WHY DID PREMJI’S DUAL CEO MODEL FAIL?
Many analysts say the management structure was faulty, as the model can work at best as a stop-gap arrangement
SHIVANI SHINDE &
BIBHU RANJAN MISHRA
Mumbai/Bangalore, 1 February
joint CEO structure is the
“
A best way forward to lever-
age the depth of our lead-
ership and maximise the op-
portunities ahead of us.”
This was one of the comments made by
Wipro Chairman Azim Premji, when he
announced a dual CEO management struc-
ture at India’s third-largest IT services
company in April, 2008.
Premji’s decision to have Girish Paran-
jpe and Suresh Vaswani jointly run the IT
business had at the time taken many by
surprise. But just as baffling was Premji’s
abrupt announcement last month that he
was dismantling the dual management
structure and was appointing a single CEO
— T K Kurien — to head the business.
Industry watchers believe it was Wipro’s
performance over the last four to five quar-
ters that prompted the rejig at the top, af-
ter a three-year experiment with the dual
CEO structure. “Wipro did not take an ag-
gressive enough market-facing approach
during the downturn,” says Viju George
at J P Morgan.
While Premji mentioned the compa-
ny’s performance vis-à-vis some of its
peers, the real threat to Wipro comes from
Nasdaq-listed Cognizant, which is a few
steps behind. While a section of ana-
lysts feels that Cognizant will overtake
Wipro in terms of revenue growth in
the fourth quarter of this fiscal, there are
indications that it would have already done
so in the October-December quarter.
What is interesting is that the change
in the management at both Cognizant and
Wipro took place within a gap of around
15 months. Franciso D’Souza took the
helm at Cognizant in January 2007, while
Wipro introduced its dual CEO model
in April 2008. At the end of June 2008, the
quarterly revenue difference between Cog-
nizant and Wipro was around $380 mil-
lion. Compare this with the quarter end-
ed September 2010, which saw that gap
narrowed to $63 million.
So, what went wrong at Wipro, con-
sidering both Paranjpe and Vaswani are
veterans of the industry? “Wipro has
not broken new ground in creating a dis-
tinctive offering with promising market
potential or adopting a differentiated client
engagement approach. Wipro’s sales and
marketing expenses in IT services de-
clined in FY10 versus FY09. In essence,
Wipro has tended to look relatively in-
According to Prakash, the failure of
the dual CEO model is not attributed to
individual capability. “It’s more about lack
of communication. These are two people
and will work in different ways. Dual CEO
also means a lengthy decision-making
process and contradictory viewpoints.
It also means a lack of nimbleness in
an organisation,” he adds.
Some global examples were the joint
CEO model has been brought to an un-
ceremonious end include John Reed and
Traveler’s Sandy Weill at Citicorp. Unilever
is another example. Within the IT in-
dustry, there have been such experiments,
but hardly any have been successful. Sapi-
ent was one such instance.
Suresh Vaswani Human resource experts also opine
that creating strategic business unit heads
is much more efficient. “When you cre-
ate an SBU, you give an individual re-
sponsibility for its growth and failure. But
when you have a cross vertical system,
you end up with a metric style of work-
ing, which consumes time,” says an HR
executive.
In the case of Wipro, many feel per-
haps this was a stop-gap arrangement for
Rishad Premji to make his mark on the
business. “He is very involved in all the
important decisions. I will not be sur-
prised if in the next few years he takes
over as CEO,” says a senior executive
of a leading company, on condition of
anonymity.
A top management shuffle is not new
at Wipro. Some of the senior managers
T K Kurien Girish Paranjpe Wipro Chairman Azim Premji who have left Wipro in the recent past in-
clude Vivek Paul, Ashok Soota, Arun Thi-
agarajan and Ashok Narsimhan exited
NUMBERS THAT MAKE A DIFFERENCE A section of analysts feels the company at a time when they were at
Quarter ended Q4 FY10 Q1 FY11 Q2 FY11 Q3 FY11 Cognizant will overtake the height of their careers. There were
others like Sudip Banerjee (L&T Infotech),
($ mn) Sales Net profit Sales Net profit Sales Net profit Sales Net profit Wipro in terms of revenue P R Chandrasekar (Hexaware), Sudip
TCS 1,685.86 435.85 1,800.04 417.53 1,988.35 466.80 2,154.76 528.43 growth in the fourth quarter of Nandi (Aricent) who left, dissatisfied as
they were sidelined.
Infosys 1,230.99 352.28 1,357.70 325.95 1,494.93 373.79 1,584.52 396.91 this financial year. There are As for T K Kurien, he has his role cut
Wipro 1,339.86 263.42 1,387.10 288.82 1,466.83 276.50 1,377.18 294.07 indications that it would have out. He might have helped the Spectra-
mind BPO grow in 2005, but how suc-
Cognizant 959.72 151.50 1,105.15 172.18 1,216.91 203.70 — — already done so in the cessful he will be in tackling the speed-
Source:-Bloomberg Compiled by BS Research Bureau October-December quarter ing Cognizant and other IT firms is yet to
be seen.
As a long-term strategy, he has already
ward in the quest to improve profitabil- extremely high turbocharged growth, This resulted in higher churn among em- at best as a stop-gap arrangement to gauge said that improving Wipro’s strength in
ity,” says George. which has happened in the financial serv- ployees when the market situation im- two candidates for the top job. “Perhaps the banking and financial segment is im-
Many also point out that Wipro’s busi- ices sector — an advantage we did not proved. Attrition at Wipro was at 21.7 per this model works best only at an entre- portant. “We have to position ourselves
ness model just did not allow it to make get,” Premji has noted. cent for the third quarter, whereas at TCS preneurial level, where a team of peo- in markets that are growing and geog-
the best of the recovery. The banking, Another reason why Wipro could not it was 14.4 per cent. ple are working together. But it is difficult raphies that are growing, and that is where
financial & insurance sector accounted leverage the turnaround was its supply- However, many feel that Premji’s orig- to work when a company is in a stable the bulk of investments will go in the
for 50-55 per cent of Cognizant’s revenues side constraints. During the slowdown, inal decision to have a dual CEO struc- to growth stage,” says Dhruv Prakash, future. It will be foolish to ignore the fi-
and in excess of 35 per cent at Infosys and Wipro froze new hiring in a few quarters; ture itself was faulty. Globally, manage- managing director, leadership & talent nancial services, healthcare and energy
TCS. “So, they have got the advantage of it also net lost people in a few quarters. ment gurus agree that the model can work consulting, Korn-Ferry International. (and utility) business,” he has said.