The Chairman of Wipro, Azim Premji, warns that the days of the old boys' club are numbered.
|Wipro’s Azim Premji on the challenge for Indian business
Azim Premji, who owns more than 80 percent of Bangalore-based Wipro, India’s third largest software exporter, discusses why India’s IT companies have done better at delivering services than developing products. Forbes magazine ranked Premji as the world’s 25th richest man with net worth exceeding $13 billion. Premji tells Wharton University’s Ravi Aaron that the old boy’s club is on its way out.
Nasscom [India’s National Association of Software and Services Companies] last year published the results of a survey that concluded that of the $180 billion global software industry, India probably has a 0.2% share. With the exception of I-Flex Solutions, which makes the predominant retail banking software product, there is really no product company that has come out of India. What is your take on this situation? With India’s widespread technology creation capability, why have more companies not created successful software products?
It’s not such a bad situation. In addition to I-Flex, there is Infosys with its Finacle package, which is as successful as I-Flex. This is software that was originally meant for banks in India, but they have graduated these products to the emerging economies.
One reason why India has focused on services is that products require an intimate, ongoing understanding of the customer. This requires a strong localized presence in countries where these products are going to be used, which has not been India’s global delivery model. Second, most product companies have to invest a lot of resources in brand-building and marketing and you need to have the scale to do this. Many Indian companies could not afford to do this. Third, the service business has provided clear-cut, strong positioning, good profitability and tremendous growth for Indian companies. So these companies chose a path where it was easier to succeed rather than one that was more difficult.
Now the challenge that the large Indian software companies face is how much can they scale in terms of adding manpower? How can they develop models that will not depend on a linear relationship between revenues, profits and people?
Mr. Premji, you said that Indian IT companies have been playing to their advantage, which involves leveraging the availability of high quality, skilled IT people. But could this factor, which has been an advantage all along, be a barrier going forward in transitioning towards higher-risk, higher-growth models? Do you think that is possible?
That does not seem to be happening. The leading companies from India are realizing the necessity to re-engineer themselves. They are investing enough now in terms of non-linear models — though not as much as they should — and building enough sub-assemblies and components in their software so that they can drive 8% to 10% productivity a year, and also 8% to 10% growth. That means we need not scale up in terms of headcount.
We are also adding more specialized or value-added practices such as consulting. For instance, 7% to 8% of our revenues today come from consulting, and the kind of work we do there is similar to the work that IBM does. That segment of our business is growing twice as fast as our execution business and our systems integration business. I see adequate movement on the other fronts to be able to realize the full value of being a global company. Of course, we could be doing that better and faster.
Today IBM has some 330,000 people of whom 65,000 are in Asia. It will probably ramp up to 80,000 people in Asia alone by the end of 2006. What IBM has realized is that it has great assets — a company brand and image, very strong relationships with corporate America and corporate Europe and companies in the Asia-Pacific region. What IBM has lacked in the past is your offshore-onshore global delivery model, which gives you the cost advantage that Wipro enjoys. But it’s relatively easier for IBM — and please correct me if you think I’m wrong — to acquire your cost profile by ramping up its Indian operations than it is for you to acquire the brand and relationships that IBM has in the U.S.
Given that, how do you plan to compete with the onslaught of IBM, Accenture and other companies that are recruiting equally talented people in your backyard and making them ride on top of their existing customer relationships in the U.S. and in Europe?
Let us look at the way our business is distributed. About 75% of our people work in India or India-equivalents, by which I mean low-cost centers. In contrast, if IBM has 50,000 or even 80,000 people in Asia, that is just about 20% to 25% of its total employee base. This is a distinct cost advantage that we will continue to enjoy. Even if companies like IBM move to global delivery models, it is unlikely that their employee base in low-cost regions will go beyond 30% to 35% of their total headcount. This is because their execution model — which is primarily based on consulting — does not permit them to do that. The kind of work they do requires a much deeper onsite presence.
Our second area of differentiation will be in the quality of work we can execute. It is our job to ensure that we are two to three years ahead of them in terms of execution thoroughness, quality and methodology. This is why we are investing in the Wipro quality system, which lowers our customer costs.
I agree that our challenge is to learn the tricks of their trade vis-à-vis branding and customer relationships and also to some extent the competence of their consulting skills. It is a huge challenge for us, and this is hreflected in the premium they get in their pricing versus the premium we get for what are very often similar jobs. But in my experience, the premium they get for jobs executed as part of the global delivery model is virtually zero the moment the customer unbundles the price. These companies try hard to make the situation non-transparent to the customer and say, "Look, I’m taking a turnkey, fixed-price job." But the reality is that both Accenture and IBM have a significant component of time and materials in their billing just to have a safety net. As soon as customers realize that time and materials costs are involved, they ask for immediate unbundling.... They want to know, "How much is it in Europe? How much is it in India? How much is it in Eastern Europe? How much is it in China? How much is it in the Philippines?"
Even where there are fixed-price projects, the customers are able to analyze the price and say, "Look, 40% of this project can be executed in a global delivery model, so why should I pay your premium for that?" This kind of price unbundling and analysis — which many customers are now doing — has really frightened the hell out of them. That is why these companies have suddenly woken up to the merits of the global delivery model. Why were they sleeping for so many years? Accenture has built a team of 40,000 to 50,000 in India in less than 18 months. It’s not because Accenture wanted to do this, but because the customers said, "Accenture, either you do this or you give me the pricing for it. Take your choice."
You already have a strong footprint in IT design, development, maintenance and operations. Now, as you said, you are trying to deepen your skills at the top — in the consulting area — so that you can be proactive in serving your customers and not just reactive. But the kind of person who goes into consulting — say, my students at Wharton who might join a consulting firm after graduation — is very different in profile, personal style, culture and expectations than someone who might join a technology firm. Do you see a contradiction here? Can you manage a panther and an elephant from the same menagerie?
Of course this is a challenge, and we have to rise to it. We did this very well in AMS. We did it less well in NerveWire, where we had a higher attrition level. We are learning from this. One good thing we have been able to do in Wipro based on our experience over the years is to have a diverse approach in terms of compensation and policies to diverse pieces of our business. We first started this when we went from consumer care into the IT business; you can’t imagine anything more drastic than that. Before we went into IT, our consumer care business was highly commoditized, though now it is becoming much more sophisticated.
Compared to other software companies in India, which have had more uniformity in their profile of people and the way they have integrated them, given incentives to them and built policy frameworks around them, we have had a culture with a much greater ability to manage diversity.
As for our approach to compensation, we deal with the consumer care business very differently than the IT business. Within the IT business, we approach our overseas employees differently than we do our Indian employees. And even among our overseas employees, we deal differently with our programmers who are abroad on assignment than we do with the careerists there. Our approach in these cases is completely different. I am not saying managing this diversity is not a challenge. It is. But we also have a high degree of comfort in being able to manage this challenge.
Do you see Wipro as an Indian company that is trying to offer global value to its customers or as a global company that happens to be headquartered in Bangalore?
We’d like to evolve to the latter. We are trying to morph into being a global company that has a strong presence in India, because India offers the best value for money in terms of the global delivery model. The reality today is that a lot of our managers have their roots in India, but over time we would like to see that change. I would like more non-Indians to be part of Wipro’s top management team.
You have mentioned several advantages of being based in India, such as the availability of skilled IT professionals, and so on. What are the disadvantages? What are the top two or three things you would change if you could?
Well, for cultural reasons we don’t push back enough with our customers. When I say push back, I mean we should question the customer. Too often we just follow instructions. If we have a point of view that is different, we should question the customer’s instructions and say, "We think what you are asking us to do is wrong; it would be better to do it another way." If we have to fight to make ourselves heard, we should do that because customers won’t want product problems to come back three weeks or months or years later.
We need to have more self confidence, and this is one of the key areas that we emphasize in our training programs. We tell people to please push back. If you have convictions, don’t give them up easily.
You are at the head of one of India’s most successful companies. If you were to put yourself in the shoes of your counterpart at IBM, Samuel Palmisano, what would be two or three things on your agenda that would be very different as the leader of IBM? In other words, what different problems would you tackle if you were the CEO of a large company in the U.S. or in Britain?
If I were sitting in Sam’s position, one thing that would be very high on my agenda would be how to build a global delivery model. They have tried to do that by addressing market segments that they never did before. The second thing I would seriously look at is how to build a larger global cadre of people in emerging markets, which are prime growth markets. That is where growth will come from in the future — it won’t come from Europe or the U.S. At best these will be static markets.
Is there anything about organizational culture or management of people that you think is significantly different in eastern and western nations?
One thing that is different in the Asia Pacific region — and this trait is fairly uniform across this part of the world — is the high degree of hard work. It’s ingrained in the culture. I know I am making a broad, blanket statement, but I think it is a fact. It is a culture that emphasizes hard work because people have to fight harder to succeed, and most of them have families that understand this reality. I have put my foot in my mouth talking about this, because this is not a view that is popular in America, where people are very sensitive about this. But it is a fact that spouses in Asian cultures are significantly more tolerant of earning members who have to put much more into the company in terms of balance between work and family life.
I am sure you have been asked this question many times, but what is your view of the relations between India and China? In most ways, China is significantly ahead of India in terms of economic indicators. What is the future of India and China, and what are the strengths and weaknesses of these two large emerging economies?
India has the legacy of democracy. It is more sustainable in the long term, but it is a huge challenge in the medium term. I would never want to be India’s prime minister. It is the most impossible job in the world. In China, implementation of strategy is so much easier. You really only have to manage a small group of people. It’s like the top management of a private company; you get the management thinking in one direction, and then it just filters down into the system. The Chinese economy has had a huge advantage. I cannot see that model ever coming to India.
One of the disadvantages that the Chinese economy faces is that India’s transition from rural areas to urban areas has been managed much more smoothly. That is one of the major problems that China faces. Moreover, China faces a challenge in making a transition from manufacturing to services. In India, 55% of GDP already comes from services, but in China that number is around 25%.
What can India and China learn from each other?
China has stronger work discipline than India does. That is one thing India can learn from China. China has a lot to learn from India in terms of managerial techniques and being customer centric. The service business is much more customer centric than the product business. In the product business, your customer interfaces are managed by very few people. In the service business, every one of my employees who works for the customer is really an ambassador for us.
Reprinted with permission from