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It’s Official: Attrition Is India Inc.’s Biggest Enemy

Believe it or not, awful things occur even during good times. The Indian IT sector is an ideal instance of such a predicament – and it is casting an uncertain shadow over what was once a can’t-miss engine of growth.

Indian IT firms are now facing an unprecedented attrition crisis – even as the economic recovery takes shape. Attrition levels in the Indian IT sector had decline to approximately eight to 10 per cent during the economic recession in 2009, but the figures have skyrocketed to between 15 and 20 per cent in 2010.

The Source of the Rise

Wipro heads the Indian tech majors with 23% attrition and is followed by Infosys Technologies (15.8%), HCL Technologies (15.7%), and Tata Consultancy Services (13.1%) as of the June 2010 quarter.

No. Indian Tech Firms Q1 2009 Q1 2010
1. Wipro 9.8% 23.0%
2. Infosys Technologies 11.1% 15.8%
3. HCL Technologies 13.0% 15.7%
4. Tata Consultancy Services 11.0% 13.1%

India’s largest IT firm Tata Consultancy Services global HR head Ajoy Mukherjee expects attrition to increase further as the industry grows. According to Mukherjee, TCS spends around 1.5% to 2.0% of annual revenue  on training, but he will likely spend more given that new recruits will require training.

India’s largest IT firm Tata Consultancy Services global HR head Ajoy Mukherjee expects attrition to increase further as the industry grows.

As a result of increased expenditure on account of inflated wages to retain the existing employees and training new recruits to fill up the vacancies caused due to attrition, the Indian tech firms have been witnessing a steady decline in their EBITDA. For instance, India’s second largest IT firm Infosys Technologies witnessed a decline of 2.36% in its operating margins during the June 2010 quarter in comparison to the March 2010 quarter.

HCL Technologies as well as India’s largest tech firm Tata Consultancy Services also witnessed their operating margins drop by 1.1% and 0.7% respectively during the June quarter. This decrease cannot be described as an abnormality since the EBITDA of these companies has been declining since the last four quarters.

Ripple Impacts

According to recent data available from a financial services firm Motilal Oswal, India’s third largest tech firm Wipro has had the sharpest increase in attrition and is now confronted with a larger challenge since it has decided to hike the wages of its employees once again with a view to retain them. According to Wipro joint CEO Suresh Vaswani, the attrition level is highest when employees are relocated from one project to another. He is of the view that this requires efforts to keep such employees engaged, retrain them or provide them with more opportunities.

If a report released by NASSCOM,  the BPO industry is the second largest generator of employment in this country. Nevertheless, the HR managers in this sector are finding it difficult to fill the increasing gap between demand and supply of professionals. In fact, they are not only required to accomplish this responsibility, but also select the correct candidates who are able to maintain pace with the distinctive working patterns of this industry. In addition, they are also required to sustain consistency in performance of the workforce and maintain high motivation levels in a monotonous working atmosphere. Therefore, it is little surprising that they are always concerned about the growing attrition rates.

According to NASSCOM, Indian IT/ BPO sector is expected to recruit 90,000 new employees during the year 2010 which will take workforce in the IT industry to around 2.3 million. Then again, the CEO of Absolute HR International, India, Kunal Banerji says that the attrition level is highest in the rank of project managers and because project managers bring in the junior colleagues of their team, they usually receive a 40 per cent salary hike when they change jobs. Moreover, a number of project managers is also known to be disappointed over the most recent policies of some IT firms like Infosys relating to issues, such as promotions, and are quitting their existing companies for higher salaries and incentives.

It may mentioned here that though there is no scarcity of talent in India to work for the IT industry, the country still lacks adequate project management professionals and this is one of the major factors responsible for the high attrition. Karthik Ananth, a director of Zinnov Management Consulting, says that it is actually difficult to find professionals with outstanding project management talents and distinguished experience in handling diverse types of projects and clients.

Firms like Infosys  are trying to fight the trend.  It’s program, christened ‘Green Channel’, is designed  to lure back former employees.   MphasiS, in the same vein, has launched   a ‘Homecoming’ program meant to get former associates back around the water cooler.

Chandan Das

2 comments

  • I wonder if this trend is valid for the whole industry or that the giants have the high attrition rates, while small and medium sized companies have much lower rates. Any research data on that?

  • Hugo, your question is pertinent. In fact, the entire IT outsourcing industry, irrespective of the major, medium or small firms, in India is plagued with increasing rates of attrition. While the IT majors are able to cope up with the situation hiring more new people, offering incentives — monetary and otherwise, and providing higher pay packages, the medium and small-sized industries are unable to tackle the situation. Hence, many of these small and medium enterprises are either closing business or selling of their firms to the IT majors — both from India and abroad. For reference you may check up the various white papers and announcements made by NASSCOM.