Information technology (IT) companies Tata Consultancy Services (TCS), Infosys Technologies and Wipro need to get their non-linear strategies in place or each would end up with one million staff by the end of this decade, according to a report. Non-linear initiatives mean delinking revenue growth to headcount growth.
“If current productivity levels continue and large players have to deliver a 20 per cent compounded annual growth rate in revenue for the next decade, Infosys, TCS and Wipro will each need to employ close to a million people within the next 10-12 years. Expanding headcount could, therefore, lead to a new level of organisational challenges over the next few years, and any internal restructuring could cease to be news,” said analysts Abhiram Eleswarapu and Avinash Singh of BNP Paribas Securities in the report.
The report said recent concerns about manpower like attrition, quality of talent and rising wages, have compelled IT companies to take a relook at their so far successful offshore business model more than ever before. Now, companies make hiring prediction based on the business growth they foresee. Non-linear initiatives will allow organisations to measure growth by the number of value-added services they offer to customers.
Companies like TCS, Infosys, Wipro and HCL Technologies have already put in place their non-linear initiatives. In case of TCS, iON, a cloud-based offering for small and medium enterprises, platform-based business process outsourcing (BPO) and ‘Bank in a box’ are three crucial elements of its non-linear strategy that will generate 10 per cent of its incremental revenue by the fourth quarter of 2011-12.
Infosys, too, has laid down its road map. It plans to have an equal proportion of revenue from its business operations that includes segments like BPO, infrastructure management, and application development and maintenance (ADM) work.
A third of its revenues will come from transformational work and a third will come from intellectual property (IP), innovative solutions, etc. At present, BPO contributes 65 per cent, while 25-30 per cent comes from transformational work and just about 10 per cent from IP and innovation.
Analysts say assuming these companies continue to grow at 20 per cent a year and ADM continues to be the major chunk of work, TCS that has 160,000 employees, will end up with a headcount of over 1.6 million at the end of this decade. In the case of Bangalore-based Infosys, it will end up with a headcount of over 1.1 million.
“It is a serious issue. Other than non-linear initiatives, Indian IT firms will need to build revenue stream delivery outside India. Geographic expansion with a focus on setting up delivery centres needs to be a clear focus. These firms will also need to focus on increasing revenue per employee. It is commendable that the industry has managed to deliver growth without changing the business model, but I doubt if this can continue,” said Sidhartha Pai, partner and managing director, TPI.
According to an industry analyst, almost 90 per cent work of Infosys and other IT companies comes from traditional IT services. Transformational work and consulting make up four to five per cent, while IP and innovation contribute two to three per cent. “IT firms do realise the situation and they have been working towards this. Our estimate is that while the absolute numbers for the traditional IT business will remain large and grow, it will drop to 50-60 per cent in the next three to five years. The other part will contribute about 15-20 per cent,” said Sudin Apte, principal analyst & CEO, Offshore Insights.