IT firms looking at executing projects with a lesser number of employees

Large Indian firms see revenue per employee growing at a steady rate

While large Indian IT (Information Technology) services players have shown a strong revenue growth in FY19 (financial year 2018-19) so far, the additional growth has come with fewer headcount addition, reflecting a clear nonlinear trend.

As seen in the previous years, revenue is growing disproportionately to the headcount growth, leading to moderation in hiring.

Company officials and industry experts are of the opinion that factors like automation, rise of fixed price contracts and emergence of new levers of revenue flows are aiding the nonlinear drive.

“While there is a lot of hiring for the right skill sets, we are also seeing a lot of growth coming now from nonlinear ways, including platforms, IPs (intellectual property) and consultancy areas. That’s a shift, which is happening,” President and Chief Human Resource Officer at Wipro, Saurabh Govil, told Business Standard.

This is true for the three big IT services companies in India which witnessed their revenue per employee going up at a faster rate despite slower addition of people.

For instance, revenue per employee of Tata Consultancy Services (TCS) rose from Rs 854,000 in the first quarter of the current financial year (Q1FY19) to Rs 893,000 in Q3. Similarly, Infosys’s revenue per employee increased to Rs 948,000 in Q3 from Rs 891,100 reported in Q1FY19.

Wipro also witnessed its revenue per employee rising to Rs 845,000 in Q3 from Rs 838,000 in Q2FY19. However, the Azim Premji-led firm’s employee productivity witnessed a marginal dip in Q2FY19 as the company acquired India unit of Alight HR Solutions, leading to rebadging of around 10,000 employees.

According to a Nasscom report, for $1 billion revenue addition in FY18, the IT services industry in India hired just 9,470 employees, the lowest in the last seven years. While industry hired an aggregate of 22,264 employees to earn $1 billion in additional revenue in FY12, the figure came down to 16,868 in FY15 and 9,470 in FY18.

“The decoupling of revenue and headcount is largely because of shift towards more of fixed price contracts, which provides levers to the IT firm to use technology for replacing labour,” said Pareekh Jain, founder of Pareekh Consulting.

“In a fixed price contract, the idea is that the service provider gives the same value with less number of employees. So, companies are replacing employees either through platforms or through other tools like automation,” he added.

In the last one year, the ratio of fixed price contracts for Infosys increased from 52.6 per cent to 53 per cent during the December quarter of this fiscal year. Similarly, the share of fixed price contracts for Wipro moved to 59.8 per cent in the December quarter from 57.7 per cent reported in same period in FY18.

With pricing pressure seen in the traditional maintenance and services business (legacy business), IT companies are looking at executing projects with lesser number of employees.

“IT contracts are slowly moving away from time and material (T&M) to fixed price outcome contracts. That’s why we are seeing one project manager managing 40-50 engineers now, which earlier used to be 4-5 engineers,” said Kris Lakshmikanth, founder chairman of Head Hunters India. “In a way, the global trend is catching up in India as we have seen in the case of Accenture or IBM.”

Employee addition for every $1 billion revenue for Indian IT/ITeS industry

Fiscal year	Employee addition per $1 billion revenue
FY12	22,264
FY13	21,419
FY14	17,496
FY15	16,868
FY16	16,199
FY17	17,143
FY18	9,470

Source: Nasscom

Chart 2

Company	Revenue per employee in FY19 (Rs)
	Q1	Q2	Q3
TCS	8,54,000	8,96,000	8,96,000
Infosys	8,91,100	9,46,000	9,48,000
Wipro	8,51,000	8,38,000*	8,45,000

* The dip in revenue per employee for Wipro in Q2 of FY19 was due to addition of around 10,000 employees from Alight HR Solutions

Source: Financial reports