IT attrition rates likely to remain high for some time

Changing demand for skills, muted growth of traditional businesses giving rise to spike in attrition

From sector leader Tata Consultancy Services (TCS) downwards, high employee attrition is an issue at information technology (IT) service companies.

The rate tends to peak towards the first half of the financial year, especially the first quarter. And, many other factors are seen to be influencing this spike.

Many of the exits are seen to be happening as employees move to next-generation technology-backed companies, where they get to learn newer skills. Beside, “attrition levels are only to rise as (more traditional) companies are correcting the employee numbers based on project need. Since their traditional business model is growing slowly, the pace of growth for net addition of employees will taper in times to come,” said Sanjeev Hota, assistant vie-president, research (institutional equities), with Sharekhan.

In the June quarter, attrition at TCS was as high as 15.9 per cent, a peak over several quarters. The company said it normally saw a rise in April-June (the financial year’s first quarter), with many leaving after annual appraisals and for higher education. The number who left in this period was 15,023, as compared to 10,850 who quit in the same period a year before.

Infosys, India’s second largest IT services company, is also battling high attrition. It had peaked at an all-time high of 20.4 per cent in the October-December quarter of FY15. In the ensuing January-March quarter, the company managed to arrest this at 18.9 per cent, with a number of employee-friendly initiatives. In the case of Wipro and HCL Technologies, (third and fourth largest in the sector), the rate (growth) was mostly flat at 16.5 per cent and 16.2 per cent, respectively.

Experts say IT outsourcing services companies are also facing difficulty in winning deals at the traditional high-margin businesses -- primarily involving the development of software and supporting data for banking and financial companies across the globe. Since all of them are trying to maintain a tight operating profit margin band, amid weakening revenue collection, this is getting reflected in attrition figures. “There is pressure on IT companies to cut prices on the services they are offering, as the scope for traditional business is limited. So, either they go for value addition services or cut the cost of human resources or both, to maintain the operating margin,” said a Mumbai-based analyst, requesting anonymity.

Adding: “Beside, IT majors are losing people to start-ups, which offer them a better pay package and, of course, a chance to work with newer technology and domains. This booming sector is absorbing a major chunk of people leaving large IT firms.”  

Some IT companies have initiated training programmes to arrest attrition. TCS, for example, has already announced it would train 100,000 employees, about a third of its total workforce, in digital services. Earlier, Infosys had announced an initiative to train 40 per cent of its workforce, 70,000 employees, in design thinking by the end of this financial year.

“They will retain whoever they want and let go of people whose skills they do not need any longer,” the analyst said.

TCS recently said it was also betting highly on digital services to grow revenue. It says the digital business will permeate all verticals in times to come. Most other IT service companies are seen as moving in the same direction.

Digital services cover an array — automation of office work flow, document digitisation and creating end-user applications for mobile devices, online marketing and so on. These would require companies to send employees to onshore locations rather than doing back-office jobs. And, hence, could reflect a rising tendency to sub-contract in onshore locations.

“Most IT firms nowadays are preferring third-party engagement for certain contracts, for optimal utilisation of human resources. The higher attrition trends (also) reflect better job opportunities in the contractual segment and the companies’ intention to go for more and more contractual employees,” added Surabhi Pandey, vice-president of Ad Astra Consultants.
FACTORS INFLUENCING SPIKE

• IT firms are unable to raise pay better hikes due to limited revenue growth, slower growth of traditional businesses
• Experienced workers are preferring next-generation companies to learn newer techs, domain
• IT firms’ focus on digital business requires them to hone newer skills
• Better demand for onshore jobs likely to increase contractual employees
• First quarter attrition figures are usually higher than other quarters