Managing Attrition in the Indian Information Technology Industry

Abstract:
The case analyzes the management of human resource in the IT industry with a special emphasis on the factors responsible for the high rate of employee turnover in the industry. The IT industry, being a knowledge-based sector, requires a workforce that is highly competent. Also, the demanding nature of work in the industry requires effective strategies to retain its workforce. With growing demand for Indian IT professionals overseas and with multinational IT companies establishing their offices in India, retention becomes very difficult. To handle the challenge, companies have started using a variety of retention tools such as ESOPs and RSUs. They have also taken other initiatives like improving the work-life balance of their employees, encouraging learning and development, developing a positive organization culture, etc. to retain their employees. The case examines the retention tools used by Indian IT companies to combat attrition. It ends with the discussion on the challenges the Indian IT industry faces in the future in view of the growing need to retain its talent pool.

Issues:

Trends in attrition in the IT industry in India Drivers of attrition in the IT industry Various retention strategies formulated for retaining employees Importance of recruitment, compensation & rewards, work-life balance, learning and development, organization culture and leadership in reducing attrition

Contents:
Introduction Trends in Attrition Combating Attrition Emerging Challenges Exhibits Page No. 1 2 3 9 10

Key Words:
Information Technology, Attrition, Infosys Technologies Limited, Wipro Technologies Ltd, Tata Consultancy Services (TCS), Satyam Computer Services Limited, Employee Retention, ESOPs, NYSE, MindTree Consulting, NASSCOM, Recruitment, Hewitt Associates, Compensation, Employee Stock Purchase Plan (ESPP), Restricted Stock Units (RSUs), Organization Culture, Work-life Balance, Flexi-timing, Leadership,Wipro Leaders' Program "Our assets walk out of the door each evening. We have to make sure that they come back the next morning." - N R Narayana Murthy, Chairman and Chief Mentor, Infosys Technologies Limited in 2005.1

Introduction
The year 2004-2005 was another successful year for the Information Technology (IT) industry in India with total software and services revenues recording a high of $22 billion for the year 20042005 (Refer Exhibit I). The employee base also showed a whopping increase to cross the one million mark in the year 2005. However, despite the growth in the overall employee base, companies were struggling to retain their existing employees. Analysts observed that managing attrition in the industry was important because skilled professionals formed the crux of this knowledge-intensive industry. What's more, the cost of recruitment and training was a huge expense for most IT firms. Handling the menace of attrition was therefore very important to IT companies. Attrition affected the quality of service and also led to higher Training & Development expenditure, affecting the overall performance of the organization. IT companies in India were taking steps to counter the rising levels of attrition. Companies were beginning to realize the importance of factors other than salary with which to motivate their employees to stay. A healthy work environment, continuous employee learning, work-life balance, recognition and corporate brand building were some of the key initiatives taken up by IT companies in recent years to manage attrition. In 2004, Infosys Technologies Limited (Infosys)2 devised a policy of taking security deposits from fresh graduates who joined the company at the entry level to discourage them from leaving the company during the training period whereas Wipro Technologies Ltd3 (Wipro) started a matchmaking service for its employees.

The purpose of this service was to help employees chose their life partners within Wipro in the hope that if employees picked spouses from the same company, they could spend more time together, say while traveling/dining etc. thereby improving the work-life balance.

Trends in Attrition
Liberalization of the Indian economy in 1991 paved the way for the growth of the IT industry. The most prominent players in the Indian IT industry by the mid-1990s were Tata Consultancy Services4 (TCS), Infosys, Wipro, Satyam Computer Services Limited5 (Satyam), Polaris Software Labs6 (Polaris), and Patni Computer Systems Limited7 (Patni) (Refer Exhibit II). By 1995 there was a new trend of poaching' of employees by rival IT firms. Poaching necessarily meant luring skilled employees of a rival company by offering better pay and fringe benefits. Over the years, more and more software professionals were also emigrating to foreign countries, particularly to the US. By late 1998, the Y2K8 problem was hanging over companies across the globe and software services from Indian IT service companies were increasingly in demand. In 1999, of the total number of H1-B visas given to foreign workers by the US, half were to Indian IT professionals. The average starting yearly salary in computer software jobs, in that year was $ 60,000 - nearly 10 times the average salary for a computer professional in a comparable job in India. The employee turnover in 1999-2000 in Indian IT companies was around 15-20% with the cost of replacing an employee running at over 120% of the salary per employee

Excerpts

Combating Attrition
Experts are of the view that since the IT industry thrives on individuals with a vital knowledge base, the industry should help employees develop their knowledge base further in addition to giving them appropriate monetary and other compensation in order to retain talent. Combating attrition involves management of people and a thorough understanding of the human psyche. High levels of employee turnover occur due to a combination of various workplace environment influences and personal choices made by the employees. In 2003, a National Association of Software and Service Companies (NASSCOM) survey identified some of the major drivers of attrition (Refer Table I)... Recruitment Effective recruitment strategies can help organizations in employee retention. Companies following the traditional methods of recruitment observed that a major drawback of the traditional selection processes was either a poor response or a mismatch between company goals and individuals' expectations... Compensation and Rewards

Incentives to employees play a vital role in motivating and retaining them in the organization. Compensation and rewards in the IT industry have long included a basic pay component along with a bonus pay when the company made higher profits. Later firms initiated performance based pay that rewarded the employee based on his contribution to the overall company profits... Organization Culture Studies and surveys analyzing the psyche of the employee have found that the work environment has a major impact on the behavior of an employee. An effective retention strategy would involve acknowledging the employee as the internal customer and aligning the organizational strategies with employee needs and wants... Work-Life Balance Employees differentiate a good employer from any other employer through the feeling of wellbeing' that is generated at the workplace. A balance between work and the personal goals and wants of an employee contributes positively to the retention of employees... Learning & Growth The dynamic nature of technology requires the IT industry to upgrade its operations frequently. So, another way to retain employees is to help them update their knowledge from time to time through training programs... Leadership Surveys also identified poor leadership as one of the reasons for employee attrition. It was observed that leaders incapable of motivating and guiding employees pushed employees to change jobs frequently. Wipro initiated the Wipro Leaders' Qualities Survey' in 1992...

Emerging Challenges
By 2004, most Indian IT companies started positioning themselves as global firms. Many companies already had offices in foreign countries. For instance, Infosys had development centers in Canada, China and the Czech Republic...

Exhibits
Exhibit I: Indian IT Market 1997-2004 Exhibit II: Indian IT and Software Services: Export Revenue Ranking 2004-2005 Exhibit III: Attrition Rates of Indian Software Companies 2002 Exhibit IV: Overall Attrition Rates in the IT Industry Exhibit V: Annual Demand for IT Professionals Exhibit VI: Benefits of ESOPs Exhibit VII: Organisations in India Offering ESOPs
1] R. Subramanium, "Infy stresses more on human assets", www.economictimes.com, May 22, 2005. 2] Infosys Technologies Ltd, established in 1981, provides consulting and IT services to clients globally. The company for the financial year 2004-2005 recorded revenues of Rs.71.296 billion and a net profit of Rs.18.917 billion.

3] Wipro Technologies Ltd., was established in 1980 and provides IT Services, Solutions & Products. The company recorded revenues of Rs. 81.70 billion and a net profit of Rs. 16.21 billion for the financial year 2004-2005. 4] Tata Consultancy Services is an Information Technology consulting services and business process outsourcing organization. It was established in 1968. The company posted revenues of Rs. 97.27 billion and a net profit of Rs.22.56 billion for the financial year 2004 - 2005. 5] Satyam Computer Services Limited, established in 1987 is a leading global consulting and IT services company. For the financial year 2004-2005, Satyam reported revenues of Rs. 71.164 billion and a net profit of Rs.34.64 billion. 6] Polaris Software Lab limited, incorporated in 1993, is a technology solutions provider in the Banking and Financial Services sector. Around 58 per cent of the company's revenues come from the financial sector. The company reported revenues of Rs.7.87 billion and a net profit of Rs. 0.74 billion for the financial year 2004-2005. 7] Patni Computer Systems limited, established in 1978, is a global IT Services provider. Patni posted revenues of Rs. 14.13 billion and a net profit of Rs 2.51 billion for the financial year 2004. 8] The Y2K problem refers to a software error due to the small memory space of the first generation computers. To save on space on the first generation computers' memory, the four-digit Gregorian year was abbreviated to the last two digits. This was all right in the twentieth century. With the advent of year 2000, representation of the year in two digits would have caused failures in arithmetic, incorrect software would have assumed that the maximum value of a year field was "99" and would roll systems over to "00" which could be mistakenly interpreted as 1900 rather than 2000, resulting in negative date calculations and thereby causing worldwide information collapse.