How This Tiger Got Its Roar
In Bangalore Tiger, author Steve Hamm examines the rise of India as a destabilizing force in the $650 billion worldwide tech services industry. He focuses on Wipro Ltd., one of the most successful of the Indian upstarts from Bangalore, and on its remarkable leader, Azim Premji. This excerpt chronicles how Premji transformed a peanut oil company in poverty-ridden India into a tech powerhouse.
IT WAS THE KIND OF CALL THAT makes a young man grow up fast. On Aug. 11, 1966, Azim H. Premji was a senior at Stanford University in Palo Alto, Calif., studying for finals after summer school. When the phone rang, his mother was on the line from India with devastating news: His father, M.H. Premji, had died of a heart attack at the age of 51. The younger Premji quickly booked a flight and left for the funeral, expecting to be back at Stanford in time for the fall semester. Instead, his father's death marked a fateful change of direction for the 21-year-old. Rather than pursuing his dream of bringing aid to the developing world as a policymaker at the World Bank, he found himself thrust into the nitty-gritty details of saving a failing company in a backwater economy.
Fortunately, entrepreneurship runs in his blood. Premji's grandfather was founder of one of the largest rice-trading companies in India. Then, in 1945, M.H. Premji launched a cooking oil company called Western India Vegetable Products. But when the young Azim Premji arrived home he found the operation in shambles. And to his dismay, he discovered that his father had selected him to run it, a duty he felt he couldn't shirk. "It's like being thrown into a swimming pool," says Premji, who finally got his Stanford degree six years ago. "To avoid drowning, you learn to swim quickly."
Since his plunge into the deep end of commerce, Premji built the company, later renamed Wipro Ltd. (WIT ), into one of India's tech services powerhouses. Today the business provides software programming, engineering design, and back-office services for more than 500 of the world's largest corporations. One of the keys to Wipro's early success was its ability to tap into India's vast pool of young technology graduates willing to work for wages as much as 80% lower than those in the West. But labor arbitrage is only part of the story. Wipro and other leading Indian tech outfits have learned to deliver first-quality work, top-notch customer service, super-efficient human resources, and, increasingly, technology innovation. Once considered unschooled upstarts, Wipro and its Indian counterparts have become innovators in doing business in a networked world.
When Premji took over his father's business it was anything but global. It had about 350 employees, mostly in and around Bombay, and just $3 million in revenues. The company was publicly traded, and not long after Premji assumed control he faced shareholders for the first time at the annual meeting. Premji, who was self-conscious about his age, had grown a mustache in an effort to add some gravitas. But restless investors weren't impressed. One stood up to complain about the stock's lousy performance and demanded that Premji sell the company. "'There's no way a twit like you can run it,"' Premji recalls him saying. "More than anything else, that made me determined to prove him wrong," says Premji.
It was time for a crash course in capitalism. Premji had never taken a business class, nor had his father taught him anything about running the company. So he visited a professor at a leading management school in Bombay and asked him to recommend some textbooks. He bought a pile of them, and over the next year he stayed up late into the night reading every one. From his readings he learned business basics and systematically built a company based on modern principles and practices. Those early years taught him the necessity of continuous improvement. "You were constantly questing for excellence," he says.
The company's mainstay was buying peanuts from farmers and crushing them to produce shortening and edible cakes. The key employees were the buyers, who would evaluate a farmer's harvest by tasting the peanuts to make an estimate of the oil they contained and then set a price. Premji improved that system by asking farmers to send in samples that the company could dry and weigh to calculate the oil content. He transformed what had been an art into a precise business process, and he established Wipro's practice of routinely measuring every aspect of its business.
PREMJI ALSO took an uncompromising stand on ethics. In the late 1960s and early '70s corruption was rampant in India, with government officials demanding handouts, customers asking for kickbacks, and farmers bribing clerks to tamper with weighing machines. Premji decided that his company had to be held to a higher standard, which he believed would ultimately enhance its stature with customers and employees.
Once the cooking oil business was back on track, Premji broadened his horizons. He had no grand vision of what Wipro could become, but he saw opportunities and didn't want to miss out on them. He diversified, first into soaps and beauty products, then venturing even farther afield by manufacturing hydraulic components for construction equipment. The next step: computers. After the Indian government passed new rules in the late 1970s that required foreign companies to operate through Indian-owned affiliates, IBM (IBM ) pulled the plug on its operations. "When IBM left, it created a vacuum," says Premji. "So we decided to zero in on info tech. "
Premji and his lieutenants knew nothing about computers, but that didn't stop them from trying to make them. They rented a 4,000-square-foot office in Bangalore, home to several of India's top technical and management colleges, and decided to build a minicomputer that would sell for far less than an IBM mainframe but do similar work. Within a year, Wipro shipped its first one. It later got into the PC business and quickly became the leading computer company in India.
But the good times weren't to last. In the early 1990s, India liberalized its economy. With rules relaxed, including the local-partner requirement, the world's top tech companies flooded into the country. Wipro faced a crisis. Premji believed there was no way the outfit could beat Compaq, Hewlett-Packard (HPQ ), and IBM in the PC business. The big brands had huge sales and vast research and development budgets, allowing them to underprice and outengineer Wipro and the other home-grown Indian PC outfits.
What Wipro did next set the stage for its emergence as a tech services powerhouse. The rescue plan was to sell engineering expertise to the world's top technology companies. "We saw that while the door was open for others to come into India, it was also open for us to go out. So we decided to become a global company," says Sridhar Mitta, Wipro's longtime chief technology officer, who later left to found e4e Inc., a rival tech services company. The first aim was designing software for telecom gear, but Wipro quickly followed with hardware and chip design. Its leaders saw they could set up similar operations and sell their services to a wide range of Western corporations -- not just technology companies but also banks, manufacturers, and retailers.
Were the giants of Western capitalism ready to hire a tiny, no-name Indian outfit to perform important brainwork? Not very quickly. So Premji decided Wipro needed to do something to boost its credibility. The solution: Focus on quality. In 1995, Wipro received certification from the International Organization for Standardization for manufacturing quality. Then it adopted the programming standards of Carnegie Mellon University's Software Engineering Institute. In later years, Wipro was quick to implement Motorola Inc.'s (MOT ) Six Sigma quality program. And today it's busy applying Toyota Motor Corp.'s (TM ) lean manufacturing techniques to its software programming and business-process outsourcing operations worldwide.
Practically every move Wipro made turned into an uphill battle. Subroto Bagchi, the longtime Wipro executive who is now chief operating officer at MindTree Consulting, remembers what it was like to gain a foothold in Silicon Valley. He moved his wife and two daughters to a two-bedroom apartment in Cupertino and set up an office in the dining room. He bought a PC and a fax machine at Price Club using a friend's credit card and immediately began churning out proposals as quickly as his fingers could type. His children would be watching cartoons in the next room, but when they heard the phone ring, they knew to put the TV volume on mute so Dad could pick up the telephone receiver and say: "Wipro Technologies."
As the company's first salespeople spread out across the U.S. in search of customers, they were like nomads. They got leads from technical people -- often other Indians -- who they knew in companies such as Intel, Seagate, and Sun Microsystems (SUNW ). Arriving in a new city, they'd camp out in a cheap motel and thumb through the telephone book looking for potential customers. "Nobody had heard of us," says Sudip Banerjee, president of Wipro's Enterprise Solutions business unit. "We'd make dozens of phone calls. Nobody would return them."
Wipro's big breakthrough came with General Electric Co. (GE ) In 1990 the two companies had set up a joint venture, Wipro GE Medical Systems, to make and sell medical equipment in India. So GE was familiar with Wipro when it decided to shift some of its software development to the country. The entire Wipro management team, including Premji, pitched in to woo the Americans. "It was a large piece of business and gave us credibility," says Banerjee.
Twice in a little more than a decade, Wipro spotted fundamental shifts in the business environment and then scrambled to create new businesses. Today the company is doubling down on its bet on engineering services, which already represent 35% of its $2.4 billion in revenues. In the past 12 months it has spent $100 million to purchase three engineering design firms in the U.S. and Europe. "We're able to evaluate opportunities at the right time and put together an act to make a commercial success of it," says Premji.
One of Premji's most important accomplishments has been creating a sinewy management culture that thrives even under intense competitive pressure. He established two core principles that are instrumental in building the character of his leadership team. The first is rare among India's family-controlled companies: The chairman is not king. While Premji owns a controlling stake in Wipro, he shares authority and responsibility with his subordinates. The second key principle: Premji believes in a zero-politics culture. At Wipro, backstabbing, playing favorites, and kissing up to the boss -- tactics that sap much of American executives' energy -- simply don't work. Open and honest disagreements are not only tolerated, but also required -- of everyone.
THE CHAIRMAN'S STYLE ISN'T just to encourage his lieutenants to debate one another: Premji insists that they debate him as well -- or even take him to task for his decisions or actions. "The man takes frontal criticism, and it's celebrated. You can openly disagree with him," says Bagchi, the former Wipro executive who launched Wipro's U.S. business from his dining room table. He recalls a time in the early 1990s when he was in charge of the company's quality initiatives and Premji had asked him to also handle office-building projects. When Bagchi was slow to get something done, Premji called him at home one afternoon as he was having tea with his mother. Bagchi resented Premji piling more on his plate. "'What do I have to do with real estate?' I told him: 'Don't expect me to do your clerical jobs for you!' I actually screamed at him over the phone," Bagchi recalls. Bagchi's mother was appalled at the outburst and, after the call ended, lectured him about showing proper respect to the boss.
The maternal tongue-lashing made Bagchi worry that he might have crossed the line. Would Premji be furious with him? Yet back in the office a couple of hours later, he ran into Premji in the hallway, and the chairman didn't even mention the episode. By Premji's rules of conduct, Bagchi's reaction had been just fine. Bagchi was supposed to let him know exactly what he felt. "He would tell us: 'My job is to push you. When you reach your limit you need to push back,"' recalls Bagchi.
For Premji, openness is more than a personal style. It's a strategy. "I find that people excel when they're provided a fair, free, and apolitical environment," he says. "At Wipro we strive to provide an open culture that encourages diversity of opinions. An organizational ability to encourage and harness diversity of thought is a significant competitive advantage."
Playing the game of business according to Premji's rules has worked well for Wipro. It's expanding revenues consistently at some 30% annually, while the overall tech services industry is expanding at about 5% per year. Meanwhile, operating margins in its tech business top 20% -- more than twice the level of large Western services outfits.
Think of Wipro's success as a wake-up call for Americans who are complacent about the future of their companies or their job security. With its work ethic and intense drive to win, Wipro is a reminder of the America of 100 years ago. "Are we hungry enough?" asks Nicholas M. Donofrio, executive vice-president for innovation and technology at IBM. Donofrio's father was an Italian immigrant who worked three jobs to support his family in the gritty factory town of Beacon, N.Y. Now, Donofrio questions whether Americans still possess that kind of drive. "If we amble along and take our time, the Indians and Chinese will close the gap and perhaps even surpass us. You can see the passion in their eyes. They're people on a mission."
The challenge is the same for American individuals and companies: If they mean to succeed in a world of borderless commerce, they will learn to be as relentlessly self-improving as Premji and Wipro.
Steve Hamm is a senior writer at BusinessWeek. Bangalore Tiger, published by McGraw-Hill, is his first book