Making up attrition

There was a time when jobs in software companies were for all practical purposes the domain of computer engineers with years of coding under their belt. When demand outstripped supply, technology companies began looking at engineers from other disciplines, retraining them, and put them on job.

Many IT companies in India have offered higher salary increases during the increment season of this year, compared to what they did the year before. The increases appear to be particularly high at mid levels, where talent scarcity is becoming pronounced. More so in smaller companies, for whom retaining talent has become extremely challenging.

An average increment is of 16% this year against 13% last year, while some top performers have got even a 30-35% increment.

Even talent supply to the entry level is becoming difficult but the supply of mid-level people is more challenging. When there are constraints on the budget, it’s important to differentiate top performers from the average.

The issue now is how long they will be able to maintain these levels of increases. The general cost factor is becoming a concern.

Now that even those supplies have started running thin, two trends are making themselves obvious. One is that companies have begun hiring science and math graduates. And two, that hiring of fresh graduates had out stripped that of experienced personnel; there are no experienced hands to be hired in any case.

Take Tata Consultancy services (TCS) for instance. Newly hired math and science graduates are out through a seven month program rather grandly called Ignite – at the end of which, they are ready to take on assignments that would otherwise have gone to the engineers.

The first batch of 500 trained personnel is ready to be deployed on various projects, depending of course, on their levels of proficiency. Some may find their way into call centre while others may go into software development. A major IT company currently needs 20,000-25,000 new hires each year to keep growing and it is observed that 10% of them can come in from the math and science streams. Next fiscal, according to HR projections it can increase the numbers to 3,000. The current batch was selected from 200 colleges spread over nine states by one IT major. The added advantage to the IT companies if the non-IT qualified candidates join them these recruits are paid 30% less than their counterparts who came out of engineering schools.

As far as ideas go, this one started gaining currency last year. There were two motivators to the IT companies. The more intensive one being an acute shortage of talent and the other not so intense one is being the fact that over the years many industry watchers have pointed out that for the kind of work being executed, engineers were overqualified. When both variables were looked at closely, it became obvious to managers in the business that science graduates with some amount of training can do the job at much cheaper costs. A significant proportion of work being done by engineers now is actually suited to science graduates.

For example an IT major Wipro is recruiting 14,000 graduates who haven’t worked elsewhere before a year ago another IT company TCS made offers to 13,776 graduates. That was a whopping 65% of the total hires; it is much the same story at Patni.

While talent crunch is driving companies to look for people in places they wouldn’t be otherwise there. There is also blessing that that isn’t so obvious in the crunch. In most cases, the amount IT services companies spend on salaries is roughly half the revenues they earn. In an environment where the business model has been linear, throwing more people at the problem each year to increase revenues, wage bills of this size come with their own set of complexities.

For instance, right now, as the rupee appreciates, margins and profitability are under pressure. To increase salaries, therefore on an average at 15-17% is tough.