, companies like Pricewaterhouse, companies like Accenture, would be target companies where people have… Deloitte, CapGermany would be target companies, which would bring that profile.
There’s a significant part of the 3% or 3.5% consultancy work, which we do is one-to-one comparable with what Accenture does. Two years from today and three years from today, all of it will be comparable in terms of what we will do. And we find it a major facilitator for building brand, a major facilitator for building relationships and a major facilitator for being much more proactive in terms of thought leadership with our large customers.
So, it’s very much part of an integrated approach, where you go to a customer. You take a typical customer X who has 1,000 applications running and he could probably downsize it to 150 applications, doing exactly the same thing. You can put together a platform for him where you are able to re-engineer his processes, identify his IT processes and then run his processes for him.
So, we are putting together and building a platform, which can facilitate doing that on a more standard basis, at a much higher standard output and a much higher productivity, with ends which are much more customizable.
But, typically, a consultant embedded into an energy account would be the top leadership person who works with that customer, along with his code team, and along with the relationship partner for that account and put together the solution. And they proactively tell the customer, this is what we can do.
So, even if the customer eventually goes for an RFP, which is maybe 1/3 of the cases, you have a distinct advantage in that you have started the process with him six months earlier. So, your understanding of the terrain is that much better.
India Knowledge at Wharton: Let us turn now from organizational issues to Wipro’s strategy going forward. As you know, Indian companies have been very active in acquisitions. At Wipro, what If we think about Wipro’s zone strategy, what kind of acquisitions do you think make the most sense for you looking forward 18 to 24 months and what would be some of the strategic rationale for those acquisitions?
Premji: Let me limit myself to the IT business. Otherwise, it will get just very complex for the constituent audience. We have done in the IT business about, I think, nine or 10 acquisitions for the past two or two-and-a-half years. They’ve all been with a specific strategic focus in mind. We have not done any acquisition for accretion or to just multiply sales. So, if you look at it, the acquisitions have accounted over the past two years for maybe about 3.5 to 4% of our growth rates and not more than.
So, if we are growing at 30% or 32%, the acquisitions have topped it by another three or 3.5%. The approach is that we identify areas where we need an expertise to be taken from the market because it’s faster. We target a candidate or set of candidates where we want a jumpstart in a particular geography. Like, we’re now looking specifically for an acquisition in Germany.
Because we are small in Germany, we are very large in UK; the German market is the same size as the UK market. We can grow it organically, but it will take us five years. If we can get the seat of a good acquisition, we can do it in two or three. But, we want to get into a different kind of a segment of the business, which integrates with the rest of our business. Info crossing where we bought the data center company was typically we’re the leaders from India in infrastructure support.
We found that in large, complex projects, customers were demanding that they needed to have local data centers where they could place the equipment. They wanted it for security reasons, they wanted it for touch and feel reasons, which is why we did that acquisition. It cost us $600 million.
So, that’s a very clear purpose through which we are doing acquisitions. We’ve identified five areas for the next 18 months, which we are focusing on, where we are searching. Maybe, more than half of them will be companies we sought out. They did not flow to us through investment bankers.
We may have used investment bankers, but that was to facilitate the process of negotiation. The identification, the report building was initially done by us.
India Knowledge at Wharton: The terrain, the US economy has been really slow. In fact, Warren Buffett said the other day that even if it may not officially be a recession, it feels like a recession to a number of people. Considering the amount of revenues that Indian IT firms get from the US market, how do you see this affecting Indian IT companies and even Wipro specifically?
Premji: I think, in this particular slow down in the economy, the sector which got affected the most was the financial solutions sector, because of a major shake out, write offs, layoffs which are taking place and a huge amount of change in leadership.
I think, a huge amount of change in leadership has affected decision-making in these companies. I think that leadership now seems to have settled in and we see it as more write-offs. It’s a new leadership, which is really shaking out. I believe that in another two or three months, financial solution companies will be back to action in terms of what they have to do, including in the IT area.
They would probably not focus on discretionary projects. But, any solutions you can give them which take costs out, which increase productivity, which address solutions they have not thought of, will be more than easily taken up.
So, if anything, I see the second half of our financial year, which is the third quarter of the American calendar year, being fairly strong in terms of demand, or at least, definitely back to normal in terms of demand.
The second industry which has got partially affected because of sentimentality is the retail industry. But, there also we are seeing some stabilization coming back and you are seeing this from consumer purchase data also that seems to have signaled the downward curve is over.
I personally don’t think that the growth of the Indian IT industry, which was last year 28%, will be affected. If anything, BPO requirements are going to go, because that’s the area of maximum cost take-outs. They just require that bold step, that I have to make that bold step. When you are under pressure you make the bold steps faster, you don’t make the bold steps slower.
I don’t think that the growth of the IT industry, including the BPO industry in India would fall to much below 25% this financial year, maybe 24%. If it is 24%, the sky has not fallen.
India Knowledge at Wharton: We have time for one last question.
Aron: So, financials and retails have grown ahead of company average. Those are two big areas of growth. As we go forward, healthcare is set to grow at a very, very rapid clip. By 2012, it is actually going to reach the size of financial services.
What are the two or three areas in which you are looking to position Wipro for the opportunities of the future, in the near term in the three to four year period, what are the areas that you are gearing up for?
Premji: well, one area where we think we have built a very unique position is infrastructure support, where we take on remote bases, managing the entire infrastructure — the IT infrastructure of the customer.
Aron: The global command center that you run?
Premji: The global command center that we run, the data centers which we run now, which we will duplicate also in Europe, expertise, which we have built up. And offering highly managed services on that, on an SLA basis, whereby we are able to share a significant part of the productivity and cost take-outs we do with our customers.
The second area is in R&D services. We are uniquely positioned. We are the largest third-party R&D services company in the world. We believe it’s a position where we stand out compared to any global competition, including western global competition.
So, if you ask me, the two strongest areas where we really stand out in terms of differentiation, these would be the two areas.
And then there are the geography opportunities. India is a huge growth market for us. And as compared to any other IT company, we’re number one in India. We’re head to head with IBM. One year our market share is a little more, one year their market share is a little more.
And we bid and we win large contracts. Last contract we won was SL, which was $600 million. Similarly, we won a very large contract for total outsourcing for a large retail company. In the Middle East we have a strong footprint, but we are expanding much more in the Middle East. And in Germany we want to establish a strong footprint. So, these three geographies would represent major growth engine for us — just organically.
Knowledge at Wharton: Very interesting. Mr. Premji, thank you very much for joining us today.
Premji: It’s a pleasure.