No increase in IT firms' productivity despite digital revenue growth2 min read . Updated: 23 Jan 2019, 10:25 AM IST
- Since each firm defines ‘digital’ differently, analysts are in a quandary when they try to compare firms
- Analysts cite three main reasons behind this divergence in RPE and digital share of business
NEW DELHI : India’s top technology companies have seen the contribution of digital revenues—value added services that they say are more lucrative—surge over the past three years, but a key productivity metric, revenue per employee, suggests that digital may not be all that it’s cracked up to be.
Revenue per employee (RPE) has not improved much at three of the largest companies, with only Cognizant Technology Solutions Corp. and Wipro Ltd reporting a significant increase.
Cognizant remains an outlier, as the Nasdaq-listed firm saw its RPE rise by 16% since December 2016, while Wipro’s RPE improved 7% since June 2016, according to a Mint analysis.
Tata Consultancy Services Ltd (TCS) and Infosys Ltd saw their RPE improve 1.13% and 1.4%, respectively, since the companies first started disclosing their share of digital revenue.
It’s not just companies based out of India, Accenture Plc, the leader in digital services, raised its share of digital business to 60% at the end of November quarter from 17% for the year ended August 2014.
However, its RPE on an annual run-rate basis declined by 6.8% to $91,415 from $98,083.5 during the same period. Accenture follows a September-August financial year.
Analysts cite three main reasons behind this divergence in RPE and digital share of business. First, since each company defines “digital" differently, they are in a quandary when they try to draw comparisons between firms.
Accenture clubs revenue from platforms, internet of things, cloud computing, cyber security and Accenture interactive under what the company calls digital and new. Cognizant does not include business from platforms under digital, while Wipro, unlike TCS and Infosys, does not count business from consulting as part of digital.
“How companies count digital revenue is not consistent," said Ray Wang, founder, Constellation Research.
Second, possible price cuts for their services and more offshoring. “Price cuts and different companies changing the mix of onshore-offshore work is a big reason behind these divergent RPE numbers," a Mumbai-based analyst at a foreign brokerage said on condition of anonymity.
A possible third reason behind Accenture’s decline in RPE as against an improvement at home-grown IT firms could possibly be explained by different approaches followed by these companies: Accenture has bought digital piece by acquiring companies while Indian firms have tried to build it.
“The answer is simple—top digital talent demands higher salaries and Accenture has acquired 36 digital agencies, while their nearest rival, Cognizant, has bought 10. In addition, Accenture dominates in digital design, where most staff has to be onshore—and hence more expensive—while the Indian majors focus much more on the IT integration pieces," said Phil Fersht, chief executive of US-based HfS Research.
Email queries to Accenture, TCS and Infosys went unanswered. Cognizant declined to comment as the company is in a quiet period ahead of declaring its fourth-quarter earnings next month. A Wipro spokesperson declined to comment. “We expect that (RPE to improve)," Wipro’s chief operating officer, Bhanumurthy B.M. had said in an interview last week after the company declared its third-quarter earnings.