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Wipro's new operating model gets thumbs up from analysts

Wipro's new operating model gets thumbs up from analysts

Following a meeting with Wipro's management last week, most analysts agreed that the new structure put in place by the company's CEO Theirry Delaporte is a step in the right direction

The new strategic priority for Wipro would be to accelerate growth through increased focus on certain geographies and market segments The new strategic priority for Wipro would be to accelerate growth through increased focus on certain geographies and market segments

At the company's analyst day last week, Wipro's top management laid out details about how the COVID-19 pandemic has accelerated tech transformation presenting a great opportunity, as well as the structural changes aimed at turning Wipro into a company having an obsession with growth.

CEO Thierry Delaporte also provided analysts insights into recent changes to Wipro's operating structure, which according to him will help Wipro grow at a pace closer to the industry average and deliver sustained margin performance. The new strategic priority for the company would be to accelerate growth through increased focus on certain geographies and market segments.

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Earlier this month, Wipro announced a new structure that will be in place beginning next calendar year (2021). The company will have geography-specific -four Strategic Market Units (SMUs), consisting of Americas 1, Americas 2, Europe, and Asia Pacific Middle East Africa (APMEA), and two Global Business Lines (GBLs) focussed on digital and new-age businesses, the first being iDEAS (Integrated Digital, Engineering & Application Services), including the service lines like Domain and Consulting, Applications & Data, Engineering and R&D, and Wipro Digital. The second one will be iCORE (Cloud Infrastructure, Digital Operations, Risk & Enterprise Cyber Security Services) which would include the CIS, DOP, and CRS service lines.

"In our view, this will cut red tape, avoid conflicts and allow Wipro to respond with agility and speed to customers' requirements", Nomura said in its note regarding the new simplified operating model, following the analyst meet, adding that consolidating it was a positive for the company.

According to a note by ICICI Direct, the new CEO is addressing some of the past challenges of the company of lower focus on geographies outside the US and large deals. "The company's focus on improving sales and higher investment to drive growth bodes well for revenue growth. Wipro aims to accelerate growth without compromising margins. This, coupled with healthy capital allocation policy, improving tech spends in digital, prompts us to be positive on the company" the research note said.

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Motilal Oswal's note on Wipro stated that Streamlining P&L to four SMUs (v/s 20 P&Ls earlier) should free up internal resources to invest in growth initiatives, which is positive. In addition, the creation of a global account executive (GAE) role would help Wipro better address the long-standing issue of client mining and retention.

However, Edelweiss research remained cautious, noting that Wipro has been an underperformer for more than a decade and that several leadership changes in the past have been more about assurances than actual delivery. "An aggressive strategy in an upcycle affords more room to make bold decisions and, in this context, management's focus on talent is encouraging. We are not changing our pecking order yet and would like to see management walk the talk first," the note said.