Deconstructing Washington's "wows"
In a February 15 article on Rediff.com - Narayana Murthy wows Washington elite - Aziz Haniffa sings praises of India's international software icon. The Chairman of Infosys Technologies is, without doubt, the face of Indian software. But he has also transcended into a kind of statesman-CEO voicing his views on areas not directly under his domain. The "sage of Bangalore" (as Haniffa calls him) has set new standards in corporate governance, and has raised the bar high enough so that Indians can start competing with global behemoths.
So, if Infy is all that, then why was it downgraded yesterday by JP Morgan? In a point-blank interview to CNBC-TV18, analyst Bhavin Shah of JP Morgan brings to light the fact that "the company is facing a crunch in the middle management layers." Shah points out that Wipro is also on the brink of such a crunch, but that TCS is a bit safe.
Can this be true? How can such a thing happen to some of India's most successful, most loved companies? The fact is, and Indian IT majors are waking up to it, there is a serious shortage of skilled manpower that is hitting the industry. And real bad.
Well yes, you read in the papers that "TCS (or Infy or Wipro) added 15000 into it ranks this year. And the numbers are growing." True, but it pays to find out how many of those joined straight from college. That number would be a staggering 80+ percentage. Given an attrition rate of 10-12%, a company like Infosys would be losing 4000 people every year. Huge as it may seem, one might still be tempted to think "But they added four times that number, right?" The real impact of this can be understood only when we appreciate that these 4000 were people who had served for 3-4 years.
In effect, people with lots of experience leave the company, and they are replenished with freshers. As Indian IT tries to move away from doing the menial tasks to some really challenging work, the people capable to executing such work are no longer there. A year or two ago, the picture wasn't this bad for two reasons. The people who quit one IT major found their way into one of the others. This way attrition was equitably peaceful for recruiters because if 10 people from company A went to companies B, C and D, a proportional number would come from B, C and D to A. These days, however, with the arrival of big names (like Accenture, for example), the other names have become some kind of uncool. Secondly, IT professionals have realised that B, C and D are really no different from A, so that makes them uncool anyway. Recently, a friend of mine, who is a Project Manager at one of the Big Three, recounted how a Vice President of his company accepted that people are no longer seduced by the company. "Earlier 2000 people used to walk in for a single ad in the papers. Now it is hardly 10% of that number we are able to attract. And they are simply no good."
The other problem coming to light in the IT industry is that the growth in the past few years is inorganic in nature. Adding 10000+ new folks into your fold every year is akin to buying out another company. Inorganic growth has one advantage - you can learn from the expertise of others. However, in this case, "this other company" has no skill set whatsoever. And the more people you add to the company, the more expectations you add. But big companies can, by nature, only work slow. Thus things get a long time to get implemented. Which only adds to employee frustration. In effect, "Expectation Management" is a function which bigger companies need to work on.
The "sage of Bangalore" and his disciples (as well as their peer-sages in other companies) have issues to address. If you read in the papers that all is fine, don't believe it completely. Yes, things are good, they are rosy still. But not without problems. Problems whose magnitude we might not realise, and might suddenly rear their ugly heads, when we are most unprepared. After all "the greatest trick the devil ever pulled was convincing the world he didn't exist."
So, if Infy is all that, then why was it downgraded yesterday by JP Morgan? In a point-blank interview to CNBC-TV18, analyst Bhavin Shah of JP Morgan brings to light the fact that "the company is facing a crunch in the middle management layers." Shah points out that Wipro is also on the brink of such a crunch, but that TCS is a bit safe.
Can this be true? How can such a thing happen to some of India's most successful, most loved companies? The fact is, and Indian IT majors are waking up to it, there is a serious shortage of skilled manpower that is hitting the industry. And real bad.
Well yes, you read in the papers that "TCS (or Infy or Wipro) added 15000 into it ranks this year. And the numbers are growing." True, but it pays to find out how many of those joined straight from college. That number would be a staggering 80+ percentage. Given an attrition rate of 10-12%, a company like Infosys would be losing 4000 people every year. Huge as it may seem, one might still be tempted to think "But they added four times that number, right?" The real impact of this can be understood only when we appreciate that these 4000 were people who had served for 3-4 years.
In effect, people with lots of experience leave the company, and they are replenished with freshers. As Indian IT tries to move away from doing the menial tasks to some really challenging work, the people capable to executing such work are no longer there. A year or two ago, the picture wasn't this bad for two reasons. The people who quit one IT major found their way into one of the others. This way attrition was equitably peaceful for recruiters because if 10 people from company A went to companies B, C and D, a proportional number would come from B, C and D to A. These days, however, with the arrival of big names (like Accenture, for example), the other names have become some kind of uncool. Secondly, IT professionals have realised that B, C and D are really no different from A, so that makes them uncool anyway. Recently, a friend of mine, who is a Project Manager at one of the Big Three, recounted how a Vice President of his company accepted that people are no longer seduced by the company. "Earlier 2000 people used to walk in for a single ad in the papers. Now it is hardly 10% of that number we are able to attract. And they are simply no good."
The other problem coming to light in the IT industry is that the growth in the past few years is inorganic in nature. Adding 10000+ new folks into your fold every year is akin to buying out another company. Inorganic growth has one advantage - you can learn from the expertise of others. However, in this case, "this other company" has no skill set whatsoever. And the more people you add to the company, the more expectations you add. But big companies can, by nature, only work slow. Thus things get a long time to get implemented. Which only adds to employee frustration. In effect, "Expectation Management" is a function which bigger companies need to work on.
The "sage of Bangalore" and his disciples (as well as their peer-sages in other companies) have issues to address. If you read in the papers that all is fine, don't believe it completely. Yes, things are good, they are rosy still. But not without problems. Problems whose magnitude we might not realise, and might suddenly rear their ugly heads, when we are most unprepared. After all "the greatest trick the devil ever pulled was convincing the world he didn't exist."
posted by Vijay Krishna Narayanan | 3/04/2006 05:04:00 AM
4 Comments:
Very good analysis! yes, you have highlighted the fact that it is no more "cool" to work for even IBM or Accenture, as, they too rope in managers who have worked in Infy, TCS etc when they set up shops here and that make them not any different from the Indian companies. I was of the view 2 years back that, IT(eS) industry may last for the next 3 - 5 years max, but a global consultant has predicted Indian edge for the next 8 - 10 years (which must have been a breather for NRN and the likes)
Actually, I see this management issue more in TCS. Apart from Ramadorai, can you identify one more person from the company? Their VPs, DIrectors are not too well known among the general junta whereas Infy's Pai, Ramakrishnan are quite known among the general (at least ET reading) crowd! I am still wondering as to why JP downgraded Infy's ratings ! But, aren't those a little bit political too? Am not too sure!!
BTB, Thanks for your comment in my blog. I am not at all against flaunting our culture, but my ranting was about getting our priorities wrong! We end up not conveying what we want to!
I'm no expert, but isn't the point you've raised a problem with the business model of the services industry as a whole? If you have to increase revenue you have to increase headcount, because only then can you bill the customers more. That's why Indian technology companies are so far behind those from which we get our work. How many people does Infosys employ to generate revenues of $1 billion and how many does a company like Google, Microsoft or Yahoo? The more important question is how many more need to be added to increase revenues ten fold? The present services model is too damn hard to scale in terms of the people required to do it.
But, we are getting there. As Nandan Nilekani reiterates in every quarterly town hall, the challenge for Infosys is to become more of a partner to the bigger companies, than merely one to which work is outsourced. Obviously the challenges are huge, but those guys are extremely capable, smart people and as Indian companies move up the value chain and get better quality work, attrition should take care of itself. And yes, attrition seems to be a problem from what I've noticed too.
We should realise that we are mere infants in this industry now. The really high quality work that we crave for won't get here for quite some time to come.
That explains why software companies complain about the employability of the fresh people they take in to the colleges and expect them to come up with better stuff. That also explains why one of the big three has been conducting some serious training sessions at CEG here, for people they recruited.
Its not that IT employees with 3/4 years experience leave to join cool companies. Its a much different issue than that. I have work for one of the "Big 3" and I can safely say the following :
The middle level managers curretnly existing are really people with 10+ years of experience. When a new project comes it is these people who get to be managers for the same. We do not see any incentive for employees with 3/4 years experience. We also dont see any risks taken, coz most of the current managers do not have old mindset and not energetic enough. Plus, the rise is salary if not the leadership opportunities are not comparable when you go and work with "Accenture or IBM". This causes a losing interest and hence joing these firms and this is just not mine but a lot of people in the industry whom I know.
Fresh employees are not experienced but are vetted as they are the ones who will add to the company bottomline coz their cost to company is less. But companies forget that they need to be guided and nurtured to be of some use.
We are not only talking about middle level managers but also senior team leads who can mentor these people.
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