IT cos need to rightsize bench to boost efficiency, stop layoffs: Experts

While other industries have single-digit bench sizes, tech firms typically have a larger bench size of as much as 30%, they say

Top Indian IT services companies need to rightsize their bench strength or utilisation rates to increase efficiencies and prevent layoffs, according to experts. Bench typically refers to those employees who are on the company's payroll but are not involved in any active projects.

In general, there has been an increase in bench size and decline in the utilisation rates at the top IT firms. A bench size of 15-20 per cent is considered normal in technology companies across the world. While other industries have reported single-digit bench sizes, technology companies typically have a larger bench size that could go up to 30 per cent at a given point in time, experts said.

“The next couple of quarters might have a slight impact on the IT sector due the existing gap between hiring activities and availability of active projects, requiring many companies to temporarily restructure and re-size their workforce requirements. An important reason behind this is the inflated hiring activities which happened over the last couple of years, which lead to a strong and under-utilized bench strength,” said Yeshab Giri, chief commercial officer, Staffing and Randstad Technologies, Randstad India.

IT companies take a three-pronged approach to optimise their bench, said Abhisek Mukherjee, partner, YCP Auctus, a management consulting firm. “First, they delay the joining of freshers and slow down hiring. Second, they make appraisals harsher which leads to natural attrition, and third, by accelerating training and reskilling the top talent on the bench.”

The utilisation rate (excluding trainees) at Infosys for the March quarter reduced to 80 per cent from 87 per cent in the same quarter last year.

“You are sitting with 80 per cent utilisation whereas you want to be at much higher levels and the pyramid is not as efficient because you had to get talent from anywhere when the market was hot,” Nilanjan Roy, CFO, Infosys said in an analyst call post the Q4 earnings.

IT companies struggle to maintain an optimum utilisation rate as it is like a double-edged sword. It needs talent on the bench so that they can be readily deployed when projects come in but until then, they remain non-billable resources.

Wipro’s net utilisation for the March quarter stood at 81.7 per cent, lower than 85.2 per cent reported in the same quarter last year.

“On the utilisation, we want to continue to stress on internal buildup talent as opposed to buy up talent, and as a result we had higher talent including the next gen associates, and the focus in the current quarter and the future quarters will be to make sure that whenever the demand comes in, we first give priority to internal fulfillment, and while we have already seen some improvement on utilization, we will keep pushing it more aggressively to get much more out of it and staff projects from inside,” said Amit Choudhary, chief operating officer, Wipro.

Experts believe the large bench can result in layoffs in the coming quarters. “Due to the uncertainty in the global markets, major IT companies are faced with reduced spending on IT and downsizing of the project scope. Because of this, there has been an increase in bench resources, resulting in reduced company efficiency. The current surplus of bench resources poses a risk of potential layoffs if suitable projects are not secured in the next few months,” said Anup Menon, vice president of IT Staffing, CIEL HR Services.

To address this challenge, IT services companies can prioritize rightsizing their bench strength. “Companies can achieve that by focusing on upskilling and reskilling existing employees to align their skills with the current market demands. This enables flexibility in deploying resources to different projects based on skill areas that are in demand,” added Menon.

Despite a large bench strength, the Indian IT sector will continue to grow in 2023, due to an increased demand for cost effective skilled talent by global giants that are looking to outsource a significant chunk of their business to India. “With a strategic focus on optimising existing resources and harnessing bench strength, companies can navigate through uncertain times while remaining agile and adaptable,” added Giri of Randstad India.