Dis-placement?

Do companies utilise MBA recruits well?

Like any finance MBA just out of B-school, Anirban Chowdhury (name changed), a graduate from the Indian Institute of Management, Lucknow, was all geared up to kickstart a great career.

As he entered the Mumbai office of a software major in June 2002, life was full of expectations and apprehensions.

The apprehensions stemmed from the fact that he belonged to the first batch of MBAs that the company had hired, deviating from its earlier practice of hiring people with a technology background.

After a three-month induction, Chowdhury hoped, he would start selling banking or manufacturing software, as was promised on campus.

Instead, he was put on an "extended induction period", in various departments for almost a year. In the course of rotation, he was assigned the function of business process re-engineering.

Unwilling to give up hope, he took training for the new assignment. However, senior managers created hurdles, claiming that MBAs without an IT background would not be suitable for selling technology products.

"Senior managers at the company were not sure that MBAs could handle the job well," recalls Chowdhury. There was the rub. "What we discovered was that before recruiting MBAs, the company had no proper plan laid for us. There was a big disconnect between what was promised on campus and the deal we got towards the end," says Chowdhury.

Despite that, Chowdhury and his 58 batchmates who joined along with him prepared themselves for their new roles. But the company could not even carry out the training programme successfully.

Says Chowdhury, "We were supposed to be taken through a rigorous training programme but this was also loosely structured. Since there was no agenda to the whole initiative, even the company was losing out as it was running heavy bills without bearing fruit."

The result: 20 per cent of the MBA recruits put in their papers in the first year itself. The company then made efforts to retain them by promising them a different job profile "" they could become business consultants who would interact with clients.

During pre-placement talks at the campus the company had convinced its potential employees that it was getting into business consultancy in a big way.

"But nothing of the sort has happened so far, other than some small effort being made," says Chowdhury.

The other big issue was salary. For instance, during B-school placement, Chowdhury was offered a package of Rs 4.23 lakh.

But after that, no increments seemed to be forthcoming "because the company had got into cost-cutting in a big way". At present, Chowdhury is working with a leading bank, with a salary close to Rs 5.5 lakh.

To be sure, Chowdhury's case is just one example. When Business Standard spoke to a cross section of MBAs with one to three years' experience across organisations, there were few MBAs recruits who appeared satisfied.

Consultants estimate the churn rate "" fresh-MBAs leaving their jobs in the first three years "" is as high as 50 per cent. So, do companies recover all that they invest in their fresh-MBA recruits before they leave for greener pastures?

At the outset this looks difficult, considering the high stakes. For instance, the top 1 per cent of B-school graduates in the country draw salaries in the over-Rs 10 lakh range. Ten per cent of the remaining graduates command salaries of Rs 7.5 lakh to Rs 10 lakh, while 50 per cent earn upwards of Rs 5 lakh.

The remaining draw salaries anywhere from Rs 2.5 lakh upwards, depending on the pedigree of their institutes. Consider that the nearly 900 B-schools (recognised by All India Council for Technical Education) churn out 90,000 management graduates every year (taking an average of 100 seats for each B-school).

Even in the worst-case scenario where a management graduate takes home a pathetic Rs 1 lakh per year, companies are committing a whopping Rs 900 crore towards fresh-MBA salaries.

While companies recruit these graduates from the campus over a week-long placement process, in many cases headhunters are constantly on the lookout for these greenhorns.

"Companies are more than keen to grab MBAs with experience of around three years or less in a related industry," says one HR consultant. "In many cases we keep a tab on such potential candidates."

However, consultants point out that companies do not tend to lose too much sleep (and of course, money) even if recently recruited MBAs desert them in two or three years.

The fact that none of the companies spoken to have indicated the use of golden handcuffs (read: bonds, interim bonuses and so on) to chain fresh recruits, substantiates this fact.

This is partly because the high average salaries that are often showcased by B-schools are, more often than not, the cost to company (CTC) for employing the MBA.

This means that if MBAs are recruited at a cost of Rs 12 lakh per employee, they may end up taking home as little as Rs 4.8 lakh, as costs incurred on employees "" such as training and other facilities "" are a part of this package.

For instance, international banks like HSBC take their management graduates for a four- to six-week training programme in Bricket Woods, United Kingdom. The cost of this is part of the employee's compensation package.

However, this is hardly a grouse for management students "" they are well aware that their top packages are window-dressed by the placement committees of management institutes to drive up the average salaries.

All said, retention of employees still matters. "A company can recover the investment made per MBA recruit in about three years, although we would hope he sticks around longer," says K Ramkumar, general manager, human resources, ICICI Bank.

But salaries are the least of reasons that drive away fresh management graduates from their first job. "There is a huge mismatch between expectations and reality," says a management consultant.

Satish Pradhan, executive vice-president, group human resources, Tata group, concurs with this view. To counter this, the Tata Group (its 70 to 80 companies hire nearly 250 to 300 B-school graduates from across campuses every year) takes care of the nitty-gritty at the recruitment stage.

For instance, even seemingly minor details of their promised job profile and salary structure are made clear in the beginning.

"Our learning is that it helps if you have alumni from the particular institute who go and conduct the pre-placement talks as well as fields queries from students. This ensures that students actually get a proper feel of the situation," says Pradhan. He claims that the company puts up the entire salary package down to details of the break-up and net income.

"However, the real task is to identify that special group of talent that has the potential to head companies in about 12 to 15 years," says Bimal Rath, vice-president, group human resources.

The Tata group bestows VIP status on MBAs by taking them into the Tata Administrative Services (TAS) fold. The 20 to 25 TAS recruits who are picked up straight from campuses are assigned projects at group companies in fields as diverse as steel and salt, for 11 months.

After that they are assigned a one- to two-year full-time job at a single group company. The next assigned job is for two to three years. The company claims that attrition within this elite group is lower than 4 per cent.

"That is indicative of the fact that young recruits look for challenges and personal growth rather than merely money and positions," says Rath.

If the Tata group banks on TAS then fast-moving consumer goods (FMCG) company, Hindustan Lever Limited (HLL) takes the 60-odd graduates that it annually recruits from campus, through a 15-month training programme called Business Leadership Training (BLT), wherein employees are trained rigorously with various departments for 12 months of which the last three is spent in training for the final job assigned to them.

However, Prem J Kamath, head - management resources, HLL, says that the company would not go out of its way to retain its MBA force.

Says Kamath, "We do not follow any retention policy. People are free to leave the company as and when they want to. We never try and hold them back in any way." But he agrees that the attrition rate among MBA recruits is higher than the average company attrition.

For instance, while the overall rate of attrition at HLL is 7 per cent a year, the attrition within the group of MBAs or campus recruits who have been with the organisation for less than four years is about 10 to 15 per cent.

Another Mumbai-based FMCG company, Marico Industries, uses a part of its MBA recruits as a reserve force to be deployed when the company has to expand operations.

Rakesh Pandey, HR Head, Marico Industries, points out that "20 per cent of the candidates hired in functions like sales are actually a reserve force".

He adds, "We need more people in sales jobs since, being a FMCG company, we sometimes move to new territories or launch new products. Since we have rotational stints in selling and rural projects, the extra people are utilised well."

ICICI Bank also practises job rotation as a retention strategy. "We often get feedback from fresh recruits for change of department or function. By and large, we try and accommodate preferences but only if they matches our assessment of the individuals," says Ramkumar.

Although not stated in as many words, top performers are generally accommodated first. Also, for fresh recruits, ICICI Bank has a two-year job rotation plan until they reach the level of a team leader.

"Gone are the days of monogamy between employer and employee. Today, young recruits want to try three or four jobs before they settle down for that long-term career," says Ramkumar.

However, ICICI Bank does not worry too much about attrition since there is a steady flow of young talent. According to bank executives, this is because most of the younger recruits who quit early are average performers. Last year, 90 per cent of the youngsters who left ICICI Bank were not top performers. Or is that what the company would like to believe?

Additional reporting by Shweta Jain