IT firms increase lateral hiring to take SMAC services to clients

Reason said to be rising client demand for newer digital technologies to be clubbed with traditional outsourcing work, which requires skilled hands


TCS reported that it hired 8,488 laterals, but only 3,452 freshers in the April quarter. Photo: Mint
TCS reported that it hired 8,488 laterals, but only 3,452 freshers in the April quarter. Photo: Mint

Mumbai: Software services exporters such as Tata Consultancy Services Ltd (TCS), Cognizant Technology Solutions Corp. and Wipro Ltd have begun hiring more professionals, or so-called laterals, as opposed to freshers, with clients wanting newer digital technologies to be clubbed with traditional outsourcing work, a trend that requires skilled hands.

“Earlier, 33% of our hires used to be laterals. The number has increased to 40% now,” said Saurabh Govil, human resources head at Wipro. He added there is a lot of demand for employees with social, mobility, analytics and cloud (SMAC) skills, and pointed out that attrition is high at this level for Wipro.

“We are hoping to bring this down to 13% from 15% by the end of this year,” said Govil.

TCS, too, reported that it hired 8,488 laterals, but only 3,452 freshers in the April quarter. In the January quarter, it had hired 7,401 laterals and 7,572 freshers. The company has been sharpening its focus on the digital space.

N. Chandrasekaran, managing director and chief executive of TCS, had told Mint on 13 February that he expects SMAC to “generate revenue of $3-5 billion in the next few years”.

Nasdaq-listed Cognizant, which follows the calendar year, has also seen more lateral hiring as compared with fresher employment for the past 10 quarters, with the exception of the September quarter of 2013.

Francisco D’Souza, chief executive officer, Cognizant, said in an analyst call after the June quarter results announcement, Cognizant had 54% laterals and 34% freshers as of 30 June, out of a total net addition of 8,600 employees in the quarter, “as the company was anticipating a lot more large, transformational deals and long-term growth”.

HCL Technologies Ltd also has seen a significant rise in lateral hiring in the last two years, although the firm stopped giving out the break-up of its lateral and fresher hiring from the third quarter of fiscal 2014. “At HCL, we continue to see gross additions of a mix of lateral and entry level people, with last quarter seeing 8,442 joining. Last quarter, we saw utilization at 84.5% for our experienced and entry level workforce,” said Prithvi Shergill, chief human resources officer, HCL Technologies.

Raja Lahiri, partner at Grant Thornton India LLP, a financial consulting firm, said lateral hiring is especially high in the US for digital initiatives; the talent pool is mostly rival firms or smaller specialised ones dealing in SMAC.

According to Nasscom, SMAC currently contributes to only about 10% of overall revenue
for software services companies, but is a fast-growing market. In a 28 July report, TCS forecast that digital spending by companies globally will touch $113 million in 2014.

“While mid-tier companies have always hired more laterals, in the last 18-24 months, we are definitely seeing a trend where companies are saying they want to hire more laterals who offer more revenue per client, instead of just large campus recruitments that they were doing in the past,” said Sangeeta Gupta, senior vice-president of software lobby body, Nasscom.

Hiring agencies confirm the trend. Rituparna Chakraborty, co-founder and senior vice-president of TeamLease Services Pvt. Ltd, said her staffing firm is seeing at least a 50-70% rise in demand for hires with specialized skill sets last year for mid- and senior-management roles.

Anurag Gupta, chief operating officer of Magna Infotech Pvt. Ltd, another staffing firm that specializes in information technology (IT) placements, said he has seen a 25-30% rise in lateral hires, out of the 900-1,000 people the firm places per month.

“Besides exotic technologies like SMAC, laterals are also needed for projects for outcome-based deals. The deals have a high penalty of around 10-15% of the project topline if they are not completed on time on agreed terms. Taking freshers for this is a risky proposition,” adds Gupta of Magna Infotech.

But hiring professionals is more expensive than hiring freshers. So, firms resort to variable performance-linked packages to manage costs, say analysts.

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