Wipro is reportedly looking at headcount and cost-reduction exercise in the realm of $300+ million. Why are they doing this? Is it a good idea? Of a few possible interpretations for wringing out costs, here’s my opinion – starting with my belief that this undertaking was inevitable. The more important question is how will they do it?
Wipro’s action comes on the back of similar news about TCS and IBM and is predicated by the pricing pressures hitting leading service providers. As I blogged recently, pricing pressure has become acute with existing clients looking for significant cost reductions.
In addition, the market is changing and clients are more insistent about requiring onshore resources; this raises operational costs for the Indian firms, which need to invest in a richer set of capabilities on shore. These resources located close to the customer are substantially more expensive for Wipro and other providers than their India-based resources.
It’s a case of when push comes to shove; if Wipro and other providers are to maintain reasonable margins or be competitive, something has to give. That “something” is the necessity to take out costs to allow them to meet the pricing pressures and allow them to hire the onshore resources that clients increasingly insist upon.
How will they achieve the cost reduction?
I think Wipro and others will move further into the industrialized factory model, which relies on an ever-widening pyramid that pushes work down to lower-cost resources and eliminates middle-management roles.
However, I think the strategy of moving deeper into the pyramid model raises the risk of further commoditizing the space and increasing churn. And clients are more and more intolerant of churn. The likely result is that it will open the door for firms like EPAM and others that differentiate around persistent teams of experienced engineers.
Wipro just hired Abid Ali Neemuchwala as COO and group president. Clearly the provider is setting up a succession plan for him to take over Wipro from current CEO, TK Kurien, who has been driving the firm’s transformation. This is an intriguing move as Wipro appears to be succeeding in the turnaround. So it makes sense that the industry is questioning the move. If the turnaround is, indeed, happening at Wipro, why bring in an outsider?
Abid comes to Wipro from TCS with a pedigree of having run the TCS BPO business. This is a big step up for him, from running a $2 billion business to a $9 billion business. The good news is Wipro is giving him at least a year to learn the ropes.
It’s interesting to reflect on why Wipro did this. I don’t believe the firm is stepping away from the transformation that TK Kurien has been driving. Nor do I think Wipro looks to capture some of the TCS magic and execution capability. I believe the firm is reinforcing its need to continue changing and is bringing in an outside perspective to drive change. This move follows in the footsteps of Infosys, which similarly brought in outside leadership.
Wipro gave TK formidable power, and five years, to drive significant change and transformation. Like any transformational plan, it has been painful and has taken time. But as I blogged before, the transformation is starting to show promise with Wipro wins picking up in the marketplace just as TK’s five years comes to a close.
So why bring in an outsider? I believe the answer is that the journey has just begun. The services industry is at an inflection point. It is clear that with changing technologies, client expectations and business models, leadership in the existing space does not guarantee leadership in the future. I think Wipro understands this and is looks to challenge its organization with fresh perspectives.
Running faster with the old model will not allow for leadership in the future. Fresh perspectives and augmenting existing talent is necessary to give Wipro the best chance at being a leader as the market evolves.
The challenges Abid will need to take on will shape and continue to drive Wipro to change how it delivers services, takes advantage of new technologies such as the digital and analytics space, and how it deals with changing client expectations demanding value beyond labor arbitrage. And Abid will bring new perspectives on how to successfully guide Wipro through the transition into the new business models of SaaS, BPaaS, platforms and consumption-based IT and business processes.
I think it’s a good move.
Photo credit: Wipro
On 19 May, Wipro signed a US$400 million+, multi-year strategic alliance deal with Japan’s largest pharmaceutical firm, Takeda Pharmaceutical. Wipro will provide infrastructure management services across Takeda’s global operations, thereby creating a unified platform across the company. Less than a week earlier, HCL announced a landmark infrastructure deal with pharmaceutical major Novartis. Per the terms of the deal, HCL will provide remote infrastructure management services for Novartis across its entire data center landscape, covering more than 70 countries across six continents.
The Life Sciences Infrastructure Bandwagon
These deals are indicative of a sharp inflection point for IT infrastructure services in the life sciences industry. Until now, service providers have been largely focused on delivering application outsourcing services such as ADM, testing, ERP, and package implementation. Demand for infrastructure services was largely linear and predictable. However, the winds of change sweeping the overall healthcare landscape have brought about strong momentum to infrastructure uptake.
These winds include regulatory reform, consumerization, market consolidation, and the emergence of next-generation digital avenues. The volume, variety, and velocity of incoming data are fundamentally impacting how life sciences organizations view their infrastructure needs. Exponential growth in data, coupled with evolving engagement and drug development models, has resulted in a significant need for analytics. Dimensions such as real-time reporting, proliferation of mobile devices, and automation are providing additional impetus.
The Opportunity At Hand
Among the various sub-segments of life sciences IT outsourcing, we see infrastructure poised to assume the lion’s share of growth in the coming years. While applications and SI/consulting are likely to grow at a healthy rate, the infrastructure opportunity in life sciences could triple in value over 2014-2020. This is likely to be fueled by increasing traction in cloud delivery and storage models, data warehousing efforts, consolidation of information systems, and the move to obtain a unified view of customer data to enable actionable business outcomes.
Life sciences has traditionally been a mature IT market. Across medical device manufacturers, pharmaceutical firms, biotech companies, life science firms spend more on IT than typical buyers. Life science companies have innovative R&D efforts at the core of their operating model. Given the rise in personalized medicines, there will be a surge in data storage/processing requirements and, consequently, infrastructure needs. These themes impact life sciences IT infrastructure requirements to give rise to various technology imperatives across the ecosystem.
Buyers in the life sciences space need to evaluate their infrastructure services roadmap on a business impact versus investment paradigm. They need to establish meaningful relationships with strategic partners in order to enable the true synergistic benefits of a comprehensive and relevant infrastructure services roadmap.
At the same time, services providers need to expand their infrastructure footprint to partner with enterprises in this transformative journey. They need to adopt a holistic mix of traditional tenets (co-location models, data warehousing, BI, hosting, and network services) along with next-generation services such as multi-tenancy solutions, cloud delivery and storage, and BYOD.
What are you experiencing in infrastructure services? Our readers are eager to hear!
Everest Group’s ongoing analysis of global service providers’ performance revealed some notable market shifts in the most recently reported quarter. We note especially that Wipro seems to be righting its ship. Although its growth previously had lagged its peers and the industry, the last quarter evidenced higher growth.
As the chart below displays, Wipro is now performing as one of the top global services firms.
To what can we attribute this improved performance?
Certainly we need to give some credit to the strategic maneuvers that CEO TK Kurient and Wipro’s executive council made. First of all, they have been implementing a verticalization strategy. They also are focusing on large accounts. We believe these strategies make sense and could well contribute to further growth.
In addition, taking a step further back, we believe that Wipro is reaping the benefit of its concentration in services areas that are recovering — infrastructure and Europe. The industry has seen growth in infrastructure services really picking up over 2013. Also, as Europe recovers from its economic crisis (particularly in the UK, Germany and the Nordics), Wipro’s strong position in Europe allows it to also benefit from this growth.
Considering it’s in the right place at the right time with effective strategies, where will Wipro be in next quarter’s charts?
“At times, Indian IT service providers fall behind expectations in new and exciting technology areas that extend beyond the traditional outsourcing paradigm.” – A large MNC buyer of IT outsourcing services
With traditional models of IT outsourcing facing increasing competitive pressures, Indian service providers are looking at a multitude of solutions to drive success and retain competitive advantage. Chief among these are emerging technology solutions from start-up firms. Service providers have realized that to compete and stay relevant in the changing paradigm they have to focus on developing niche and specialized products, boost efficiency, and develop IP. Primary traction themes include data analytics, big data, cloud computing, and enterprise mobility. Niche start-ups with innovative technology solutions help providers augment their existing service offerings.
This echoes the strategy often adopted by multinational technology firms including Cisco, Microsoft, Yahoo!, Intel, and SAP, which back a plethora of emerging firms. Indian providers are now looking to invest and form alliances with ventures in niche domain areas. This is a dramatic shift in the status quo, as Indian IT providers have historically paid minimal attention to start-ups due to their own lack of a proper ecosystem to facilitate such transactions and a fairly low-risk appetite. Yet, of late, they have increasingly set up funds and accelerators dedicated to tech start-up initiatives.
Notable Involvement in Start-ups
Has set up a US$100 million fund to invest in start-ups, besides spotting and funding internal innovation
OnMobile, Yantra Corp
Has established a US$50 million fund exclusively for investments in global technology start-ups
Launched an initiative – i5 Startnet – to scout for firms in cloud, mobility, networking, and vertical-specific technologies
Created a team led by the Chief Strategy Officer to look for start-ups and next generation solutions
Actively picking up stakes in cloud and big data firms
Opera Solutions, Axeda
Formed its Innovation Labs and Co-Innovation Network (COIN) to bring together academic institutions, start-ups, venture funds, strategic alliance partners, multilateral organizations, and clients
iKen Solutions, Perfecto Mobile, Computational Research Laboratories
Set up an emerging business accelerator
Incubated 20 ideas over the past 18 months
Slowly, but steadily, the ecosystem is developing to encourage such start-ups. For instance, in June 2013, NASSCOM announced a program to fund and incubate 25 start-ups to be established by young Indian entrepreneurs. Additionally, it held an event that brought together promising technology start-ups and IT service providers including Infosys, TCS, Cognizant, Wipro, and MindTree. The gathering was an effort to provide young start-ups a platform to showcase their capabilities, connect with leading service providers, and generate investor interest.
Quid Pro Quo
Increasing competitive pressures and changing market dynamics have made Indian service providers truly value innovation, viewing it not just as a buzzword but rather a core operating lever to drive growth. Partnering with start-ups is an effective method of achieving innovative solutions without the allocation of time and resources they can ill-afford. And the mutually beneficial relationship between the two segments can lead to sustainable ecosystem in the long haul.