Enterprise Risk Management in Wipro's Software Services Division

Details

Themes: -
Period : 2003
Organization : Wipro
Pub Date : 2003
Countries : India
Industry : Information Technology

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Case Code : ERMT-001
Case Length : 13 Pages
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Concentration Risks

Geographic concentration

Approximately 57% of Wipro's Global IT Services and Products revenues were from the US. During an economic slowdown, Wipro's clients delayed or reduced their IT spending significantly. This in turn lowered the demand for Wipro's services. Terrorist attacks in the US in September 2001, disrupted normal business practices and reduced business confidence. This put the US companies under tremendous pressure. Several clients delayed purchase orders. Future terrorist attacks in the US might cause clients in the US to further delay their decisions on IT spending.

Client concentration

Wipro derived a significant portion of its revenues from a limited number of corporate clients. The loss of a major client or a significant reduction in the service performed for a major client would affect Wipro's businesses.

General Electric, Wipro's largest client for the year ended March 31, 2001 and Lattice group, Wipro's largest client for the year ended March 31, 2002, accounted for 8% and 7% of Wipro's Global IT Services and Products revenues, respectively. For the same periods, Wipro's ten largest clients accounted for 45% and 42% of revenues. Approximately 50% of Wipro's Global IT Services and Products revenues were derived from clients in high growth industries who used Wipro's IT Services for networking and communications equipment. The recent rapid economic slowdown in the US had adversely affected the growth prospects of these companies and decreased the demand for Wipro's services.

Operations Risks

Wipro used specified software engineering processes and its past project experience to reduce the risks associated with estimating, planning and performing fixed-price, fixed- time frame projects. But Wipro still took the risk of cost overruns, completion delays and wage hikes. Wipro's profitability suffered if it failed to estimate the various components associated with the project.

Wipro had set up its software development centers in Bangalore, Chennai, Gurgaon, Hyderabad, Pune, and various overseas locations. This provided Wipro cost advantages, the ability to attract highly skilled personnel in various regions of the country and the world, the ability to service clients on a regional and global basis, and the ability to provide services to its clients round the clock. Wipro maintained active voice and data communications between its main offices in Bangalore, its clients' offices, and its other software development and support facilities. Although Wipro maintained redundancy facilities and satellite communications links, any significant loss in its ability to transmit voice and data through satellite and telephone communications would result in reduction of revenues.

The success of Wipro's strategy was based on comparative advantage. Wage costs in India had been significantly lower than wage costs in the US and Europe. However, sharp wage increases in India in future might erode this competitive advantage. Wipro might need to increase its employee compensation more rapidly than in the past to retain employees. Wipro believed it was necessary to increase the efficiency and productivity of its employees to counter rising wages.

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