IT dream unravels for engineering graduates

Bangalore: Until early last year, Janardhan, a 35-year-old computer science graduate employed with one of the top five Indian software firms in Bangalore, loved to sift through hundreds of lines of code on his screen—identifying errors, fixing them, and shipping the final product back to customers that included the likes of Citigroup Inc.

add_main_image“My friends and family called me Mr Fix-it,” said Janardhan, who declined to use his second name. “I opted for an engineering career because I liked fixing things.”

After finishing his degree in computer science at Bangalore’s RV College of Engineering in 2002, Janardhan joined an information technology (IT) firm that was building a new business unit for software testing.NextMAds

Initially, the job involved debugging lines of code meant to run core banking applications at a US-based bank. Every time a new version of the product was to be released, Janardhan and his colleagues tested the entire suite for bugs. Once approved, the product would go live.

However, as debugging became repetitive over the years and the most common bugs were identified, Janardhan’s company started looking at ways to automate the entire process.

Automation is just one of the many rude shocks facing nearly three million workers in India’s $108 billion (around ₹ 6.23 trillion) software industry. Year after year, as software applications became easier to use, the need for qualified engineers to maintain them has also declined. Now, companies such as Infosys Ltd and Wipro Ltd are hiring arts and science graduates to manage projects earlier run by software engineers.

“This is a massive shift and, unfortunately, a generation of engineers is trapped in the transition,” said Saurabh Govil, head of human resources (HR) at Wipro.

For years, India’s biggest software firms hired thousands of engineers every year, built lavish campuses that even housed golf courses, among other amenities, and worked hard at pampering them with double-digit salary increases.

Companies such as Tata Consultancy Services Ltd (TCS), Infosys and Wipro scrambled to hire as many fresh engineering graduates as they could to ensure that they did not have to start the hunt for talent when new projects came by. These companies built bench strength by anticipating future business and made campus offers at least a year before students graduated.sixthMAds

Nobody questioned the strategy as long as there was surging growth that needed to be fed by the intake of more engineers, especially during the 2003-2008 period, when the industry grew at a compounded annual growth rate of 33%.

Now, with the industry growing at less than half that rate (14%) in the past five years (2008-2013), chief executive officers at Indian tech firms and their HR leaders are pushing for ways to trim the payroll and bring people costs down.

At Wipro, for instance, the rate of involuntary attrition, or people being asked to leave, more than doubled in the year ended March to 3.6%, according to the company. Personnel heads of at least three other top Indian software firms confirmed that the same is the case at their companies.

Already, for the first time in more than two decades, the software exports industry is generating every additional $1 billion in revenue with less than half the number of engineers it needed till 2003—an early indication that the country’s top technology firms are earning more from high-end projects that require fewer people.

For instance, in 2003, when India’s software exports were worth just $9.5 billion, firms such as TCS and Infosys needed 37,798 engineers to earn $1 billion. Last year, the industry added 19,783 people for every additional $1 billion in revenue, according to industry lobby Nasscom.

Automation threat

Earlier this year, Janardhan’s company identified him as one of the employees whose job role and skills had become redundant because of a new software platform that automated more than half the work needed to execute software testing projects.

“The logic was simple. Why would you pay somebody $20 an hour for the same task over and over again? By automating the workflow, the company didn’t have to hire additional engineers for doing the same task,” said Janardhan.

“It looks like I have been fixed myself,” said Janardhan, who now works at a back-office firm earning about half what he made at his last job. About a dozen of his team-mates also lost their jobs. Most of those who had to quit were engineers with at least 10 years of experience.

Janardhan, along with thousands of other IT engineers in India, delivered software testing projects worth $3.2 billion in 2010, an industry set to ring in revenue of $15 billion by 2020, according to Nasscom.

However, this fivefold increase in software testing revenue may not require the around 37,000 software engineers needed for every $1 billion in additional income earned in the past.

“The company hired several non-engineers who came at much lower salaries to manage these new software platforms for delivering projects. The technical portions that only engineers could do are now being managed by fresh computer science graduates,” added Janardhan.

Automating delivery of IT projects in the areas of software testing, technical helpdesks and computer hardware management is becoming a crucial tool for these firms in reducing their dependence on the need to recruit additional staff for fresh business.

In May this year, researchers at McKinsey Global Institute identified automation of knowledge work as being among the top technology disruptions going forward.

“In the applications we sized, we estimate that knowledge work automation tools and systems could take on tasks that would be equal to the output of 110 million to 140 million full-time equivalents (FTEs),” according to the McKinsey report titled Disruptive technologies: Advances that will transform life, business, and the global economy that was published last month.

For instance, software robots and humanoids from US-headquartered IPsoft Inc. automate and deliver IT projects at a cost that is less than one-fourth the billing rate of a human engineer. How? By automating more than half the projects and by solving technical glitches in seconds, speeds that human engineers cannot match.

To be sure, not all IT work is going to be done by these robots and automated platforms. These solutions are gaining acceptance in doing tasks that are repetitive, such as software testing or technical support.

An HR head at a Bangalore-based firm that’s among the top 10 Indian software exporters is putting together an automated solution for the deployment of engineers across hundreds of customer projects. Currently, a group of around 200 employees tracks thousands of engineers in the company by location, skill and competency and figures out where they need to be sent. In a few weeks, all of them will become redundant.

“Some of our rivals already have a software dashboard that manages resource allocation real time; we must catch up,” said the HR executive who didn’t want to be named.

Under pressure to arrest linear growth, or growth achieved by the addition of employees, Indian technology firms are now partnering with newer, disruptive companies such as IPSoft, once considered a fierce rival to the industry.

Earlier this year, Infosys announced a partnership with IPSoft to jointly work on customer projects and reduce the dependence on humans through automation. Officials at companies such as Wipro and Cognizant Technology Solutions Corp. confirmed they were in talks with IPSoft for a similar alliance.

Automation will trigger a constructive destruction in the industry and Indian firms can make the best of this transition by changing their models, according to Chetan Dube, founder of IPSoft.

“We have a tiger by the tail. It is the responsibility of thought leaders in India to proactively start moulding their workforce towards the new order that is emerging,” said Dube, who taught mathematics at New York University before launching IPSoft.

But these firms need to change fast and ensure their workforces, too, adapt to the new world.

“It’s like changing engines while the plane is in midflight, as they continue to have quarterly earnings pressures. If they are not able to do it rapidly, they will face a period of declining margins, as they try to hold onto a dissipating revenue line,” Dube said. “That will lead to a period of constructive destruction, where existential necessity will force them to transform their disintegrating world.”

Doing more with less is in line with the push coming from top outsourcing customers such as Morgan Stanley, Comcast Corp. and Johnson and Johnson.

“We have been told that we must deliver a portion of outsourcing contracts based on automated platforms that bring artificial intelligence and do not bill based on the number of people deployed,” said a senior official at one of the Indian tech firms exploring new business from Morgan Stanley. He requested anonymity because the conversations were private.

Changing profile

Apart from automation, software engineers are also becoming casualties of the increasing sophistication and robust nature of the technology they oversee. This means that the software systems and applications can be easily managed by somebody with just operational knowledge of computers.

Companies are hiring non-engineering graduates from the arts and science streams, reducing their dependence on highly skilled and more expensive engineers.

Sakshi Sinha, who graduated in science from a college in Bhopal, Madhya Pradesh, last year, is now managing computer desktops and servers for a European bank. Sinha, 25, is employed with the bank’s captive centre in Bangalore.

“There’s nothing technical about this job. I only have to keep an eye on a dashboard that has different colours denoting different stages. The colour red means it needs immediate attention, and so on,” she said.

McKinsey said in its report that the increasing intelligence of computer systems allows someone who can handle Microsoft Word or Excel programmes to manage these projects.

“Advances in software, especially machine learning techniques such as deep learning and neural networks, are key enablers of knowledge work automation. These techniques give computers the ability to draw conclusions from patterns they discern within massive data sets,” the McKinsey report said.

This makes it easier for non-engineers to perform what were once considered high-end tasks.

Manish Sabharwal, chairman of staffing company TeamLease Services Pvt. Ltd, sees this rather than automation as the key to determining employment prospects.

“There are some jobs that could be automated, but I don’t anticipate automation being the primary driver of lower employment elasticity of future growth for the IT industry. The biggest challenge for software engineers will not come from machines, but from non-engineers doing a lot more IT work,” he said.

Trim the payroll

As software firms push aggressively to cut staff costs and move away from the people-based, hourly billing model for delivering services, they are becoming ruthless about non-performance.

Until a few years ago, companies such as Infosys, TCS and Wipro would ask the bottom 1-2% of staff identified as non-performers every year to leave. Now, the proportion of staff being asked to go is 5-10% annually. Wipro, for instance, saw this attrition double from 1.6% in 2012 to 3.6% in year ended March 2013.

HCL Technologies Ltd, which counts AstraZeneca Plc among its top customers, saw its headcount decline by more than 100 each in the December 2012 and March 2013 quarters.

Wipro introduced a new incentive structure for junior-level programmers that comprise 70% of the total workforce under which incentives depend on billing. To be eligible for the incentives, the worker will have to submit billings for at least 50% of his or her time per quarter on a billable client project.

Such an incentive structure will not include programmers who form the bench of a company as they won’t be able to submit billings. Previously, they also used to be eligible for incentives based on the company’s performance.

With the era of easy revenue growth coming to an end, IT companies will have to look for alternative ways to sustain results, said Rishikesha T. Krishnan, a professor of corporate strategy and policy at the Indian Institute of Management, Bangalore. “Attacking costs is usually easier because costs are more under the company’s control. Increasing productivity is one obvious way of reducing costs, and in a manpower intensive industry like software services, automation and process innovation are obvious candidates to reduce costs,” he said.

To be sure, experts such as Sabharwal say it will be a stretch to apply the term “layoffs” in the Indian context, especially since the firms are still growing.

“This kind of performance management always existed. Some of it may have been masked by attrition; now that attrition is down, employers may have to take performance calls. But it is unclear that these rationalizations are a child of low tide,” said Sabharwal.

This is the first in a three-part series.

Next: How a generation of engineering students, nearly a million set to graduate this year, has nowhere to go.