BPOs lay off under performers

Companies from across the globe find India as the most viable option for Information Technology outsourcing because of several reasons. Large pool of highly skilled and more quality logical Information Technology brains, reasonably priced, highly adaptable and flexible labor Cost-cutting as high as 55 percent English-speaking quality software professionals with craze for Information Technology.

With constant up gradation of technology and unparalleled market research and outsourcing companies’ team is armed with all the modern Information Technology solutions to cater to the needs of customers from any part of the globe.

With the slowing down of global economy and consequently the BPO business, the Indian IT-BPO industry is coping with a slew of problems these days. Nasscom’s prediction of a lower growth rate-around 21-24%, is just one of them. Analysts say the number of new deals being signed have come down compared to last year. Companies are resorting to wage freeze, lower increments, slower hiring and now even pink slips. The irony is its happening at a time when the industry is facing the challenge of finding quality people and coping with a 20%-30% attrition rate.

The bad news has been trickling in for sometime. Reports suggest nearly 400 employees at Convergys Corp’s in Mumbai has been asked to resign because the centre is closing down. Lehman Brothers captive in Mumbai too is set to hand out pink slips to over one-fourth of its employees. Patni, 24/7, Keane India, Fidelity Management and Research Company, lay offs have been reported everywhere.

Is it time for a reality check then? Experts are divided on this. It is indeed a wake up call, for it is clear the current business model cannot work with such high inflation rates. It will be tough to maintain growth and margins will be squeezed in the short-term. What is also worrying is that the number of new deals coming into India is one sixth of the transactions last year.

Indeed, a lull in business acquisition and the downturn in the US economy is affecting job cuts is not only because of these two reasons. The industry is at a different level today compared to five years ago. Earlier recruitment was happening only from a few good colleges, now benches are being filled by candidates from various institutions. Some of them do not match up in spite of training. It’s the under performers who are getting the pink slip.

Most layoffs are among the bottom 5% of the appraisal list. Companies have realized they need to manage their bench better and cannot go on pampering their employees if they don’t perform. In fact, earlier also non-performers were asked to go, but it is only now that the issue has come into the limelight.

For companies like Fidelity, 24/7, Patni and other third party providers, they have 10% to 15% people on bench who are under training primarily to fill up for attrition and growth. With sequential quarter over quarter growth slowing down to near zero, the unutilized bench hits productivity and margins significantly. So these firms are taking out low performers and will continue to reduce or stop fresh hiring. Slowdown is expected to continue for the next six months.

But it is important to see slowdown in right context. As companies evaluate business models and adapt to market place, workforce will emerge as a critical element. Indicators suggest a revival in tech spending during the second-half of 2008. As CIOs review their budget, tech spending is expected to grow.

Experts predict 2009 will bring in better results but there is a caveat. Deals will have to be more aggressively priced and companies have to focus on costs. We have had it very easy for a decade. This jolt will help us clean our act.

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