Software companies’ quick fixes to keep employees may not work

Software companies’ quick fixes to keep employees may not work
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First Published: Tue, Jul 24 2007. 08 52 AM IST

Updated: Tue, Jul 24 2007. 08 52 AM IST
Software employees at Wipro Ltd, whose software division ranks third among Indian tech services businesses, were in for a surprise earlier this month when the Bangalore-headed firm announced it was advancing its annual wage hike from November to August. The move had its intended effect as some employees, who were planning to quit stayed back.
“It was a pleasant surprise. And, timely too,” said a senior project manager at Wipro, who did not want to be named. After spending three years at the company, this person was tossing up two job offers he had in hand—Accenture Ltd’s enterprise solutions team and British retailer Tesco’s India operations—but was persuaded to stay back.
The Wipro decision, seen as drastic by some, however, may not be able to hold back exiting employees; neither will such moves be a lasting fix for soaring attrition at its peers such as Tata Consultancy Services Ltd and Infosys Technologies Ltd, growing at nearly a third year-on-year. Despite hiking salaries of their India-based employees by 15-20% each in the past two years, most tech and back office firms, which together employ about 1.63 million, have not been able to contain attrition.
Wipro reported 20% attrition in the first quarter of fiscal 2008, highest amongst its peers, while bigger rival Infosys said its comparable rate was 13.7%, the most it had in eight quarters. Hyderabad-based Satyam Computer Services Ltd was the only one that had its attrition—at 14.9% in the April-June months—dropping for two quarters running.
Most of the exits are at the junior levels. “As long as the industry grows at 25-30%, there will be shortage of skilled professionals and the churn rates will be high,” said T.V. Mohandas Pai, director and head of human resources at Infosys. “This is becoming really worrisome.”
HR honchos blame rising demand of qualified software programmers as the prime reason for escalating attrition rates. “Today, demand outstrips supply. In 2003, we had attrition rates in the range of 2.5% to 3% because of the software slowdown after the 9/11 attacks in the US,” said S. Padmanabhan, executive vice- president human resources at TCS.
Another reason is the expansion at foreign-owned tech service firms that have established bases in India in recent years. With more companies such as International Business Machines Corp. and Accenture “expanding their base in India, the pressure has intensified, not to mention the captive organizations that are scaling up as well,” said Prateek Kumar, executive vice-president human resources at Wipro.
Citibank NA, HSBC Bank Plc., ABB Ltd and Ford Motors Inc. are among several multinational giants scaling up their captive operations in India, according to tech researcher Everest Research Institute. There are over 50 such captive back office units in India growing at 30% every year and employing over 200,000 full time employees across the functions of ­application development, ­business process support, high-end ­research and product engineering.
With most of the attrition at the junior ranks, “there is pressure on us in terms of training costs that are mounting”, said Infosys’ Pai. Higher attrition means these companies have to spend more to train new recruits, most of whom are freshers. Training of a campus-hire costs an average Rs200,000 for the large firms.
There is also the cost of lost opportunity. At a time when Indian suppliers are growing at over 30% every year, these high attrition rates could hurt “because every person is a revenue earner for the company,” said Padmanabhan of TCS.
Even as firms are grappling to maintain their margins because of an appreciating rupee and rising salary levels, the double-whammy of rising costs and lost revenues will put pressure on profits, said an analyst. “Employee attrition has necessitated wage hikes that have translated into about 2% to 4% of annual margin pressure—and need to be countered by productivity and other measures,” said Ashish Thadani, senior vice-president of research at New York-based Gilford Securities Inc.
For hiring managers, rising attrition rates spell a grave situation as “they are looking to build a pipeline for new projects and also need to anticipate the turnover,” said Nalina Srinath, managing partner at HR consulting firm, N&B Consulting. Companies such as Satyam Computer are making new recruits sign a “two-year ‘bond’ apart from asking for a percentage of their salary in the first few quarters,” Srinath said. More and more companies are now making freshers sign such agreements, as they seek to tackle the problem.
Project teams at India’s leading software companies today are looking to tackle attrition challenges “on high priority, as nobody wants to lose people in their teams for silly reasons,” said Wipro’s Kumar. He clarified that different IT companies report attrition results differently. For instance, while Wipro, HCL Technologies Ltd and Cognizant Technology Solutions Corp. calculate attrition on an annualised basis or by multiplying the quarter’s figure by four, TCS and Satyam take the average of the last 12 months.
TCS, India’s No. 1 software services co, which saw attrition rate rise from 7% in the first quarter of fiscal 2005 to almost 11.5% for the quarter ended June this year, will see its attrition rate climbing at a more rapid clip when measured on an annualized basis. “Our calculations indicate that quarterly annualized attrition rose 1% sequentially for TCS to 14.5%,” said Bhavtosh Vajpayee, equity analyst with Mumbai-based CLSA Asia-Pacific Markets in his 16 July report.
At Infosys, attrition seems to have stabilized at 13.7% in the last two quarters. “During the quarter to June, we lost around 2,140 employees, of which 500 had to leave for management institutes to study further,” said Pai at a press briefing for the firm’s first quarter results.
How are tech and back office firms then reducing attrition rates? Satyam Computer, seen as a laggard among the top five tech firms, may be providing the answer. “We have been able to bring our attrition down by promoting what we call ‘distributed leadership’, wherein business areas are owned and not merely ‘manned’ by a leader,” said T. Hari, its director and senior vice president of HR. For instance, he said, Satyam’s HR team has leaders for campus hiring and lateral hiring, each managing “like chief executives” almost 8,000-9,000 hirings every year. Gilford Securities’ Thadani traced the firm’s ability to reduce attrition to “career development programs and early/empowered leadership”.
At TCS, hirers are spending more time with new recruits. “We give lot of importance when it comes to picking the right candidates,” said Padmanabhan. “In fact, we spend 20 minutes with every candidate despite mounting pressure to hire thousands.”
Some experts believe that the attrition may come down in the quarters ahead, as all IT companies push for increased work-hours each week in order to buffer the impact of an appreciating rupee through better productivity. “The IT workers will not have much of a choice outside the industry and they may not even want to migrate to the US because salary levels there have been flattening,” Chiranjit Banerjee, managing partner at PeoplePlus Consulting, an emerging hiring firm from Bangalore, said.
Abhinav Ramanarayan contributed to this story.
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First Published: Tue, Jul 24 2007. 08 52 AM IST