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10 reasons why Wipro has failed to keep pace with its peers
Wipro, a dominant IT player based out of Bangalore, forayed into IT arena in the year 1980 and has been one of the first Indian IT companies to have achieved global recognition. Yet in the last 3 years, it has been constantly lagging behind its competitors such as Infosys and TCS. Wipro's stock price have been dwindling between Rs 500 - Rs 600 in the last 3 months. Stock prices of IT services organisation Wipro, headed by Azim Premji, dashed nearly 50 percent compared to when its stock values peaked itself in mid 2009. Let's browse through a few of the important reasons that have been the reason for Wipro's slump.
1) Slowest Growth Rate in 5 years:
Wipro saw a fall of 0.06 percent in its consolidated profit in 3rd quarter of 2015 - 2016. Net profit of Wipro rose 1.88% to Rs 2234.10 crore in the quarter ended December 2015 as against Rs 2192.80 crore during the previous quarter ended December 2014. Still, overall the company has put up a weak and banal show compared to its earlier years. In spite providing a higher guidance for the current fourth quarter, Wipro has grown at its most sluggish rate in more than five years in the last financial year 2015-16. Wipro’s at-best 4.2% growth will be the slowest since it grew 1.6% in 2009-10, and fades in relation to its 7% growth last year. Last year, Wipro even managed to inch past larger competitor Infosys Ltd in terms of incremental revenue, but this year it seems unattainable for Wipro.
Wipro's delivery head and chief operating officer, Abidali Z. Neemuchwala denied mentioning a time period from when he foresees Wipro to return to industry-matching development figures.
2) Drop in Business from Top Clientele:
Until now, in spite of Neemuchwala taking corrective steps to enhance Wipro’s delivery part of business, along with establishing a strategic initiatives body, the organisation maintains a drop in business from its leading clientele. Wipro’s 10 topmost customers generated 19.3% of overall sales in the December term compared to 21% in the last year same term. Sales for the power sector, which calculated to approximately 14.5% of the company’s overall sales, dropped 1.7% in the quarter, while revenue in Europe too worsened by 1.7%. Revenue from US clientele, the biggest area which accounts for greater than 50% of Wipro’s sales, also did not increase. In the same time Wipro's revenue underwent a 1.6% drop from clients in the financial sector. This sector brought 27% of Wipro’s $7.1 billion revenue for the year concluded March 2015.
“We believe solid deal wins and new CEO Abid Ali Neemuchwala’s (takeover from 1 February) stress on execution are positives,” Abhiram Eleswarapu, a BNP Paribas analyst, addressed after Wipro announced its results.
3) Alterations in Top Level Management
“There is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to initiate a new order of things. For the reformer has enemies in all those who profit by the old order, and only lukewarm defenders in all those who profit by the new.”
Kurien not only bolstered the marketing department, he reassembled his work force and remodeled the company. Albeit chief executive officer (CEO) TK Kurien, who has been there in the driver's seat from February, 2011, has made lots of modifications to institute higher rate of efficiency, the organisation hasn’t actually progressed at a rate it would have expected to. The Azim Premji-led company kept the assignation of the COO a big secret with only a few of top level management of Wipro being a party in this act. The news of selection of Neemuchwala definitely generated amazement as he had served 23 years at Tata Consultancy Services (TCS), a major competitor of Wipro; market experts are of the opinion that his appointment could bring in some major alterations in the top administration of Wipro. In its mammoth management alteration in the recent past, Wipro announced Abid Ali Neemuchwala its chief operating officer (COO) onMarch 16 and effective April 1, 2015. India’s third biggest IT player will be anticipating that Neemuchwala brings some momentum to the company's growth.
4) Chennai Floods have lowered the Q3 Revenue of 2015 - 16:
One of the biggest Indian IT players, Wipro informed that the last year flood situation in Chennai, which had boomeranged its functioning in the city, had an influence on its third quarter results of 2015 - 16. Wipro, which has a number of addresses in Chennai with more than 22,000 strong workforce, announced: “Business continuity plans were invoked for the work being done from our (Chennai) facilities to ensure there was no disruption in the business-critical operations of our customers.”
Yet, the term concluding December 31 took a blow, because of one-time costs procured for the lineup of the organization's action continuity plan. “This factor will impact our operating margins for the quarter,” it informed. Profits from the organisation's IT division had been in the earlier discussed domain of $1,841-1,878 million. According to experts, Wipro’s growth projection for its IT sector for the December term, of between 0.5 and 2.5 percent, was less than expected. They had anticipated an average of 1.5-3.5 per cent growth.
5) Struggles in Commoditized Business like Application Development and Infrastructure Management and Emergence of Newer technologies like Cloud Computing and An
Last financial year will be remembered as the year when the businesses began to identify the actual result of the evolution of newer technologies like cloud computing and analytics. India's IT majors battled to increase sales from regular and commoditised technologies like application development and maintenance and infrastructure management, as leading clients like Citigroup and General Electric that are experiencing huge technology alterations deviate investing to coming-up technologies. Newer and smaller companies are also cropping up with consulting facilities, helping them to have the type of discussions the customers need, say analysts. Top clients like US discount retailer Target Corp, agriculture conglomerate Cargill and home improvement chain Lowe's are requesting Indian IT players to execute large-scale transformations soon.
"For Indian tech vendors, rather than coming to us and saying this is what we can do, they should come to us and say these are your business problems and we have these solutions for you," said Narayan Ram, MD, Lowe's India. Analysts tell only some Indian players have that potential till now. "What Indian service providers need to do over the next five years, from a leadership perspective... (is) go to their customers and tell them, 'this is what you need to do'," said Fred Giron, Analyst, Forrester Research. "No service provider today, especially traditional service providers, is able to have these kinds of conversations with their clients."
6) Wipro's energy contracts suffers as oil prices plunge
In current times, Wipro has observed a decline in IT deals associated with bigger capital enterprises in the energy area, CEO T.K. Kurien told. Although IT contracts associated with the oil sector generates approximately 6% of Wipro’s sales, the organisation must consider other areas too like manufacturing to neutralize the influence of the recent market, the CEO told. Wipro Ltd that lists power sector firms among its customers, informed few of those clients have curtailed rewarding deals because of a huge fall in oil valuation. Although Kurien didn’t exactly point out the assignments that have been delayed, he informed they were generally those that hadn’t taken yet.
7) Wipro's Dollar Revenue Growth disappoints:
Wipro's share prices have limped in comparison to those of its' peers for quite some time, just since the organisation has not been able to show sufficient growth. Its December term figure provides no grounds to conclude that this will alter in the recent future. Sales grew by 0.3% constantly in dollar terms and by a paltry 2.4% on a year-on-year term. Infosys Ltd, which, not much time back, had kept Wipro company with flat growth rates, recorded a year-on-year increase of much above 8% in the December term.
8) Decline in Operating Margins:
The company’s year-on-year drop in profits is because of a decline in operating margins. Kurien said the total valuation for large commoditized technologies persists beneath stress. This is echoed in Wipro’s operating margin drop to 20.2% at the conclusion of the third term, as against 20.7% at the conclusion of the second term and 21.8% in the bygone year term. Wipro’s revenues were also battered by a 40 basis point loss because of the Chennai floods. One basis point is one-hundredth of a percentage point.
9) Wipro's Unsuccessful outsourcing:
An important logic for failure of offshore outsourcing projects is that organisations do not have an exhaustive method ready for executing the plan efficiently. You can deploy portions of your offshore blueprint action, but you cannot outsource the work of developing a plan principally. Each organisation must develop its own plan of action and must double-check that the offshore provider gets it clear. Go to the effort of acutely conveying information and detailing preferences, long-term goal, and metrics are zones where firms fail.
Classification of motives with provider's competence is important. Nothing causes mistrust and dismay more than non-synchronization amid what's expected from the provider and what the provider really is giving. Lehman Brothers didn't delay in retreating from its internal computer help desk function when Wipro was unsuccessful in furnishing the kind of efficient service and perfect quality it anticipated. Wipro was managing Lehman's employee accounts of computer issues.
10) Weaker Foothold in BFSI Sector:
Analysts mark that the IT major Wipro could not take the advantage of a rebound in demand as it could not operate in the BFSI software sector because of the lack of its own manufactured product. BFSI generates the largest portion of the contribution in the worldwide IT market. The 3rd largest Indian IT company, Wipro, unlike its arch rivals like TCS, Infosys and CTS generates the least sales for this very important segment. It calls for Wipro to alter its strategic plan of action in the BFSI vertical, which has been its one of the most sluggish zones for a long period of time. It is upon Wipro to decide that if it gets this done it via smart business move or chooses to advance vigorously organically, Neemuchwala needs to decide upon it and that too very soon.
"Competition (Infosys and TCS) has two streams of revenues. They have their own banking software and services. We don’t have our own software, so if you remove the banking software, in the banking services we grew faster than them (in the third/December quarter). It’s because we don’t have a software product that we are growing slower,” remarked a top Wipro official.