It’s been another year of underperformance for Wipro. Ending the year with an anemic growth of just 2.9% in constant currency terms. Company’s guidance suggest a negative growth in June quarter at a time when information technology majors are talking about an acceleration in growth.
Opportunity lost trying to follow the big boys
One of the key reasons company left its area of strength i.e. engineering, research and development, Infrastructure Management Services (IMS) historically, is to try and catch up with larger boys like TCS and Infosys in segments like BFSI (Banking and Financial Services Institutions).
While company has done very well to catch up in BFSI, improving its share of BFSI revenues from 18% in FY05 to 29% as of FY18, but failed to capitalise on entire engineering, IMS rebid opportunity when it had the leadership position, was a big opportunity lost.
Playing catch up isn’t easy!
As Kawaljeet Saluja of Kotak Institutional Equities said, “High quality clients in many verticals already decided the information technology vendors they would work with. It is not easy for Wipro to get into these clients easily, unless it penetrates through a differentiated value proposition or incumbents fail to deliver on projects. Wipro as a result, is forced to work with many clients who may not necessarily be leaders in their respective space and prone to more volatility.”
The well-entrenched competition in key growth segments like BFSI, IMS and BPO made closing the gap with peers harder. It also meant that increasing focus in non-developed markets or verticals and settling for smaller clients or some of the client specific issues faced by the company, the latest being one of its telecom client filing for bankruptcy.
An 850 bps margin drop in 4 years
Perennial catch up with the industry could have forced the company to be disruptive and offer pricing concessions, as reflected in the company’s margins which have dropped from 24.5% in Q4FY14 to now an adjusted 16%, a massive drop of 850 bps during a period in which rupee weakened, utilisation rates improved and the offshore onsite mix was favorable. Add to that, many acquisitions were margin and return dilutive.
Too much flux at the top?
Multiple leadership changes have failed to shore up the fortunes of the company. Wipro even tried the joint CEO model, but too much churn at the top probably meant each leader came with his vision and a change in strategic direction.
Wipro adopted a string of pearls acquisition strategy. But these acquisitions have not really helped the company with the latest one, HealthPlan Services acquired in February 2016 with quarterly revenues of $70 million and now down to $30 million.
Infocrossing, which was acquired in 2007, was sold earlier this year after Wipro realised that the company is not its core focus area. Infocrossing was sold for the same as the acquisition price.
Spectramind was a low end voice BPO business acquired in 2005. But when the BPO market transitioned to non-voice based business focusing on process transactions, Wipro lagged behind.Technology changes are common and it’s important for Wipro to identify these changes and be nimble to make the shift, but the company fell short despite an early look in. Wipro’s challenges over the last decade have been to do with strategy and execution. Its journey to achieve industry growth rate still appears to be elusive.