Indian information technology (IT) services companies are expanding their employee base significantly. So much so that many believe some of these may just even surpass a few public sector companies.
Take the case of India’s largest IT services company, Tata Consultancy Services (TCS). The company will have an employee base (gross) of 250,000 by the end of 2011-12. Taking it ahead of India’s largest public sector bank State Bank of India, which had a 224,299-strong employee base at the end of 2010-11. According to company officials, SBI plans to add 5,500 more employees in 2011-12, taking its headcount to 229,799.
Bangalore-based Infosys Technologies, which has seen a high attrition rate, mainly due to several of its HR programmes, still has a headcount of 130,820 employees at the end of 2010-11. By the end of 2011-12, the company will have a headcount of 175,820. It plans to hire 45,000 people by the end of 2011-12. This will be close to the total number of employees public-sector banks will hire in 2012.
Similarly, Wipro and Cognizant, too, have crossed the l00,000-mark. And, with growth expected to be in double digits, these companies are gearing up to push their hiring plans.
Managing such a huge employee base is not only the priority but also a daunting task. Analysts have predicted that if the current productivity levels continue and the large players have to deliver a 20 per cent compounded annual growth rate (CAGR) in revenue for the next decade, Infosys, TCS and Wipro will each need to employ close to a million people within the next 10-12 years. IBM, with a revenue of $99.9 billion, has an employee base of 400,000.
IT services companies believe that the co-relation between headcount and revenue will happen in the next three to four years, as their non-linear initiatives start generating revenues. But many analysts believe, while this may help the IT companies manage their margins, their headcount coming down drastically is unlikely.
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“I think, in the next three years, it is possible that these companies’ headcount will double, but it is unlikely to come down. I also feel the Indian IT companies can sustain this model, since they still account for just five per cent of the global outsourcing pie. We do expect that the growth rates of these top companies will taper down and so will their margins,” said an analyst with a leading brokerage company that tracks the sector.
Nishchae Suri, managing director, Mercer India, says the business model of the Indian IT services companies needs to be examined and understood to know how employee headcount affects revenue and productivity. “This is important, given that employee costs in these companies could account for 45-60 per cent of the total cost,” he added.
He adds: “As Indian players become global, they will need to move up the value chain by, for example, offering consulting services, revisiting their pricing strategy in light of competitive pressure and optimising their talent model to meet requirements of both revenue growth and margins.”
Analysts say the productivity aspect of these employees is one of the parameters that will get increasingly important. The top IT companies, especially TCS and Infosys, manage to get an Ebitda per employee of Rs 7-9 lakh on an annual basis. This is much lower than their global peers. In case of Infosys, the Ebitda per employee for 2010-11 stood at around Rs 820,000. This has come down from Rs 880,000 in 2008-09. TCS, on the other hand, has managed to improve on this with its cost efficiencies.
Managing people
Ajoy Mukherjee, vice-president and head of global human resources at TCS, agrees that the company is becoming larger and the HR team is increasingly handling larger volumes. But he adds that the structure of the company allows it to handle the thousands it recruits every year.
“Among the several levers, what has helped us to manage this huge number is the restructuring that we underwent in 2008. We created multiple business units within the company. Each unit is small enough, but, at the same time, has necessary scale to go out and compete. That helps us manage the large organisation,” says Mukherjee.
Mukherjee explains that the overall workforce planning is done when the business plan for the year is prepared. This is generally done between December-January and mid-February. The planning takes into account the growth of each of the business unit and the engagements those are getting into. This helps the company understand the skillsets each one of those needs to focus on. “After this, we take into account the company’s overall growth rate and the demand scenario. We also take into account the attrition rate when deciding the final numbers. However, the training of each trainee is undertaken centrally before they are moved to their respective units,” he adds.
Nandita Gurjar, senior vice-president and group head for human resources at Infosys Technologies, says managing scale is something that is intrinsic to the Indian IT services players, especially when talent is available. “But then, in such cases, technology becomes crucial in managing scale. This is applicable to HR processes like hiring, retention, etc. The amount of information system that gets upgraded every year is the highest in HR,” she says.
In case of Infosys, besides the extensive use of technology to hire employees in thousands, the company has also outsourced its hiring activities to an empanelled vendor group that works closely with the Infosys team. “If you are mandated to hire 40,000 to 50,000 people, it is impossible to have the management team sit down and look at so many potentials. Hence, the extensive use of technology,” says Gurjar. The company has moved a lot of its assessment evaluations process to technology platforms so that people across development centres can participate together. This allows the company to evaluate (give tests) 10,000 employees together.
As Gurjar explains, it is about saving time and effort when hiring in volumes. “This is not just limited to hiring. We have 25 papers that need to get signed when a new employee joins the organisation. We are now looking at a system that can reduce this to a single form. This will also save the time of the employee,” she said.
The scale of operations has meant that certain other parameters also change. For instance, utilisation in all top-tier companies has touched over 80 per cent (excluding trainees). This, many believe, is the new normal. “Many people feel the utilisation level, at 80 per cent and above, is a means to manage cost, but we also have to manage individual aspirations. Keeping a large number of people on bench is not healthy,” said Mukherjee.
Shankar Srinivasan, chief people officer, Cognizant, says: “Our belief is that offshore utilisation, excluding trainees, will bounce around at the 80 per cent levels, give or take one or two percentage points. For example, when our testing practice had 5,000 employees and was growing at over 60 per cent each year, we ran utilisation in that practice at about 50 per cent. That gave us about 2,500 people as a strategic buffer to meet any requirement. With the same practice at 15,000 people, we can run it at much higher levels as the absolute strategic buffer is much higher today.”