Opinion
The growing appeal of gig workers to IT companies
Summary
Service firms could turn into trading zones for assorted services as the gig economy takes hold
Some years ago, I wrote in IT Matters that we will see a fundamental shift in how services are delivered by information technology (IT) firms, where managing large employee pools would become passe. I was challenged by many IT service executives who saw their key differentiator being the quality of the people they were hiring. Some of them said that their people were their assets, and that it was up to their managers “to make sure they went home happy" (and presumably returned to work the next day).
At the time, I said that the truth is that IT services firms, as we have come to know and accept them in business parlance, will inexorably become outmoded models for the contracting of IT services. This was during the pre-covid era when big deals were still the norm and it was natural for client companies to choose one or maybe two vendors to work with for all their IT-service needs. I spent over a decade advising clients and directly negotiating such multi-billion-dollar mega deals on their behalf. These were with large IT services firms to which work was being outsourced. Many of these deals also had significant M&A components. Even when a merger or an acquisition was not on the cards, the transfer of IT staff from client to outsourcer was certainly front and centre during many of these negotiations.
Economic conditions over the years forced sellers and individual buyers to organize themselves within defined, traditional market constructs, since these provided a more cost-effective way for people to trade with one another than a free-for-all market. In other words, the grouping of computer programmers’ employment contracts into a nexus was an integral part of how IT services were procured and how services firms functioned. They prided themselves on their expansive training facilities and competed with one another to achieve the lowest levels of staff attrition. Every presentation to clients that was conducted during the competitive phase of vendor selection, which happened prior to contract negotiation with the chosen provider, showcased these numbers.
Service providers would also make the case that their firms were indeed a better place for client employees whose focus was IT since these resources wouldn’t be relegated to the back office, as they were in, say, a bank, but would be front-line employees who could build themselves long and satisfying careers in IT by joining an IT services provider versus sweating away in a back office for thankless frontline colleagues.
It appears that the pandemic and subsequent remote-work model as well as a red-hot market for technology talent have started shaking up the employment market in India. According to reports, India’s IT services firms are expanding their talent pool by hiring freelance contractors and part-time hires, while battling historic highs in attrition levels due to a covid-induced boom in demand.
In their June quarter earnings announcements, Tata Consultancy Services (TCS), Infosys and Wipro all announced high attrition rates. TCS had a 19.7% attrition rate in the past 12 months, while Wipro was at 23.3% for the quarter. HCL Technologies’ attrition rate climbed from 21.9% in the March quarter to 23.8% in the June quarter. India currently has more than 15 million freelance workers deployed on tech projects, according to a June 2022 Assocham report, which forecast the domestic ‘gig job’ economy to grow 17% to $455 billion by 2024. Another estimate by India Brand Equity Foundation has predicted that the country might have 350 million such jobs by 2025.
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IT Services firms are now trying to put a marketing spin on a hard reality that runs directly contrary to their previous boasts of fostering employee loyalty. TCS, for instance, calls its gig workforce the “talent cloud", painting contractors as a virtual talent pool available for any project from across locations to meet client demand and project needs. Tech Mahindra, which hires gig workers for niche skills, has built an external marketplace called BeGig that enables other employers to hire people from this freelance workforce.
Beyond marketing, both the client and service provider sides have had to step up their workforce monitoring and employee management, apart from compliance and information security systems, in the last 12-18 months, while bolstering their legal frameworks to manage violations and liabilities.
While the marketing spin was but to be expected, it is clear to me that the need for long-term employees is being eroded. Services firms won’t need to have the same nexus of contracts as they did before. The future will be one where services firms increasingly become simply platforms for buyers and sellers to collaborate.
The platform itself will only provide three signature processes, which it will have to do better than its competition in order to thrive: first, resource allocation (by managing the bidding process for skilled human resources); second, the ability to accurately predict operational risk as an indicator of the potential performance of a worker; and third, a feedback mechanism as an ex-post measure of the performance of the worker, which over a period of time will provide an ever-improving database which can be used to predict the second signature process of operational risk.
Meanwhile, Wipro’s TopCoder, one such platform marketplace with 1.5 million freelancing programmers, posted a 60% sequential rise in registrations since March 2020. Its acquisition as part of its Appirio takeover in 2016 now looks prescient.
Siddharth Pai is co-founder of Siana Capital, and the author of ‘Techproof Me’.
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