At IT's lowest rungs, automation on the prowl

Automation threatens to hit hiring of graduates, bottom-of-pyramid jobs

The pyramid-shaped organisational structure in the information technology (IT) sector is set for a change. Given the rate at which Indian IT services companies are embracing automation and wide-scale job elimination at the lower level, the organisational structure in the sector is expected to look like a diamond than a pyramid over the next three to five years. The implication of automation at the lower end is also expected to travel up in the organisation, putting increasing pressure on the middle management to protect their jobs, as well as re-skill themselves for the skills required lower down in the hierarchy.

"From a pyramidal structure, the shape of the organisation could begin to resemble an inherently unstable diamond structure, as the work at the lower end gets automated or digitised," said a report by Kotak Institutional Equities on Monday.

"Employees at the middle level, who typically would be groomed for managerial roles, would find no organisation below them to manage and could be most at risk. Inherent growth in business may create some opportunities to manage this transition for mid-level employees. However, they would do good to be prepared for longer promotion tenures, separations, re-skilling and embracing the on-demand environment," it added.

While automation and the use of intelligent platforms, tools, and technologies are expected to boost the operational efficiency of IT services companies, it has already started taking a toll on hiring. The net hiring of IT professionals as a percentage of the total talent supply, including engineers and postgraduates in computer science, has been steadily on the decline in the past five years as a result of the slower growth of the sector that pushed it to focus on various non-linear initiatives. For example, while the engineering graduate output of Indian universities stood at 1.5 million a year in FY15, up from 0.3 million in FY05, net hiring in the sector remained stagnant at around 0.25 million over the past five years. This has resulted in a huge demand-supply mismatch.

Over-supply of graduates can result in

• Moderate wage revision in the IT sector
• IT companies moving to the just-in-time hiring model
• Changing the graduate recruitment model to a mix of on-campus, off-campus hiring
• Restricting campus recruitment to only computer science or alllied branches
• Possible unionisation in the IT sector

Moreover, according to a report by analyst firm McKinsey, the Indian IT sector will create only one million new jobs for the next $100 billion of revenues compared with the three million it had created for the first $100 billion.

"Hiring for IT sector is likely to decelerate over the next half decade before automation/robotics hits J-curve. According to Nasscom estimates, the sector would create 30,000 or 13 per cent less jobs in FY16, compared to FY15, as new technologies make many roles redundant and companies improve efficiencies," Shashi Bhusan, a research analyst with equity analyst firm Prabhudas Lilladher, had stated in a report this February.

The Indian IT and business process outsourcing sectors together employ 3.5 million people, while the IT sector alone has a headcount of 2.5 million. According to different reports, companies are planning to reduce their workforce needs by 30-35 per cent over the next three-five years, using automation.

According to the Kotak Institutional Equities report, the excess supply of engineering and computer science graduates could have many implications, including moderation of wage increases, companies moving to just-in-time hiring model, as well as a change in the campus recruitment model, with a mix of campus, off-campus and consolidated campus hires. Companies have already made a departure from their earlier campus hiring model. Earlier, they were recruiting freshers from the sixth semester; now they recruit in the first half of the eight semester.

The worst but near-term possibility could be invasion of trade unions in the Indian IT sector though not "in the traditional sense but through self-help groups formed by people through social media platforms such as Facebook and Twitter," the report said.