Thierry Delaported: A litmus test for Wipro and Rishad Premji

Rishad Premji (L) and Srinivas Pallia (R)

A CEO change is one of the most unsettling moves for any company, but for software services major Wipro, it had increasingly become the consensus among analysts that change was round the corner.

In the last six months Wipro’s stock ran up 20% and outperformed the Nifty IT index by 10%, at a time when its operational performance was subpar. Almost as if the market was anticipating a change.

The ‘when’ finally happened on the evening of April 6, 2024, Saturday. Post a board meeting, Wipro notified stock exchanges that it has appointed company veteran Srini Pallia as the Chief Executive Officer and Managing Director of the Company, effective immediately.

56-year-old Pallia succeeds Thierry Delaporte, who after leading Wipro for the last four years, had decided to step down a year before his term ends, to pursue, according to a Wipro press release, “passions outside the workplace.”

New Jersey-based Pallia, who has spent 32 years working at Wipro, previously led Americas 1 and spent a significant part of his career in sales.

As CEO of Americas 1, he handled key accounts such as Estee Lauder, Tapestry, Citibank, AT & T, Ford and is also liked by key partners such as Microsoft and SAP.

While Paris-based Delaporte revamped the structure of the organisation, ramped up focus on large deals and spent billions of dollars on acquisitions such as Capco and Rizing, the company continued to underperform compared to peers. Add to this a series of senior-level exits, cultural change wrought by frequent leadership changes and a larger disconnect within the organisation.

Importantly, Wipro’s founder chairman Azim Premji, who holds 73% stake in the company privately expressed dissatisfaction over his performance, according to sources familiar with the matter.

Apart from flagging performance and senior-level churn, the high-cost structure, that came with a series of acquisitions and expat hires, were also a source of concern, these people said. Premji senior, one of India’s most generous philanthropists had always kept a tight leash on operating costs and is known to be frugal personally.

“The CEO change was a year overdue. Mr Premji (Azim Premji) made up his mind that Thierry wasn’t working in 2023.  Rishad (current chairman Rishad Premji) may have given Thierry more time and freedom, but he has decided now,” a person familiar with the development said.

Commenting on the timing, the same person said that the company may have wanted to start the fiscal year (April 2024-March 2025) with a new CEO at the helm and a new operating plan.

"If you look at it from a three-year view, 24-25 is when one expects stability, a return to positive growth trajectory in 25-26 and industry-leading growth by 26-27, if everything goes well,” the person cited above added.

A second executive, who worked for Wipro for nearly two decades, said the CEO change being announced just a fortnight before its Q4 results is probably a sign that its performance is likely to be poor.

“The Q4 numbers and the FY 25 outlook may have been bleak, prompting Rishad and the board to finally bite the bullet and make the change” this person said.

The same person said one of the first tasks for Pallia would be a clean up on the cost front and improving profitability. “The compensation structures for many recent hires were out of whack. A lot of VPs and GMs operate out of Paris. One of Srini’s first tasks would be to look at costs closely.”

Wipro is in its silent period ahead of earnings and did not offer comments beyond the appointment release.

While it is learnt that Wipro had tapped former LTI CEO Sanjay Jalona for the job, it ultimately decided to play it safe by appointing a veteran leader who would know to navigate the Wipro maze better.

“It’s not an insider versus outsider debate. The real issue is of first-time CEOs and continuity in team leadership. In services companies, especially with tens of thousands of employees, leaders are the connective tissue. They are key to sustaining its purpose and culture, as well as driving long-term value”, Ramkumar Ramamoorthy, Partner at Catalincs and former Chairman and MD, Cognizant India said.

Old timers appear upbeat about the change as the immediate goal will be to improve profitability and target high cost resources.

Suresh Senapaty, former board member of Wipro and one of founder Azim Premji’s most trusted advisors, welcomed Srini Pallia's appointment as CEO, and believes he will turn around the fortunes of the software services firm.

"Srini is an extremely bright leader with very high potential.  I am very confident that he will turn around Wipro within reasonable time because he commands very high respect of the Wipro team and is very strong in strategy including execution excellence”, he said in a statement to Moneycontrol.

Senapaty’s ringing endorsement of Pallia comes months after he expressed disappointment at former CFO Jatin Dalal’s abrupt exit, urging the IT firm to work harder to retain talent.

Pallia has an uphill task at hand.

Wipro’s revenue growth in constant currency on a year-on-year basis has fallen steeply since Q4Fy22.

For the quarter ended December 2023, the company reported a fall in profit for the fourth consecutive quarter, falling 12 percent year-on-year (YoY) to Rs 2,694 crore. It revised its revenue growth guidance for Q4 to -1.5 percent to 0.5 percent. Margins too have been a pain point for Wipro, which at 16%, is among the lowest when compared to its peers.

Its account growth in the 10 million, 50 million and 100 million buckets have also lagged peers such as TCS and Infosys. Wipro, once India’s third largest IT exporter, is now fourth after HCL Tech and fifth, if one counts Nasdaq-listed Cognizant.

It has also seen a massive churn at the top level over the last two years. In 2023 alone, over 10 senior leadership members had quit the company including chief growth officer Stephanie Trautman, chief financial officer Jatin Dalal, chief operations officer Sanjeev Singh, India head Satya Easwaran, iDEAS business head Rajan Kohli, among many others.

“Delaporte rarely left his Paris base, while his CEO counterparts have been regularly rallying the troops across India and the US.  He brought in many executives from outside of Wipro and neglected the loyal Wipro-ites who had built the company.  The morale has been sapped out of Wipro for a year now, and this change in leadership is at least six months overdue”, Phil Fersht, CEO, HFS Research, wrote in a post on April 6.

He further wrote that while the large deals team struggled with internal fiefdoms, the Capco acquisition too has been a major struggle.

“Srinivas Pallia as an old Wipro hand would likely concentrate on enhancing wallet share at existing clients, greater client outreach, leverage consulting effectively, unified delivery of all capabilities to clients and groom talent”, Shriram Subramanian of InGovern Research said.

Pallia will be Wipro’s sixth CEO in sixteen years and the fourth internal candidate to occupy the role. His predecessors since 2008 include joint CEOs Suresh Vaswani and Girish Paranjpe, TK Kurien, Abidali Neemuchwala and Thierry Delaporte, four of whom stepped down before completing a full term.

Barring FY 08-11, when the company had joint CEOs, Wipro had underperformed the IT sector growth under all heads, according to a note by Avendus Spark. To be sure, the growth from FY 08-11 also includes acquisitions. Organically, Wipro’s growth was lower than the industry during this period.

Pallia also takes charge at a time when the sector headwinds are very high, with the advent of Generative AI and its ricochet effect across industries.

“Wipro is not the top 3 IT vendor for any industry segment that counts- be it banking, retail, insurance or healthcare. You could argue that they are a leader in energy and utilities but that is a very cyclical business,” a third source said.

“The key tasks for the new CEO would be to exit sub 5 million accounts, pick three verticals and aggressively invest people & technology behind it. Pick sectors like manufacturing and engineering services where you don’t have 2-3 mega companies dominating the space”, a fourth person said.

Delaporte’s appointment as CEO in May 2020 was the first big decision that Rishad Premji took as executive chairman, nearly a year after he took charge in June 2019.

It remains to be seen if the move to elevate Pallia will burnish his credentials as the scion of one of India’s most respected firms.