Wipro: Is the Growth Strategy delivering long-term Growth? [1]
The strategic choices that the company makes, given its operating environment, determine its business and financial performance. We trace the evolution of some of the leading IT Services firms to identify the strategies that have helped them grow so far and the possible strategies that would help enhance resilience.
During the last three decades, the IT Services business has evolved from a period where IBM & HP were trying to build large-scale services and solutions business to a period where the consulting firms like Accenture, Deloitte, Capgemini, etc. have successfully built large technology services businesses and practice. Some of the Indian firms have evolved from providing staff augmentation services for Y2K projects to providing domain-specific technology-based services with scale. All the major firms have focused on acquiring new customers and deepening engagement and building scale with existing customers. They are now trying to build consulting practice that leverages their technology and domain capability. We trace the growth strategy choices and performance of some of these firms using the eras described in the first section.
In this paper, we discuss the progress that Wipro Limited has made in this journey. Wipro’s strategy has evolved over the years with multiple deeper shifts within the broader technology and economic eras described in the Table below.
Eras that have defined the Information Technology Business
Our choice of periods defining the eras is based on the growth cycles that the global economy has experienced since 1994. For example, the global economy grew by 3.3% in 1994 (the highest rate since 1989) and reached 4.5% during 2000. We, therefore, identify 1994-2000 to be first era. The next peak rate was achieved in 2006 at 4.4%. Therefore, our next era is from 2001 to 2006. Since 2010 at 4.5% and 3.4% in 2017 are years of peak growth, they become the ending years of each of the next two eras.
Table 1: The eras of IT Services growth [2]
We are ignoring the post-pandemic peak of 6.2% in 2021 which was after a decline of 3% in 2020 and identify the period starting from 2018 as an ongoing era. Since the latest currently available information is for 2022, the numbers in the table are for 2022.
How did Wipro adopt its strategy as the global economy and the industry evolved?
Era 1: Peak Real Economic Growth and Booming Stock Markets: 1994-2000
Wipro was not known to be an IT services firm during this era. In fact, it was investing to grow its consumer and lighting business. In the consumer space, it was leveraging its distribution network for soaps to reach one million customers directly and indirectly. In lighting, distribution once again was Wipro’s strength with direct access to over 300,000 outlets. The company was investing in brand extensions and in enhancing cost efficiencies in both manufacturing and distribution. The company was also among the top-25 R&D investors in India.
It continued its investment in diversifying its business portfolio to build export-focused businesses like Healthcare Systems and Fluid Power. However, Wipro Finance was struggling to manage its cash flows.
While Hardware Business played an important role in its growth strategy, the Services Business started getting traction
As for IT Business, Wipro listed its strategy to be based on information systems and specialized technology skills along with domain knowledge in a vertical. They had a 55:45 joint venture with Acer in the computer business. While they were continuing to build a conglomerate, they were in the right place and at the right time for the tech business. Demand for staff augmentation tech projects started peaking around the Y2K requirements. Wipro, like other Indian firms, was in the right place at the right time.
Wipro’s growth model during this phase is described in the chart below.
Wipro’s Growth Performance
Wipro found its IT hardware and services business growing at twice the rate of other businesses. By 2000, it generated about USD 200 million in sales for IT services business (termed as software exports) under Wipro Technologies. Not just that, IT Services business delivered higher sales than the hardware business for the first time for the company. During this era, Wipro had positioned itself to capture the early stage of IT Services growth.
Era 2: Globalisation thrives & the Dot-com Bubble Bursts (2001 to 2006)
The dot.com boom was turning to be ephemeral, and the stock market reacted by a steep fall in indices in 2000 and 2001. Economic growth started faltering and fell to a low of 2% in 2001, from a peak of 4.5% in 2000. However, global trade in goods started accelerating. While the trade in services was slow to grow, the India IT Services business was thriving and crossed USD 50 billion in sales.
By 2001, Wipro’s strategy in the Indian IT market, where the Wipro brand was already well regarded, was to improve profitability by focusing on IT services, including systems integration, support services, software and networking solutions, and the internet and e-commerce applications.
The consumer care and lighting businesses had historically been Wipro’s cash generating businesses and they continued to play the same role during this period. The strategy at this point was to maintain a steady growth in operating income through investment in brand and the distribution network.
Wipro defines its ambition in the IT Services Market, with focus on profitability
By 2001, it set its sight to “become a world leader in providing comprehensive IT services”, growing Global IT Services business with dedicated sales teams in Europe and Asia and client accounts with over $1 million in annual revenues. The plan was to increase operating margins by increasing revenue per person, productizing services, working on fixed price contract and offshore work including technology infrastructure support, enterprise solutions etc. At this point, it had set up 28 offshore development centres and was employing 9,000 IT professionals.
Acquisitions become an integral part of its Growth Model
At this stage, Wipro caught the wave of IT Services growth in line with the broader global market shifts and it started acquiring companies to enhance its capability and expand the scope of its offerings. Extending the offshore work practices, it acquired Spectramind to mark its entry the BPO business in 2002. It also acquired Global Energy Practice of American Management Systems, augmenting IT consulting expertise in the energy and utilities sector.
With the Consulting growth goal in mind, Wipro acquired Nervewire, Inc. in May 2003 to enhance IT consulting capabilities in the financial services sector.
Redefines its goal to become a major player in the Global IT Services Market
In 2004, they set their technology business vision more boldly to be amongst the Top 10 IT services companies in the world, which was in response to growing competition with multiple global and Indian companies that were equally committed to winning in a fast-growing market. Wipro needed more in-depth domain expertise, and consulting was clearly the area to position more distinctly, both for improving margins and for increasing revenues. It started offering services in newer growth areas like business intelligence, data warehousing and network storage.
We saw Wipro making investments to build capacity as well as capability, as seen in the chart below, to grow at this stage. In its traditional businesses it continued to focus on growth in income and cash flows.
Wipro’s Growth Performance
At the end of 2006, Wipro was employing more than 50,000 people in its IT Services business and achieved a revenue of about USD 2 billion. It was the third biggest IT services firm in India after TCS and Infosys. But despite their strategic shifts and focus on consulting, they were not the market leaders. In fact, Infosys had crossed a billion-dollar sales mark ahead of Wipro in 2004, after having become bigger than Wipro in 2001 itself.
Era 3: Global Financial Crisis, GFC, from 2007-10: Economy Suffers and so does Trade in Goods, but Trade in Services Survives
Wipro’s strategy during this era focused on creating differentiated service lines and building global delivery capability. It used acquisitions-led strategy by arguing that “buying a wheel is more economical than reinventing it”
Apart from acquisitions, it focused on building partnerships with global firms
Wipro continued the acquisition-led strategy, clearly demonstrating its global aspiration across technology as well as manufacturing businesses. It acquired the following technology businesses in 2007.
- US based Quantech Global Services LLC and the India based Quantech Global Services Ltd. for a cash consideration, which includes upfront payment of approximately USD 3 million.
- CMango – Transactions consummated in April 2006 – US based CMango Inc and India based CMango India Private Limited for cash consideration which includes upfront payment of USD 20 Mn.
- Europe based Retail Solutions Provider, Enabler. The consideration included upfront cash payment of Euros 41 million.
- Finland based Saraware Oy. for a cash consideration of Euro 25 million.
- Middle East and SAARC operations of 3D Networks and Planet PSG for a cash consideration of approximately USD 23 million.
Wipro’s acquisitions in this period went beyond the technology space, and it acquired
- North-West Switches business from North- West Switchgear Ltd., a company in the business of switches, sockets, MCBs etc. for an upfront cash consideration of Rs. 1,022 million.
- Hydrauto Group AB (“Hydrauto”) for a cash consideration of USD 31 million in its Infrastructure Engineering business.
By 2009, Wipro was pursuing a strategy of “string of pearls acquisitions” by acquiring businesses that complemented its offerings. It acquired Citi Technology Services Limited “CTS” for US $ 127 million in 2009.
The large deal focus continued with partnerships such as Cisco, EMC, Microsoft, Oracle, and SAP, for co-innovation and development of joint solutions for customers. It also partnered with Motorola to deliver managed services to telecom operators for network operations.
Redefines its Customer Engagement Strategy to become a Partner in Customer’s Success
At the time of the financial market crash, Wipro shared its goal as “make our customers successful, using a systems-based approach”, and its strategy focused on building differentiated service lines, transformational outsourcing contracts with global delivery capabilities. In 2009, they added “Embrace Green” to the earlier two pillars of enhancing customer value and operational efficiency.
During this phase Wipro was training its strategic account team to ask the following questions to its clients:
- How can we make a difference to your business?
- How can we ensure that the outcomes are our focus not the inputs?
- What is the business result that needs to be delivered by the IT teams?
In a way, Wipro was investing to deepen its engagement with its clients.
Investing in Futuristics technology
Wipro piloted a video Analytics solution as part of internal security surveillance infrastructure. It also invested in Enterprise Content Management SaaS (Software as a Service) solution, helping its clients manage their cost structure in weak economic conditions arising after the Global Financial Crisis. It also spoke about “investing in technologies that will enable the 21st Century Virtual Corporation” – cloud computing, collaboration, green technologies, mobility, social computing, information management, etc.
Wipro’s Growth Performance
While Wipro had a market relevant strategy in place, it was probably not moving fast in terms of execution or winning in terms of a strategic advantage at this time. From cloud to social computing, there were many market innovators who were leading in terms of their work. Wipro reached USD 4 billion in sales, with about 90,000 employees. It, however, experienced a near stagnation in sales between 2009 and 2010 and Infosys managed to sustain its marginal lead over Wipro.
Era 4: Recovering from GFC from 2011-17: A Lost Decade but global trade sustained
It was a period where mobile technology usage exploded and OpenAI was born (2015). The Indian IT Services business crossed various milestones to reach a revenue of USD 150 billion.
While Wipro’s core strategy remained close to its strategy in the earlier era, it started taking about creating greater impact through eco-system partnerships in the areas of cloud, analytics, and mobility technologies.
Reorganising to focus on Large Clients
In 2012, Wipro started a sales transformation initiative, structuring its customer facing arm. They categorized client partners for different customer groups based on size of accounts and concentrated on top 125 accounts across multiple verticals.
Expanding Geographic Coverage and Building Local Delivery Capability
Wipro recognised that Continental Europe, Latin America, Africa, and Asia Pacific are key growth areas, and it accelerated its investment in these markets through acquisition of Cellnet AG and increased delivery capabilities.
Reimagining “Customer Journeys” through Wipro Digital
But what was increasingly clear was that the rapid technology shifts globally needed to reflect quickly in their service offerings as well. By 2015, they started taking about cybersecurity and formed Wipro Digital to “reimagine customer journeys.”
Investing in Start-up Eco-system for Next Generation Products and Solutions
At this time, Wipro Ventures was also set up to invest in “mid-stage cutting edge startups” and help evolve “next generation disruptive products and solutions”. Bets in AI, IoT and Big Data Analytics started at this.
Investing in IP through acquisitions and organic development of AI applications
They made bets through investments in IP through acquisition of Gallagher Financial Systems Inc., Opus Capital Markets Consultants LLC, HPS and ProMAX Systems, Inc., and organically developed platforms such as HOLMES for developing AI Applications like the Intelligent virtual agents, anticipatory and predictive systems, etc. In 2016, they acquired, Designit, Cellent (IT Consulting), and HPS (Business Process as a Service (BPaaS) solution to Healthcare Insurance companies) and announced intent to acquire the Viteos Group.
Redefining its Strategy Pillars
In 2018, Wipro created an over-arching theme for its strategy and christened it as the “Run Strategy”, and the “Change Strategy”. The “run strategy” was about “modernising the core” of client processes and technology landscape, which involved achieving efficiencies in core operations. The “change strategy” of “driving the future” was about digital transformation enabled by Wipro and its partners’ digital capabilities and assets. The strategy was organised around provision of integrated services, simplification, hyper-automation, localisation, and digital capability.
Wipro’s Growth Performance
During this era too, Wipro was not able to leverage its strategic bets for improving its relative growth performance. Globally, companies like Accenture had made huge headway in Digital Transformation. While Wipro did manage to accelerate its growth, it continued to lag Infosys’ growth, which resulted in Infosys becoming a USD 10 billion-dollar company in 2017 – the year in which Wipro’s sales were about 7.7 billion dollars.
Era 5: Pre-COVID Slowdown, COVID & Recovery from 2018 to date: Trade in Services recovers faster than Trade in Goods
This is an era when global public cloud services revenue crosses USD 500 billion and when ChatGPT was launched.
During 2018, Wipro continued to invest around its “The Run” and “The Change” strategy with focus on non-linearity (driving differentiated offerings, leveraging IP, and transaction and outcome-based pricing), open innovation, localisation, and hyper-automation. Mergers and acquisitions during the year included InfoSERVER (a Brazilian IT Services company in Financial Services) and Cooper (award-winning design and business strategy consultancy.)
Launches Big Bets Programme
By 2019, the digital focus became a “Digital first” strategy through pillars they identified internally as Business Transformation, Modernization, Connected Intelligence and Trust as the key pillars. They also created a “Big Bet” program to make investments in Cloud, Cyber and Digital. There was no major shift in Wipro strategy during 2020 and 2021. They were competing in a crowded market where cutting-edge tech work was happening across multiple areas.
Leadership and Organisation Change
And at this time, there was a change in leadership with Thierry Delaporte becoming the CEO in May 2020 and initiating key organizational changes.
During 2021, Wipro articulated its strategy as the one that “supports value creation for clients and growth for our organization through five strategic priorities: accelerate growth, strengthen clients and partnerships, lead with business solutions, building talent at scale, and a simplified operating model” – a strategy that is not too different from its strategy in earlier periods. However, it was possibly aware of the challenges in accelerating growth and, therefore, started discussing the ideas like “building talent at scale,” something that its peers like Infosys and HCL were getting better at. Years 2022 and 2023 have not seen any major shift in Wipro’s core strategy.
Focusing on Big Deals and “Building Talent at Scale”
Wipro built a large deals team under its new leadership, demonstrated its willingness to bet big through large acquisitions like a $1.5 bn Capco deal.
In 2023, it continued working with its 2021 strategy with focus on creating value through sector-specific ‘Business Solutions’, ‘Digital’ and ‘Technology’ capabilities. They reported large deal total contract value (i.e. deals greater than or equal to $30 million in total contract value) in fiscal year 2023 was at $3.9 billion, 66.5% growth year-on-year.
Renewed Focus on Acquisitions-led growth
It also acquired International TechneGroup Incorporated, a global digital engineering and manufacturing solutions company and a world leader in CAD and PLM interoperability software services, Rational Interaction, a full-service digital CX solutions firm and Cooper Software Inc., an award-winning design and business strategy consultancy.
Business Transformation comes with Leadership Challenges
While the company was transforming its businesses and processes, it experienced multiple senior level exits. These included Country Heads who had been brought in by Delaporte. Similarly exits were seen in the general counsel, Americas unit head and the CFO roles. In November 2022, Wipro announced the appointment of a new COO. The CEO continued to pursue reorganization and transformation strategy even among these changes.
Growth Performance
While Wipro strategic choices seem consistent with its clients’ needs, its growth performance has lacked its peers. During this time, Infosys and HCL Tech have consistently built on their growth momentum during the pandemic. But Wipro’s revenue remained stagnant at about 8 billion.
However, the restructuring efforts did help it improve its operating margin between 2019 to 2021, but the margin has once more experienced a decline during the last two years.
Looking Ahead: Investment in Generative AI
Meanwhile, the biggest gamechanger over the last couple of years has been the rapid shifts in Generative AI. Like other tech firms, Wipro has also been investing in Generative AI research, but the efforts are still too nascent and disparate. This includes partnerships with University of South Carolina and IIT Patna to build health focused language models. Other areas include LAB45 and broader AI partnerships with companies such as Microsoft, Google, AWS, NVIDIA for co-building solutions. Generative AI is an emerging battlefield now. While Microsoft, Google and NVIDIA might seem to be the early movers in terms of the models and the infrastructure, how IT Services companies such as Wipro can play a key role in this chapter of changing strategy remains to be seen.
It reorganises its offerings from two to four Global Business Lines
Wipro reorganized its offers from two global business lines (iDEAS – Integrated Digital, Engineering and Application Services, and iCORE – Infra Cloud, Operations, Riks and Enterprise Cyber Security) to the following four lines, starting 1st April 2023.
- FullStride Cloud: cloud capabilities of the company
- Enterprise Futuring: insights, data, applications platform, digital operations, cybersecurity risk services and use of AI/AR/VR.
- Engineering Edge: 5G, Industry 4.0, IoT, Silicon Design, embedded systems, data, and AI platforms
- Consulting: Designit apart from the acquired business, Capco and their own domain consulting business
What is clear is that while Wipro has tried to evolve its strategy over the eras, it has not caught the right side of the shift always. Consequently, its growth performance has been relatively slower than other large IT firms in India.
In the chart below, we outline three possible alignments that can help a firm achieve greater customer engagement and market performance.
The first alignment requires the company to create and deliver value that the customer needs or desires and help the customer realise the delivered value. Value creation and delivery to meet customer needs requires that the supplier organisation rows in the same direction. Value realisation requires that customer and the supplier organisations row in the same direction.
Notes:
[1] Source for all Wipro specific information is its annual reports for various years.
[2] Data Source for Table 1 is the World Development Indicators database of the World Bank.
