CHAPTER ONE

INTRODUCTION

1.0 Conceptual framework

1.1 IT Industry
2.1 Importance of retention
3.1 Overview of IT Industry
3.7 Objectives of the study
3.8 Rationale of the study
1.0 The Conceptual Framework
The present research endeavor is a study of financial factors and non-financial
factors affecting employee retention strategies in IT industry. In this chapter an
attempt is made to present the theoretical foundations and concepts of the
variables under study of financial factors and non-financial factors affecting
employee retention strategies in IT industry.

1.1 IT Industry
The global shortage of highly skilled workers, who can be regarded as IT
Industry employees in the post-industrial economy, has created a serious
economic issue that is somewhat separate from the recent global financial
downturn (Korane, 2009, Vavra, 2009). It is expected that the current skills gap
will enlarge, and global competition for talent will become more severe under a
continuous revolution of information and communications technology (ICT)
(Drucker, 2007, Gordon, 2009, Walker and LaRocco, 2002, Zheng, Soosay, and
Hyland, 2008). This is because global demographic trends show that the pool of
new highly skilled workers is dropping drastically, especially for the scientific,
technical, engineering and mathematically based jobs (STEM) (Dychtwald,
Erickson, and Morison, 2006, Gordon, 2009). This indicates that IT Industry
employees are in high demand in today’s knowledge-based economy and tight
labour market, as business growth for IT companies relies heavily on their
productivity (Brandel, 2007, Drucker, 1999, 2007). Although training is a
prominent approach to resolving the shortage of IT Industry employees,
retention of existing talent becomes more essential and critical (Doh, Stumpf,
Tymon, and Haid, 2008, Horwitz, Heng, and Quazi, 2003, Mayfield and
Mayfield, 2008, Punia and Sharma, 2008).

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Based on the aspects of global demographic change, the workforce population
is expected to be mainly filled by Generation X (those aged between 33 to 44
years) and Millennial (Generation Y and Net Generation, those aged below 32
years) (Dychtwald, et al., 2006, Gordon, 2009). However, the core workforce
population is decreasing because the speed of core workers leaving, exceeds the
speed of young workers entering the workforce (Dychtwald, et al., 2006,
Gordon, 2009b). This problem of a decreasing core workforce has also created
serious concerns and challenges for the IT industry in India. Therefore, it is
suggested that retention of existing IT Industry employees can sustain a
competitive advantage for IT companies as companies’ knowledge and know­
how can be passed on from senior workers to junior workers (Anonymous,
2007, Clarke, 2009).

From the point of view of IT Industry employees, their productivity has offered
a sustainable competitive advantage for IT companies by continual innovation
of products and services that contain optimum output of quality (Davila,
Epstein, and Shelton, 2006, Drucker, 2007, Huang and Lin, 2006). As
innovation is the heart of the knowledge-based economy (Walker, 2007), it
differentiates between companies retaining market leadership and barely
surviving (Davila, et al, 2006). However, India’s education system has failed to
supply enough IT Industry employees for the IT industry, which has undergone
an economic transformation with a shift from quantity to quality (Chen and Liu,
2003). This is because rote memorization in Mandarin is emphasized in India’s
education system, and the English language is dominant on the Internet, so this
confines the learning process (Masuyama and Vandenbrink, 2003). Therefore,
retention of existing IT Industry employees has become critical for the success

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of IT companies in India as their value determines the future of the organization
(Abell and Oxbrow, 2001, Drucker, 2007).

1.2 Decreasing Workforce

As stated above, a war for talent will continue to hit the growth of IT companies
through the impact of the decreasing core workforce and insufficient IT
Industry employees. This indicates that IT companies in India need to find ways
to sustain their growth as well as their competitive advantage. In addition,
attracting, motivating and retaining IT Industry employees have become more
critical under today’s global competition and fast pace of technological
revolution (Horwitz, et al., 2003, Schulz, Camp, and Waltman, 2008). This is
because the success of IT companies relies heavily on the human capital of IT
Industry employees, who can match the use of advanced technologies to the
companies’ needs (Mata, Fuerst, and Barney, 1995, Ross, Beath, and Goodhue,
1996, Schulz, et al., 2008). Therefore, although a training approach is important
to close the skills gap, retention of existing IT Industry employees is also
important and is the focus of this research.

Work content which involves long working hours and an inflexible working
life, results in job-hopping proclivities in the IT industry and thus, a high level
of voluntary turnover (Khatri, Chong, and Budhwar, 2001, Schulz, et al., 2008).
This is regarded as an unfriendly workplace in the IT industry, one which could
influence IT Industry employees to leave an organization despite an attractive
salary and stock bonus (Chen and Huang, 2006). Although fair remuneration is
a popular tool to attract IT Industry employees, other retention factors, such as
career appreciation and development, are strong determinants in their decisions
to stay or leave (Agarwal and Ferratt, 2001, Eyring, 2008, Foote, 1998, Schulz,
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et al., 2008; Thapanachai, 2006). In addition, as the values of each generation
are different, their needs should be tailored to the diversities of their career
stage (Craig and Hall, 2005; Nankervis, Compton, and Baird, 2005; Tapscott,
2009; Trower, 2008). It is suggested that employees whose career anchors are
compatible with their jobs have higher career satisfaction levels and lower
intentions to leave an organization than those who have incompatible career
anchors with their jobs (DeLong, 1982, Igbaria, Greenhaus, and Parasuraman,
1991; Quesenberry, 2006; Schein, 1978).

1.3 Retention of IT Employees

Furthermore, retention of existing IT Industry employees is the most cost-
effective approach to offset the loss of knowledge, skills and competencies of
IT companies (Anonymous, 2001; Schulz, et al., 2008, Somaya and
Williamson, 2008). Therefore, it is suggested that IT companies can establish a
friendly workplace with a cost-effective retention model to sustain a long-term
relationship with their software development employees. This is because a
different set of tentative retention factors has been developed based on the
career satisfaction of each different type of software development employees.

1.3.1 IT Industry Employees

IT Industry employees are one group of knowledge workers, and their
productivities are key factors to the economic success of companies (Davenport
2005; Drucker 2007; Garmise 2006). This is because today’s work content
largely requires new knowledge production and innovation of human capital,
which is the quality output of their ideas and productivities (Drucker 2000;
Garmise 2006). In addition, software development employees own the means
of production which means that they carry incremental knowledge in their

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brains and thus can be highly mobile and independent (Drucker, 1998, 2006).
This indicates that the ascent of knowledge work makes software development
employees more valuable and attractive to the organization than they need the
organization. In this respect, there is a challenge in that IT companies must find
ways to attract develop and retain the IT Industry employees, in order to sustain
their competitive advantage in the global competition.

1.3.2 Importance of IT Industry Employees

The importance of IT Industry employees and their knowledge is being
recognized by the new economy. This is because their knowledge is the only
asset of the company which cannot be easily replicated, and is a source of
profit, skill and sustainable competitive advantage (Drucker, 1993; Jones and
Miller, 2007). For example, new entrants can easily reproduce and clone the
existing market products, but cannot easily transfer tacit knowledge which is
synthesized through learning and experience in the organization (Drucker,
1993; Garmise, 2006). Tacit knowledge is the expertise, experience and
capability of IT Industry employees, integrated with process and company
memory, so it is always contextual and skillful (Abell and Oxbrow, 2001; Jones
and Miller, 2007). Through the generation, dissemination, application, and
reuse of tacit knowledge, companies can create innovative ideas for continuous
new product development and thus sustain a competitive advantage (Garmise,
2006; Kreiner, 2002; Ng and Li, 2003). The application of incremental
knowledge and information has accelerated the innovation process, which
provides opportunities for companies to operate in new markets, to change
ways of working, and to deliver different products and services (Abell and
Oxbrow, 2001; Garmise, 2006). It is believed that only a continuous process of
systematic innovation and improvement can protect companies from the
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pressures of global competition (Drucker, 2007; Jones and Miller; 2007).
Nelson and Winter (1982) have also argued that the transformation of
incremental knowledge into the daily basis of routine work can effectively
prevent damage from the impacts of poaching staff, reverse engineering or
industrial espionage. This indicates that the only secure form of competitive
advantage for companies is to actively embody tacit knowledge into the process
of continuous incremental innovation (Hammer, Leonard, and Davenport, 2004,
Jones and Miller, 2007). Consequently, the innovative use of tacit knowledge
results in profit (Jones and Miller, 2007).

1.3.3 IT Employees and Knowledge Intensive Jobs

Since the global economy has shifted towards knowledge-intensive jobs,
software development employees are a growing category of the workforce
(Drucker, 2007; Policastro, 2007). This group of employees is regarded as the
most expensive type of workers that organizations employ because they possess
the most economic value of incremental knowledge development (Drucker,
2007; Garmise, 2006). In addition, this group of employees is highly educated
and is capable of using knowledge, theory and concepts rather than using
physical force or manual skill (Policastro, 2007). It appears that the productivity
of IT Industry employees is measured by the contributions of performance in
comparison to the productivity of manual workers which is measured by the
output of manufacturing products (Drucker, 2007). Consequently, software
development employees are viewed as assets of companies which need to be
developed and grown, whereas manual workers are viewed as a cost to
companies which needs to be controlled and reduced (Drucker, 2007).

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In general, IT Industry employees have a high degree of expertise, education, or
experience, and the primary purpose of their jobs involves the creation,
distribution, application and reuse of knowledge (Davenport, 2005). In addition,
IT Industry employees are responsible for sparking innovation and growth of an
organization by investing in new products and services (Davenport, 2005;
Drucker, 2007). However, IT Industry employees are critical to the success of
organizations, their unique characteristics of personality present challenges that
HR managers have to deal with in the workplace. That is, a high degree of
autonomy and independence are two common attributes of IT Industry
employees (Davenport, 2005; Drucker, 2007).

1.3.4 IT Employees and Work Content

According to Drucker (2007), the work content of IT Industry employees
naturally involves a high degree of autonomy, which imposes responsibility for
their productivity on their own management of personal development and
growth. This indicates that IT Industry employees do not like work content that
is highly involved with specifying detailed steps and flow of knowledge-
intensive processes (Davenport, 2005). In fact, IT Industry employees require a
fair process indecision-making, which can influence their commitments to the
participation and involvement of job tasks (Davenport, 2005). This is because
IT Industry employees are thinkers and they live in ways that use their cognitive
ability to define difficult problems and identify intelligent solutions (Bostock,
1996; Davenport, 2005; Drucker, 1992). Indeed, IT Industry employees are
proud of their domain knowledge and are desirous for recognition from others
(Davenport, 2005).

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1.3.5 IT Employees and Domain Knowledge
As IT Industry employees highly value their domain knowledge, they are
independent and reluctant to share it without rewards or guarantees of continued
employment (Davenport, 2005). This is a problem, in that IT companies could
fail if employees’ domain knowledge is not open to share with one another, as
the success of IT Industry relies on the three key ingredients of domain
knowledge, deadlines and dialog (Mah, 2009). This indicates that collaboration
and communication are also essential parts of the productivity of IT Industry
employees (Bostock, 1996; Mah, 2009). Rubens (2008) has stressed that the
future economy is about knowledge and relationships, because social networks
can enable people to explore ideas, develop new concepts and learn in ways that
will be revolutionary. Therefore, the success of a business is deemed to rely on
the effective management of IT Industry' employees, in which managers can
motivate them to share their domain knowledge by giving them autonomy of
job design (Davenport, 2005; Mah, 2009).

1.4 Retention
Retention of IT Industry employees is important to sustain a competitive
advantage for IT companies in today’s global market (Drucker, 2007; Jones and
Miller, 2007). Studies on the benefits of retaining IT Industry employees have
significantly indicated that IT companies can gain a higher operating
performance, higher returns on assets and higher returns on capital employed
(Cascio, 2002). In contrast, the loss of IT Industry employees is expensive and
may thus be detrimental to IT companies (Glebbeck and Bax, 2004; Khatri,
Chong and Budhwar, 2001; Reiche, 2009). The effect of losing IT Industry
employees has significantly impacted on the performance of IT companies

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from the two dimensions of tangible and intangible perspectives (Frank,
Finnega and Taylor, 2004; Tanova and Holtom, 2008).
The tangible perspective includes the administrative expenses of recruiting,
selecting and training and development of new staff, whereas the intangible
perspective includes the loss of employee morale, social capital and company
memory (Morrell, Load-Clarke and Wilkinson, 2004). It is noted that the total
costs of replacing an employee amounts to 150% to 175% of the salary costs of
the departing IT staff (Nelson and Todd, 2004). The intangible loss of
knowledge, experience, and know-how of companies is more significant than
the tangible costs of replacing staff because it could lower productivity and
performance of companies and thus result in loss of pro fits (Frank, et al.,., 2004,
Tanova and Holtom, 2008). Therefore, IT companies must understand the
serious impacts of the loss of IT Industry employees and find a way to retain
them. This is the focus of this study.

1.4.1 Retention Theories

1.4.1.1 Job Embeddedness Theory

Job embeddedness is a new construct of retention theory that explains why
people stay in, or leaves an organization using non-work and non-attitudinal
factors (Mitchell, Holtom and Lee, 2001). The concept of non-work factors is
related to personal and family activities off the job, as a conflict between work
life and family role could lead employees to consider leaving an organization
(Mitchell, Holtom, and Lee, 2001). The concept of non-attitudinal factors is
related to personal attachment to their co-workers, network groups and leisure
activities both on and off the job (Mitchell, Holtom, and Lee, 2001). It is noted
that leaving an organization requires sacrifice or giving up these connections
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and other benefits that exist at the current organization (Mitchell, Holtom, and
Lee, 2001). Therefore, job embeddedness is a broad constellation of influence
on employees’ decisions to stay or leave an organization (Mitchell, Holtom, and
Lee, 2001; Mitchell, Holtom, Lee and Erez, 2001).

1.4.1.1.1 Importance of Job Embeddedness Theory

The importance of job embeddedness helps organizations to understand the
scenario that even satisfied employees could still leave an organization for their
broad personal interests (e.g., family role at different career stages). This theory
is different from the traditional turnover theories of work-related attitudes,
which only focus on job satisfaction and organizational commitment (Holtom
and Inderrieden, 2006; Holtom and O'Neill, 2004; Lee, Mitchell, Sablynski,
Burton and Holtom, 2004). It is noted that attitudinal constructs such as job
satisfaction only play a relatively small role in employee retention and leaving
(Griffeth, Horn, and Gaertner, 2000; Horn and Griffeth, 1995). Mallol, Holtom,
and Lee (2007) and Tanova and Holtom (2008) also show that job
embeddedness has more influence on employees’ decisions to stay rather than
their attitudes towards work or actual opportunities in the labor market.

1.4.1.1.2 Foundation of Job Embeddedness Theory

The foundation of job embeddedness theory is developed from embedded
figures theories and field theory (Lewin, 1951). Embedded figures are those in
which people are immersed in their field and connected through many links
within their backgrounds and environment (Mitchell, Holtom, Lee, et al., 2001).
This views an individual as a part of a complex web of relationships and
attachments (Mitchell, Holtom, Lee, et al., 2001). The more extensive the web
is, the stronger the influence the web will have on an individual who is
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considering making changes. This is because that change will affect many other
features of the individual’s life (Mitchell, Holtom, Lee, et al., 2001; Tanova and
Holtom, 2008). Consequently, this keeps employees from leaving an
organization as they are entrenched in their jobs and webs and become part of
the surroundings (Mitchell, Holtom, Lee, et al., 2001).
According to Mitchell, et al., (2001), job embeddedness consists of three
dimensions:
(1) links to other people or activities,
(2) Self-perception of fit with the job, organization and community, and
(3) Perceived sacrifices associated with changing jobs.
These aspects are important both on (organization) and off (community) the
job. Thus, employees’ decisions to stay can be explained using six dimensions,
which are ‘links’, ‘fit’, and ‘sacrifice’ associated with an individual’s
organization and with his or her community. As the focus of this study is the
retention of IT Industry employees within an organization, the emphasis of
organizational dimension is discussed and provided.

1.4.1. 1.3 Organizational aspect of Retention

Links to the organization refer to relationships that an employee has with co­
workers, superiors and mentors within an organization. Mitchell, et al., (2001)
stress that many organizations now use strategic teams to increase employees’
network bonds, and use a mentor system to increase the attachment of their
female employees. They further stress that the relationships could extend to
cover an employee and his or her family in social, psychological and financial
areas that embed them (Mitchell, et al., 2001). Other studies also show that
people are more likely to be loyal to fellow and network peers (Amaram, 2005;
Guidice, Heames, and Wang, 2009). Thus, it is deemed that the more links
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between an employee and the web, the more he or she is bound to the job and
the organization.

1.4.1.1.3.1 Organizational Fit

Fit with the organization refers to an employee’s perceived compatibility or
comfort with an organization (Holtom and Inderrieden, 2006). This involves a
self-perception of fit that is especially important during the early stages of
adjustment to a job (Mitchell, et al., 2001). It is suggested that an employee’s
values, career goals and plans for the future must fit with the organizational
culture and the demands of the immediate job (e.g., job knowledge, 38 skills
and abilities) (Holtom and Inderrieden, 2006). This is because employees will
continue to assess how their work contents have matched their career goals.
Some scholars show that an organization can retain employees by managing
their career aspirations and helping them to find a way to meet their long-term
career goals (Harman, Lee, Mitchell, Felps, and Owens, 2007; Holtom, Mitchell
and Lee, 2006). Thus, it is deemed that the better the organizational fit with the
career goal of an employee, the more likely he or she is to stay.

Sacrifice associated with leaving the organization refers to the perceived costs
of material or psychological benefits that may be forfeited by leaving a job
(Holtom, et al., 2006). These benefits could involve profit sharing, stock
options, career advancement opportunities, flexible work arrangements, child
care support, colleagues, interesting projects or perks. Some of these benefits
are significant to employees who have families, especially females with small
children at home (Holtom, et al., 2006; Mitchell, et al., 2001). Thus, the more
an employee gives up when leaving, the more difficult it is to sever

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employment with the organization (Holtom and Inderrieden, 2006, Shaw,
Delery, Jenkins, and Gupta, 1998).

Prior studies have shown that financial factors have the highest correlation with
the sacrifice dimension of job embeddedness when employees are considering
quitting a job (Allen, Shore, and Griffeth, 2003; Bergiel, Nguyen, Clenney, and
Taylor, 2009). In addition, supervisor support is also significantly correlated
with the employees’ decisions to stay as it can help better person-organization
fit and links to colleagues (Bergiel, et al., 2009; Holtom, et al, 2006;
Stinglhamber and Vandenberghe, 2003). Some studies also show that the
benefits of child care support or family-friendly hours are strongly linked to the
embeddeding of female employees within an organization (Holtom, et al., 2006,
Tanova and Holtom, 2008). These all show that a job embeddedness approach
can effectively retain employees as they would sacrifice current benefits when
considering leaving an organization. Therefore, it helps the study in identifying
retention factors that retain and motivate employees with an organization.

1.4.1.2 Unfolding Model

The unfolding model is a theory of voluntary employee turnover that explains
the decision and behavior of people who voluntarily leave an organization (Lee
and Mitchell, 1994). This theory is explained by four decision paths through the
process of an individual’s shocks, scripts, image violation (e.g. values, goals
and plans for goal attainment), dissatisfaction, job search, evaluation of
alternatives and offers in hand (Lee and Maurer, 1997; Lee and Mitchell,
1994). In addition, decision path 1, 2, and 3 is triggered by a shock event, and
decision path 4 (4a and 4b) is triggered by a continuous evaluation of images
which are accumulated from job dissatisfaction (Lee and Mitchell, 1994).
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Therefore, this model provides an effective way to understand why people may
stay or leave within an organization (Holtom, Mitchell, Lee, and Inderrieden,
2005; Maertz and Campion, 1998).
A shock event could be positive, neutral or negative, expected or unexpected,
and internal or external to the person’s life at different career stages. The
incompatibility of a person’s beliefs and images has been found to be mainly
associated with work-related shock (e.g. promotion and work stress) in
comparison to non work-related shock (e.g. marriage and new bom baby) over
a person’s career life (Holtom, et al., 2005, Lee, Gerhart, Weller, and Trevor,
2008). In addition, lack of person-organization fit plays an important role in
leading the decision to stay or leave made by an individual (Lee and Mitchell,
1994). This is because people have different career goals and personal interests
at different times or stages of their career life (Lee and Maurer, 1997; Tanova
and Holtom, 2008). Therefore, it is suggested that people can be somehow
satisfied through work arrangements based on a dimension of their work
content and their career life.

Prior studies have shown that an unfolding model can help an organization to
prevent a high level of voluntary turnover from anticipated events (Lee and
Maurer, 1997; Lee, Mitchell, Holtom, McDaniel, and Hill, 1999; Morrell, Loan-
Clarke, Arnold, and Wilkinson, 2008). For example, a work-life balance policy
can keep young married employees who otherwise may leave an organization
because of new bom-baby. This refers to decisionpath 1 (Lee and Maurer, 1997,
Lee, et al.,1999). In addition, when unemployment is low and jobs are plentiful,
managers have to respond quickly to prevent employees who may leave via
decision path 3, which refers to unsolicited job offers or inquiries from the labor
market (Lee, et al., 1999). It is also suggested that intervention should quickly

15
respond to dissatisfied employees who may perceive injustices in the allocation
of training opportunities and promotion (Morrell, et al., 2008). Therefore, it is
deemed that an unfolding model can effectively manage voluntary staff
turnover through intervention and thus motivate employees to stay longer with
an organization (Lee, et al., 1999; Morrell, et al., 2008).

1.4.1.3 Motivation Theory

Motivation sustains a complexity of psychological behavior in which people
can be induced to engage in a particular direction (e.g. goal-oriented aim),
intensity (e.g. personal efforts) and persistence (e.g. personal behavior) of
voluntary behavior (Stone, 2005). In addition, the needs of people are different,
so a diversity of motivational techniques should be applied for the different
needs of people. For example, the cohort of mature workers may prefer to have
more leisure life time in comparison to the cohort of young workers who may
like to have more opportunities to experience a new career (Dychtwald, et al.,
2006; Stone, 2005). It is suggested that the more managers understand effective
motivation across different cohorts of generations, the more job satisfaction can
be achieved in the workplace.

According to Nelson and Todd (2004), compensation, flexible work

arrangements, and non-monetary compensation are important factors in
managing the retention of software development employees and in mitigating
the effects of voluntary turnover. It is believed that money plays a key role in
motivating employees because it basically enables them to purchase food,
clothes, and also provides them with the means to pursue leisure activities
(Chiu, Luk, and Tang, 2002). It can also serve as a symbol of achievement,
recognition and status because it represents the value of their contribution to the

16
organization, and their success in the society (Chiu, et al., 2002; Stone, 2005).
This is highly associated with the process theory, in that equity theory shows
the value of money as a motivator. However, in motivation theory, such as
Maslow’s needs hierarchy theory and Herzberg’s two-factor theory, money
tends to be in the lower order needs and hygiene factors respectively, and
cannot actually motivate employees but can prevent job dissatisfaction.
Therefore, along with monetary compensation such as remuneration and
bonuses, job satisfaction as a key motivator can be achieved through non­
monetary compensation such as work environment, feedback and rewards,
social relationships, personal growth opportunities, and self-achievement
(Nelson and Todd, 2004; Stone, 2005).
In order to better understand how motivation factors influence the behavior of
employees and encourage them to stay with an organization, content theories
and process theory of motivation are discussed and provided. Content theories
are Maslow’s needs hierarchy theory and Herzberg’s two-factor theory. Process
theory is Equity theory.

1.4.1.3.1Maslow’s needs hierarchy theory

Maslow’s needs hierarchy theory is one of the most popular motivation theories
that help organizations understand the needs of employees and thus influence
their behaviors and attitudes at work. Consequently, employees are satisfied to
remain with an organization (Kaliprasad, 2006; Ramlall, 2004). Maslow
believes that employees are motivated to satisfy five basic types of needs;
physiological (e.g., basic wage), safety (e.g., job security), social (e.g., friendly
supervisor), esteem (e.g., recognition from supervisor and colleagues) and self-
actualization (e.g., challenging work and participation in decision making)
(Stone, 2005). It is deemed that higher order needs (e.g., self-esteem and self-
17
actualization) have a stronger influence on long-term effects in comparison to
lower order needs (e.g., physiological, safety and social) (Kaliprasad, 2006;
Ramlall, 2004; Stone, 2005).

1.4.1.3.2.Herzberg’s two-factor theory

Herzberg’s two-factor theory is the first motivation theory on the content of the
job itself, which has been widely used in management circles and has had a big
impact on job design (Ramlall, 2004; Stone, 2005). It is also called motivation-
hygiene theory, whereby motivators are job-related, and hygiene factors are
non-job-related. Job-related motivators are higher order needs for self­
achievement, recognition, intrinsic interest in the work, advancement and
growth (Ramlall, 2004; Stone, 2005). Non-job-related hygiene factors are lower
order needs such as company policy, pay, co-worker relations and supervisory
styles (Ramlall, 2004; Stone, 2005). Ramlall (2004) stresses that motivation can
be increased through job redesign (e.g., job enrichment) to allow for increased
challenge and responsibility, opportunities for advancement, and personal
growth and recognition. It is noted that job content is truly a motivation factor
and relates to producing job satisfaction and higher performance, whereas
hygiene factors merely prevent employees from job dissatisfaction (Stone,
2005).

1.4.1.3.3 Equity theory

Equity theory is based on fair treatment between the outcomes employees
receive, and the efforts they input compared with similar levels of others. These
are social exchange relationships, and they explain how employees evaluate
their outcome-input ratio compared to others (Adams, 1965). According to
Carrell and Dittrich (1978), employees firstly develop beliefs about what
18
constitutes a fair and equitable return for their contributions to their jobs.
Secondly, employees tend to compare what they perceive to be the exchange
they have from their organization (Carrell and Dittrich, 1978; Ramlall, 2004).
Finally, when they believe that their treatment is not equitable, relative to the
exchange they perceived compared to others, they will be motivated to take
actions they deem appropriate (Carrell and Dittrich, 1978; Ramlall, 2004). It is
noted that once employees weigh up the fairness of their rewards, they will be
motivated to do more or less work (Fitzgerald, 2006; Stone, 2005).

1.4.1.4 Career Satisfaction and Actualization

Career satisfaction is the self-achievement of employees whose internal career
needs (e.g. self-concepts and career values) match job setting options within the
workplace over time at different career stages (Igbaria, Greenhaus, and
Parasuraman, 1991; Lee, 2002; Schein, 1987). This is the career choice and
career decisions of employees throughout the movement of a person’s career
life and is regarded as a career anchor (Schein, 1996) or career orientation
(DeLong, 1982). The effect of psychological contracts has also influenced the
career satisfaction of employees who have become more experienced in respect
to their length of employment relationship within the organization (Agarwal
and Ferratt, 2000; Igbaria, et al., 1991). In addition, the career values of
employees have significantly shifted towards a balance of personal goals (e g.
technical competence) and family life at all ages, genders and stages (Lee,
2002, Quesenberry, 2006; Schein, 1987). Therefore, it is suggested that a long­
term employment relationship can be established based on the compatibility of
an individual career anchor within the job setting options of the organization
over time at different career stages.

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1.4.1.5 Career anchors
There are ten categories of career anchors that can influence individual career
choice and career decisions as they reflect most people’s self-concepts, basic
values, motives and needs (DeLong, 1982; Mgaya, Uzoka, Kitindi, and Shemi,
2009; Quesenberry, 2006; Schein, 1996).
They are:
1) Managerial competence,
2) Technical competence,
3) Autonomy,
4) Creativity,
5) Service,
6) Challenge,
7) Lifestyle integration,
8) Identity,
9) Job stability, and
10) Geographical security.

For example, managerial competence is related to desire for promotion and

upward mobility. Technical competence is related to who desire for training and
development. Autonomy is related to desire to be more independent in the
decision making. As a person’s career life moves on, a diversity of career
anchors is expected to be dynamically formulated over time in accordance with
that person’s job attitudes and workplace experiences (Agarwal and Ferratt,
2000, Mgaya, et al., 2009).
In the IT industry, there are five typical career anchors that play an important
role in influencing the voluntary turnover of staff, including managerial
competence, technical competence, autonomy, job stability and geographical

20
security (Agarwal and Permit, 2000). In particular, the first two of the five
career anchors are significant because some IT Industry employees are only
interested in pursuing their careers in the progression of technical competence,
not to pursue management competence and roles (Lee and Maurer, 1997,
Nelson and Todd, 2004). Therefore, it is important to match the career anchors
to individual career goals as the activities of training and development in
technical positions are quite 45 different from the activities of training and
development in managerial positions (Igbaria, et al., 1991, Lee and Maurer,
1997).

Some studies also show that job stability is consistently and significantly related
to the career anchor of IT Industry employees as it relates to financial rewards
as an exchange for work (Crepeau et al., Crook, Goslar, and McMurtrey 1992;
Crook, Crepeau, and McMurtrey, 1991; Igbaria and McCloskey, 1996;
Ramakrishna and Potosky, 2001/2002; Sumner and Yager, 2004). Autonomy
also indicates that IT Industry employees seek work systems that are free from
organizational constraints and enable them to achieve their goals (Crepeau, et
al., 1992; Crook, et al., 1991, Ramakrishna and Potosky, 2001/2002, Sumner,
Yager, and Franke, 2005). Variety also indicates that IT Industry employees are
naturally attributed to challenging work, as it allows them to re-skill, adapt and
upgrade their skill sets (Crepeau, et al., 1992, Sumner, et al., 2005). Identity is
also significant, as IT Industry employees are significantly motivated by the
recognition of their status and prestige in their career development, which may
include a set of critical skills that enhances their market value (Crepeau, et
al.,1992; Sumner, et al., 2005).

21
Carlson, Derr and Wadsworth (2003) also show that people increasingly want
work that is interesting and challenging, while also supporting a meaningful
personal and family life. Consequently, a balance of work and family life
becomes a significant factor of career anchor that affects IT Industry
employees, particularly for female employees (Carlson, et al., 2003, Igbaria and
McCloskey, 1996). However, there are some studies that are contrary to one
another. For example, creativity is found to be significant from Sumner, et al.,
(2005), but lesser significant from Crepeau, et al., (1992). This could be that a
combination of career anchors that are naturally constructed for a given
employee and is varied in terms of temporal characteristics (Quesenberry and
Trauth, 2007). Therefore, it is deemed that IT Industry employees’ decisions to
stay could be influenced by a combination of career anchors that affects them at
different times of their career life.

1.4.1.6 Career stages

Similarly, there are three career stages identified for this study, as it is believed
that they provide an understanding of a person’s behavior towards job attitudes
because each career stage comprises a variety of specific activities and
psychological adjustments (Agarwal and Ferratt, 2000). For example,
newcomers may seek to find ways to fit into the organization, whereas senior
members of the organization may seek to achieve a higher level of promotion
(Chen, Chang, and Yeh, 2006). The three career stages are of exploration,
establishment and maintenance which are as follows:

22
1. Career stage of exploration: Workers are those aged around 20 to 29 years
old; First join an organization, seek to develop the necessary skills and abilities
required for the job, and establish a good relationship with their superior and
peers (Agarwal and Ferratt, 2000, Chen, et al., 2006).
2. Career stage of establishment: Workers are those aged around 30 to 44
years old, are able to work independently, and seek higher pay and positive
reputations (Chen, et al., 2006, Niles and Flarris-Bowlsbey, 2005). In particular,
career achievement is of the utmost importance and may require frequent
opportunities for promotion (Chen, et al., 2006).
3. Career stage of maintenance: workers are those aged around 45 to 64 years
old, attempt to hold what they have accomplished, and may be in the transition
of retirement from work (Chen, et al., 2006; Niles and Harris-Bowlsbey, 2005).
Prior studies have shown that a career stage model is a useful tool in
understanding the important work attitudes that individuals have in accordance
with their age and various working experiences (Allen and Meyer, 1993,
Carlson and Rotondo, 2001; Conway, 2004). For example, the development of
technical competence is significantly related to employees’ decisions to stay
during their early stages of career life (Agarwal, De, and Ferratt, 2002, Conway,
2004; Koh, Lee, Yen, and Havelka, 2004). Job stability, growth and family
responsibility may shift to become the focus of employees’ decisions to stay at
their middle stages of career life (Conway, 2004, Hess and Jepsen, 2009).
Finally, job involvement and employability may become the focus of
employees’ decisions to stay at their late stages of career life (Conway, 2004,
Hess and Jepsen, 2009). It is noted that when individuals become capable and
experienced in the labor market, organizational rewards such as promotion, pay
and other benefits may be varied for them as incentive tools. This is because
once individuals gain highly transferable competence; they would not be

23
organizationally bound but instead are highly marketable (Sullivan, Carden, and
Martin, 1998). Consequently, employees’ decision to stay with an organization
tends to be primarily influenced by both transferability of competence and level
of internal work values (Hsu et al., 2003; Sullivan, et al., 1998).

Transferability of competence is related to an individual’s knowledge, skills and

abilities that are marketable or organization-specific (Baker and Aldrich, 1996,
Bird, 1996; Waterman and Collard, 1994). Level of internal work values is
related to an individual’s career goals that they attempt to achieve through their
career life (Sverko and Vizek-Vidovic, 1995). This is also regarded as an
individual’s career anchor (Hsu, et al., 2003). In this regard, career satisfaction
of individuals can be successfully achieved through the motivation of
individuals’ career development which links to their career goals and career
stages (Agarwal and Ferratt, 2000, Chen, Chang, and Yeh, 2004, Conway,
2004; Lee, 2002; Mahatanankoon, 2007).

As career satisfaction varies across a diversity of career stages and personal

goals, it is suggested that the needs of an employee’s career development
should be periodically reviewed on a basis of three years tenure of employment
in IT industry (Agarwal and Ferratt, 2000). This is because three years working
experience can make newcomers capable and independent as well as change the
needs of senior members, and thus facilitate them to review their psychological
contracts with their organizations (Agarwal and Ferratt, 2000). Consequently,
job-hopping attitudes could be activated if employees are not satisfied with their
professional identity and status or career progressions. It is also suggested that
employees’ career success should be related to their self-management towards
desired career progress (Kuijpers, Schyns, and Scheerens, 2006). It is regarded

24
as active career-actualization which is related to the realization of personal
goals and values in one’s career vis-a-vis the facilitation and constraining
conditions of the work situation (Kuijpers, et al, 2006). They further
distinguish between intrinsic and extrinsic career success. They stress that
intrinsic career success is subjectively compared with the person’s own
appreciation of his or her career actualization (achievement, recognition and
career satisfaction) whereas extrinsic career success relates to external
appreciation (salary and occupational status) (Kuijpers, et al., 2006). However,
the individual’s attitudes towards the career development program should be
measured beforehand because every individual is diverse in their need to pursue
different career paths goals. Therefore, if both employees and organizations are
consensual upon the employees’ career development program, it is believed that
a high level of performance and commitment can be consequently expected
from the employees and a longer tenure will also be expected. Thus, a win-win
situation can be created by both parties.

2.1 Importance of Retention

Both researchers and human resource (HR) practitioners agree that the
employment relationship is undergoing fundamental changes that have
implications for the attraction, motivation and retention of talented employees
(Horwitz, Heng, and Quazi, 2003; Roehling, Cavanaugh, Moyhihan and
Boswell, 2000, Tumley and Feldman, 2000). Over the past decades, the
economic environment organizations work in has changed dramatically. Due to
on-going evolutions towards international competition, deregularization and
globalization of markets, organizations are required to be more flexible and to
increase their productivity. This has reduced the job security of employees at all

25
levels in the organization (King, 2000) but at the same time HR managers are
pressed to attract and retain talented employees who have competencies that are
critical for organizational survival (Horwitz et al.,. , 2003, Mitchell, Holtom and
Lee, 2001, Roehling et al., 2000; Steel, Griffeth and Horn, 2002). Often,
however, exactly these employees are difficult to retain due to their tendency to
attach more importance to marking out their own careerpath than to
organizational loyalty, a tendency which results in increased rates of voluntary
turnover (Cappelli, 2001). Within the HRM literature, retention management
has become a popular concept to examine the portfolio of HR practices put into
place by organizations in order to reduce voluntary turnover rates (e.g. Cappelli,
2001, Mitchell et al., 2001, Steel et al., 2002).

2.2 Psychological Contract

Another concept that has gained interest as a construct relevant for
understanding and managing contemporary employment relationships is the
psychological contract, which refers to employees’ subjective interpretations
and evaluations of their deal with the organization (Rousseau, 1996; 2001;
Tumley and Feldman, 1998). Researchers in this field argue that in order for
retention management to be effective, the creation of an optimal portfolio of HR
practices is not sufficient and that it is important to manage employees’
expectations relating to these practices. Only in this way HR managers can be
confident to create a deal that is mutually understood by both the organization
and its employees (Rousseau, 1996). While retention management addresses the
type of organizational inducements and HR strategies that are effective in
reducing voluntary employee turnover, the psychological contract focuses on
employees’ subjective interpretations and evaluations of inducements and how
these affect their intentions to stay. This implies that retention practices might
26
only turn out successful if they are in line with what employees value and what
they take into account when deciding to stay with or leave the organization.
Since these subjective interpretations of retention factors by employees will
impact the effectiveness of retention policies set out by the organization,
bringing both themes together could advance the understandings of the factors
affecting employee retention. Therefore it is the central objective of the
research reported in this article to integrate the HRM perspective on retention
management with employees’ perceptions of retention factors and to assess the
relationship with their intentions to stay. Departing from retention management
literature and an empirical survey among 70 HR managers about their views on
the most important retention factors, investigate employees’ perceptions
relating to those retention factors that were mentioned most frequently by the
HR managers. Measuring the importance employees attach to these retention
factors and subsequently investigate the impact of the extent to which
employees believe their organization fulfills its promises about these factors on
their intentions to quit the organization and on their job search behaviors This
is done through a large-scale survey among 5286 employees from organizations
representing different industries.

2.3 HR Factors Affecting Employee Retention

In view of the large costs associated with employee turnover, even in a global
economic downturn characterized by downsizing and layoffs, HR managers still
need to work out HR practices that enable them to retain their talented
employees (Horwitz et al., 2003, Steel et al., 2002). These practices are often
bundled under the term “retention management”.
Retention management is defined as “the ability to hold onto those employees
you want to keep, for longer than your competitors” (Johnson, 2000). In the

27
literature numerous factors are put forward as important in affecting employee
retention, varying from purely financial inducements to so-called “new-age”
benefits. These inducements can be grouped into five major categories of
retention factors, namely (1) financial rewards, (2) career development
opportunities, (3) job content, (4) social atmosphere, and (5) work-life balance
(e.g. Horwich et al., 2003, Roehling et al., 2000; Ulrich, 1998).

2.3.1 Financial Rewards

First, financial rewards, or the provision of an attractive remuneration package,
are one of the most widely discussed retention factors, since they not only fulfill
financial and material needs they also have a social meaning, with the salary
level providing an indication of the employee’s relative position of power and
status within the organization. However, research shows that there is much inter
individual variability in the importance of financial rewards for employee
retention (Pfeffer, 1998; Woodruffe, 1999). For instance, a study conducted by
the “Institute for Employment Studies” (Sevan, 1997) reveals that only ten
percent of people who had left their employer gave dissatisfaction with pay as
the main reason for leaving. Moreover, due to the trend towards benchmarking,
it is becoming increasingly difficult for companies to set themselves apart from
their competitors by means of remuneration, which reduces the impact of
financial rewards on employee retention (Cappelli, 2001). However, despite the
fact that many studies show financial rewards to be a poor motivating factor, it
remains a tactic used by many organizations to commit their employees to the
organization by means of remuneration packages (Cappelli, 2001, Mitchell et
al., 2001, Woodruffe, 1999). For instance, in a recent study Horwitz et al.,
(2003) found that the most popular retention strategies reported by HR
managers of knowledge firms still related to compensation.

28
2.3.2 Opportunities for career development
Second, opportunities for career development are considered as one of the most
important factors affecting employee retention. It is suggested that a company
that wants to strengthen its bond with its employees must invest in the
development of these employees (Hall and Moss, 1998, Hsu, Jiang, Klein and
Tang, 2003; Steel et al., 2002; Woodruffe, 1999). This does not, or not only,
involve the creation of opportunities for promotion within the company but also
opportunities for training and skill development that allow employees to
enhance their employability on the Internal and/or external labor market (Butler
and Waldrop, 2001). Other factors relating to career development are the
provision of mentoring or coaching to employees, the organization of career
management workshops and the set up of competency management programs
(Roehling et al., 2000). For instance, in a recent study Allen, Shore and Griffith
(2003) found that employees’ perceptions of growth opportunities offered by
their employer reduced turnover intentions. Steel et al., (2002) also report
empirical data showing that lack of training and promotional opportunities were
the most frequently cited reason for high-performers to leave the company.

2.3.3 Job Content

The third category of retention factors relates to employees’ job content, more
specifically the provision of challenging and meaningful work. It builds on the
assumption that people do not just work for the money but also to create
purpose and satisfaction in their life (Mitchell et al., 2001; Pfeffer, 1998).
According to Woodruffe (1999) employees, in addition to a strong need to
deliver excellent results, also want to take on difficult challenges that are
relevant for the organization.

29
However, when their work mainly consists of the routine-based performance of
tasks, the likelihood of demotivation and turnover is relatively high. By
thinking carefully about which tasks to include in which jobs, companies can
affect their retention rates (Steel et al., 2002). Buttler and Waldrop (2001) have
called this “job sculpting”, or the art of matching people to jobs that allow their
“deeply embedded life interests”. There is increasing evidence that job content
is an important dimension affecting employee outcomes such as commitment,
performance and organizational citizenship behavior (Horwitz et al., 2003, Steel
et al., 2002). Horwitz et al., (2003) found that initiatives aimed at enhancing the
intrinsic qualities of the job were the second most popular type of retention
practices reported by HR managers of knowledge firms.
The social atmosphere, i.e. the work environment and the social ties within this
environment, is the fourth retention factor considered by many researchers.
Cappelli (2001) states that loyalty to the organization is a thing of the past, but
that loyalty to one’s colleagues acts as an effective means of retention. When an
employee decides to leave the organization, this also means the loss of a social
network. One of the researches suggests that social contacts between colleagues
and departments are an important factor for retaining talent. Organizations can
contribute to the creation of a positive social atmosphere by stimulating
interaction and mutual cooperation among colleagues and through open and
honest communication between management and employees (Roehling et al.,
2000).
Finally, facilitating a good work-life balance is the fifth retention factor
frequently cited in the literature (Anderson, Coffey and Byerly, 2002). The
conflict between work and career on the one hand and private life on the other
is currently assuming large proportions in our society. There is an increasing
demand for more flexible forms of work, which would positively affect the

30
reduction of the work-family conflict and employee satisfaction in general
(Anderson et al., 2002, Kossek and Ozeki, 1998). HR policies addressing work-
life balance are assumed to be important because the current generation of
employees attaches much importance to quality of life, as a result of the ever
increasing work pressure (Cappelli, 2001; Mitchell et al., 2001). Research
suggests that policies aimed at improving the work-life balance are successful if
they are implemented in a supportive context that truly allows employees to
make meaningful and useful choices (Anderson et al., 2002: Kossek and Ozeki,
1998).
This review of factors affecting employee retention suggests that HR managers
should take into account these factors when working on retention policies.
However, most existing studies on retention management have not addressed all
five types of retention factors, which make it impossible to assess their relative
embeddedness in the retention practices put in place by HR managers.
Therefore in the first part of the study, it is examine that relative attention HR
manager’s pay to each of these factors in working out their retention policies.

3.1 Overview of IT Industry

The Indian Information Technology (IT) sector has seen significant growth in
recent years. During the 1994-2003 periods, the revenue generated by the sector
grew from about Rs 5,450 crores to Rs 79,337. The employment in this sector
has also grown significantly. According to industry sources, there were only
6,800 IT workers in India in 1986-87. This number has gone up to 650,000 in
2002-03. The IT sector is also expected to provide quality employment to a
large number of workers in the coming years. Given this context, it is important
to find out if large sections of the Indian workforce would be able to participate
in the IT market. A more widespread participation of workers with different
31
skill/education profiles, gender, regions etc. would facilitate deepening of the
labor market and eventually reduce costs. The structural change in the
information economy is that it transforms the labor market and generates
demands for specific skills worldwide. The character of labor undergoes a shift
from manual labor to intellectual labor. In the information economy, economic
growth would depend on “human capital” and less dependent on physical
capital, which was dominant in the industrial economy. There is increasing
importance of highly skilled labor in the information economy (Stehr, 1999).
With the growth of the global "information economy", the potential of
participation of developing nations in the global economic processes also
increase. Besides, for developing countries with scarce capital resources,
increases in productivity or growth can take place through infonnation
technology and can also speed up the developmental process (Kelkar, 1991).
Investments in education and research accelerate this process.

3.2 Overview of the Indian IT industry

Poised to become a US$ 225 billion industry by 2020, the Indian infonnation
technology (IT) industry has played a key role in putting India on the global
map. The IT-BPO sector has become one of the most significant growth
catalysts for the Indian economy. In addition to fuelling India’s economy, this
industry is also positively influencing the lives of its people through an active
direct and indirect contribution to various socio-economic parameters such as
employment, standard of living and diversity. The industry has played a
significant role in transforming India’s image from a slow moving bureaucratic
economy to a land of innovative entrepreneurs and a global player in providing
world class technology solutions and business services, according to National
Association of Software and Service Companies (NASSCOM).
32
The sector was estimated to have grown by 19 per cent in the FY2011, clocking
revenue of almost USS 76 billion. India’s outsourcing industry has witnessed a
rebound and registered better than expected growth according to NASSCOM.
The export revenues were estimated to have aggregated to USS 59 billion in
FY2011 and contributed 26 per cent as its share in total Indian exports
(merchandise plus services), according to a research report TT-BPO Sector in
India: Strategic Review 2011’ published by NASSCOM. The workforce in
Indian IT industry will touch 30 million by 2020 and this sunrise industry is
expected to continue its mammoth growth, expect various industry experts.

Furthermore, NASSCOM said that the domestic IT-BPO revenues excluding

hardware was expected to have grown at almost 16 per cent to reach US$ 17.35
billion in FY2011. Strong economic growth, rapid advancement in technology
infrastructure, increasingly competitive Indian organizations, enhanced focus by
the government and emergence of business models that help provide IT to new
customer segments are the key drivers for increased technology adoption in
India. The data centre services market in the country forecasted to grow at a
compound annual growth rate (CAGR) of 22.7 per cent between 2009 and
2011, to touch close to US$ 2.2 billion by the end of 2011, according to
research firm IDC India's report. The IDC India report stated that the overall
India data centre services market in 2009 was estimated at USS 1.39 billion.
India will see its number of internet users triple to 237 million by 2015, from 81
million registered in September 2010, according to a report titled 'Internet's
New bn', by the Boston Consulting Group (BCG). BCG said Internet
penetration rate in India is expected to reach 19 per cent by 2015, up from the
current seven per cent.

33
 Telecom Regulatory Authority of India (TRAI) is targeting a 10-fold increase in
broadband subscribers to 100 million by 2014. The country has 10.29 million
subscribers now. 'We will have 100 million broadband subscribers by 2014,"
J.S. Sarma, Chairman, TRAI said at the fifth India Digital Summit 2010
organized by the Internet and Mobile Association of India.
The penetration of the internet in rural areas has seen an all time high in 2011.
In a survey conducted by IMRB for the Internet and Mobile Association of
India (IAMAI), the total number of active internet users in rural area will rise
by 98 per cent to touch 24 million by the end of 2011 from 12.1 million in
December 2010. The survey said that the claimed internet user categoiy is also
set to grow by 96 per cent to reach 29.9 million by December 2011 from 15.2
million in December 2010. (Active users are those, who have used the internet
at least once in the past one month. Claimed internet users are those, who have
used the internet sometime but not necessarily in the past one month.)

3.3 The Growth Story

India is a preferred destination for companies looking to offshore their IT and
back-office functions. It also retains its low-cost advantage and is a financially
attractive location when viewed in combination with the business environment
it offers and the availability of skilled people.
The country s domestic market for business process outsourcing (BPO) was
projected to grow over 23 per cent to touch US$ 1.4 billion in 2011, says global
research group Gartner. In 2010, the domestic BPO market was worth US$ 1.1
billion. The firm predicted that the domestic BPO market will reach US$ 1.69
billion in 2012 and increase to US$ 2.47 billion by 2014.
With the first quarter of the new fiscal 2011-12 offering positive business
outlook, hiring sentiments for sectors like IT, ITeS and telecom have risen by

34
 over 20 per cent, says a study by Team Lease Services Pvt. Ltd. As per the
Employment Outlook Report for the period April-June 2011, released by
TeamLease Services Pvt. Ltd., hiring intent from IT and ITeS was the highest in
cities like New Delhi, Mumbai, Hyderabad and Pune.

India's top technology firms like TCS, Infosys, Wipro and HCL are readying
plans to gain a bigger share of their largest market, US, by aggressively chasing
contracts being served by multinational rivals. Analysts expected the top IT
firms growth between 23-27 per cent in the FY2012 on the back of more
number of discretionary projects, improved pricing, and robust business
volumes.

3.4 Road Ahead

The Indian information technology sector continues to be one of the sunshine
sectors of the Indian economy showing rapid growth and promise.
According to a report prepared by McKinsey for NASSCOM called
'Perspective 2020: Transform Business, Transform India', the exports
component of the Indian industry is expected to reach US$ 175 billion in
revenue by 2020. The domestic component will contribute US$ 50 billion in
revenue by 2020. Together, the export and domestic markets are likely to bring
in US$ 225 billion in revenue, as new opportunities emerge in areas such as
public sector and healthcare and as geographies including Brazil, Russia, China
and Japan opt for greater outsourcing.

3.5 Labor Market

In each mode of development, there are different elements that foster
productivity in the production process. In an agrarian economy, land and labor

35
along with capital become the determining factor for increasing surplus. As
technological or commercial improvement take place product market begins to
develop and labor market undergoes a change. In the industrial economy
capital and labor along with energy sources to become the main source of
productivity, as capital is reproducible it expands through accumulation. In the
information economy ‘the sources of productivity lie in the technology of
knowledge generation, information processing, and symbol communication’
(Castells, 2001: 17). The main source of productivity in the informational
economy is the accumulation of knowledge. However, ‘the transition or shift
from industrial to informational economy is not the historical equivalent of the
transition from agricultural to industrial economies and cannot be equated to the
emergence of service economy’ (Castells, 2001: 100).
The structural change in the information economy is that it transforms the labor
market and generates demands for specific skills worldwide. The character of
labor undergoes a shift from manual labor to intellectual labor. In the
information economy, economic growth would depend on “human capital” and
less dependent on physical capital, which was dominant in the industrial
economy. There is increasing importance of highly skilled labour in the
information economy (Stehr, 1999). With the growth of the global "information
economy", the potential of participation of developing nations in the global
economic processes also increase. Besides, for developing countries with scarce
capital resources, increases in productivity or growth can take place through
information technology and can also speed up the developmental process
(Kelkar,1991).
Investments in education and research accelerate this process. Expansion of
“informational” activities leads to the specialization of labor and education. As
the demand for certain information goods and services increases the demand for
36
 specialized labor would increase. In the information economy, there is potential
for two kinds of service activities to increase namely the software and ITES
services. The last decade has observed major growth of software services
industry, especially in the developed countries. This led to a huge demand for
software services related labor both within the developed countries and outside.
With increasing competition, developed country firms are trying to outsource
many of its activities to low cost developing world, where there is delivery of
similar quality services at low price. Such outsourcing activity helps the labor
market in the developing countries, which could take advantage of developing
the right skills needed. Indian labor has participated in a significant manner in
this growing outsourcing market. The market for such information goods and
services is still in its infancy in the developing world. As the market develops
there would be increasing demand for such labor even within these countries.
The ITES market is still growing and has a huge potential in the coming years
for countries like India, which still enjoys a cost advantage and where necessary
skills could be easily acquired.

3.6 Workforce Crisis

Global demographic changes are the major reasons causing a large number of
skills shortages, although other factors may be involved, including changing
skill needs within occupations and labor participation rates (Gordon, 2009;
Martin, 2008; Taylor, 2008). The disproportionate size of the retiring group of
the baby boomer generation, an increasing long life expectancy, and decreasing
birthrates of the young cohort are expected to double the percentage of workers
over fifty-five during the next five to ten years (Dychtwald, Erickson and
Morison, 2006). This indicates that the trend towards an aging population is a
big challenge under a strong projection of global economic growth, as it has
37
created difficulties in attracting and retaining staff in the IT industry (Drucker,
1999; Martin, 2008). A low birthrate in developed countries and massive
retirement has caused a drastic reduction in the pool of new highly skilled
workers (Dychtwald, et al., 2006; Statistics indicate that by 2050, about 9% of
the ICT workforce will be retiring under current global demographic changes
(Garmise, 2006). In addition, nearly 20% of the European working population
will go into retirement within the next five years (McQuade, et al., 2007), along
with a 50% drop in the employment rate of those aged 55 to 64 (Jouhette and
Romans, 2006). Loomis (2006) also suggests that by 2012, almost one in five
workers will be fifty-five years old and older. In the emerging countries, China
is also facing a similar situation in that about 33% of the workforce will be over
the age of 50 within the next five to ten years (Hawser, 2008). Thus, it is
evident that an aging workforce is inevitable and the IT industry is expected to
lose a large number of experienced workers over a short period of time.
As an aging workforce will increasingly result in a lesser supply of skilled
workers, it was expected to significantly affect the IT industry starting in 2008
(Dychtwald, et al., 2006). That is, the number of young skilled workers is
insufficient to fill the vacant jobs that are created by the massive retirement of
the baby boomer generation employees who are now reaching retirement age
(Dychtwarld, et al., 2006; Garmise, 2006). In addition, the workforce growth
rate of the age segment 35-44, which are the primary executive development
years, is actually declining (Dychtwarld, et al., 2006). This indicates that the
skills shortage is going to impact on a wider range of employment levels, which
appears to involve the bottom up to the management level in the IT industry.
From the point of view of workforce availability, it is a crisis that there is an
insufficient number of skilled workers on a variety of employment levels and
more importantly, companies’ tacit knowledge gained from experience could be

38
lost (Dychtwarld, et al., 2006, Garmise, 2006). For example, retired people are
unable to successfully pass on their knowledge and skills to the next generation
of employees who replace them (Clarke, 2009, McQuade, et al., 2007). The loss
of retired people could be mainly associated with the loss of an expert employee
with knowledge of products and processes of the company, the loss of customer
and supplier contacts, relationships and established trust, the loss of
understanding of the informal personal networks, and many other losses
including knowledge of competitors and their products (McQuade et al., 2007).
Consequently, the loss of companies’ knowledge could have serious impacts on
business development and sustainable competitive advantage for IT companies
in the global market.

3.7 Objectives of the study:

1. To study the effect of age on employee retention in IT industry.

2. To study the effect of gender on employee retention in IT industry.

3. To study the effect of organizational level on employee retention in IT

industry.

4. To study the effect of experience on employee retention in IT industry.

5. To study the effect of education on employee retention in IT industiy.

6. To study the factors associated with employee retention in IT industry.

7. To study the effect financial and non-financial factors and there

interaction on employee retention in IT industry.

39
 8. To study the effect of financial and non-financial factors and there
interaction on personnel policies dimension of employee retention in IT
industry.

9. To study the effect of financial and non-financial factors and there

interaction on organization culture dimension of employee retention in IT
industry.

10. To study the effect of financial and non-financial factors and there
interaction on employee participation dimension of employee retention in
IT industry.

11. To study the effect of financial and non-financial factors and there
interaction on organization competency dimension of employee retention
in IT industry.

12. To study the individual as well as joint contribution of financial and non-
financial factors on employee retention in IT industry.

3.8 Rationale of the study:

A number of studies have been done to study the impact of various

factors on HR strategy of an organization in IT industry similarly lot of
work has been done on employee retention strategies in India &
worldwide. Most of these studies revolve around impact of qualitative
and behavioural factors on employee retention strategies in an
organization in general and IT industry specifically. The ultimate goal of
an organization is to maximize profit and wealth and employee retention
strategies are also a combination of cost and benefits. The rationale

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behind this study is to study the impact of various factors including
financial factors on employee retention strategies in IT industry and thus
this study would make an effort to bridge the gap in exploring all factors
affecting employee retention strategies in IT industry.

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