Heavy competition and the economic downturn notwithstanding, TCS has managed a 6.3 per cent reduction in the average employee cost every year over 2007-2013, as per HfS Research. The data shows that the percentage of freshers hired increased from 51 per cent to 81 per cent during this period - which the research firm points out, is the likely reason for maintaining such a low headcount cost. To cite the report, "hiring more freshers gives TCS the flexibility to deploy them in lower value and transactional activities thus freeing other high calibre experienced resources for higher value work."
What has helped TCS reduce costs during a slowdown has, in fact, been a winning trope for an unrelated industry - manufacturing - since its early days. And why single out IT consultancies? A look at the hiring policy across the services sector - whether we speak of IT, ITES, management consulting, hospitality, telecom, BPO or even retail - reveals it has been borrowing freely from rules either pioneered by, or are identified with, the manufacturing segment. The Strategist takes a closer look at some of the key HR lessons the services sector has borrowed from manufacturing or even built upon.
Catch them young
A fresher-heavy manpower plan is almost as old as the manufacturing industry itself. Unskilled labour engaged in activities such as packing, material movement, maintenance etc is usually contracted out to graduates and undergraduates. However, for roles that require specific skills - such as welding, carpentry, plumbing, machine operations, fork-lift truck driving etc - training is important. Early on, to comply with labour laws and sometimes due to cyclical/seasonal product needs, manufacturing realised it was better to keep inducting young people and offer them opportunities for career growth within the organisation as opposed to lateral hiring. "Manufacturing has been doing this to save costs and to better manage people's careers," says Rajeshwar Tripathi, chief people officer, Automotive & Farm Equipment Sectors, Mahindra & Mahindra.
On the other hand, companies in the IT and ITES space now have end-to-end ownership of projects. It isn't just about offering a wide variety of services; it is about developing the product, testing the applications and maintaining the product across its life cycle. And thanks to this, the scope of programmers has widened and companies have the flexibility and ability to hire more freshers.
Now take telecom and BPO, which have made efforts to correct the 'tooth to tail ratio'. In military parlance, this ratio is the number of support infrastructure people (tail) needed for the combat soldier (tooth). In a telecom scenario, it means the ratio of frontliners/workhorses servicing the end consumer to the rest of the team. Higher the percentage of frontliners (a healthy one is 65-70 per cent) in consumer servicing functions, the better the productivity. "Many times, more workhorses have come in, and people in the mid-management level have been reduced. This helps save cost, as the cost of senior management and middle management is 2.5 times higher than the frontliners," says Sandeep Gandhi, chief human resource officer, Aircel, a telecom company that closely follows this strategy. About two years ago, Aircel had 55 per cent frontliners. The percentage has now improved to 70.
Hiring youngsters might also have a lot to do with automation of certain processes - another trend noticeable in manufacturing. As processes mature, companies can get a junior person to maintain them, thereby expanding the scope to hire freshers. Consider the assembly line in an automobile manufacturing plant where some processes are run on an 'auto pilot' mode with minimal human interventions. "In functions of predictable performance and processes, automation can come in for greater efficiency and streamlining," says Moorthy Uppaluri, CEO, Randstad India.
Examples in IT are aplenty. Most IT firms now create automated platforms that figure out issues on their own and in some areas, work that was done by mid-management is delegated to machines. An example in the financial space could include IVRs reducing the need for human interface in banks. "This is exactly what happened in factories. The assembly line system has come into play in some service sectors. Delivery platforms enable much higher levels of automation that can replace manual work. In a way, this is the industrialisation of the software sector," says Saurabh Govil, senior vice-president and global head, human resources, Wipro.
Moreover, with a huge number of engineering graduates walking out of colleges every year - according to estimates, India trains around 1.5 million engineers, which is more than the US and China combined - the entry level salaries of engineering graduates joining the IT services in India has stagnated at a measly Rs 20,000-25,000 per month. Also, these engineers, if hired full-time, would require a huge amount of training before they can start becoming productive. This leads us to the next point: the growing trend of hiring apprentices, à la manufacturing.
Large manufacturing firms have historically met their growing need for workers to meet consumer demand through apprenticeship programmes by hiring Industrial Training Institute or 12th class pass-outs, particularly to handle seasonality/variability of products. Apprentices are put through a structured practical and theory training programme. Firms have also hired fresh engineers as Graduate Engineering Trainees (GET). The GETs go through a one or two-year training programme and are then absorbed as frontline supervisors and engineers.
According to an IT analyst, TCS was one of the early adopters of apprenticeship programmes among the large IT services companies, and is one of the largest employers of apprentices today, be it engineering graduates or diploma holders. "TCS hires a huge number of apprentices every year, trains them and at the end of their apprenticeship period absorbs them or lets them go, based on performance," says the analyst. The advantages? Whether it is IT, ITES, consulting firms or accounting firms, this kind of a transient workforce forms a reservoir from which talent is identified, without having to give them the kind of monetary and other benefits that permanent employees enjoy. While India Inc blames the country's outdated labour laws as a hindrance to growth, the use of apprentices by IT and ITES companies is likely to get a boost with the National Employability Enhancement Mission (NEEM), a government initiative to promote apprenticeship.
Furthermore, there is a high level of attrition at the fresher level (and so training cost is wasted) because sometimes, freshers quit and decide to pursue higher studies or simply switch their field of work. NEEM can be useful in such cases. "Apprentices are like test drives. You can evaluate them over six months or a year and weed out the people not up to the mark, unlike freshers who get absorbed from the beginning. It is also much more convenient," says Zarir Batliwala, consultant, HR, TeamLease Services. If given a free 'legal' hand, popular opinion goes that services is likely to, or probably already is, doing a better job of hiring apprentices than manufacturing.
Lessons in outsourcing
Industries like automotive were among the pioneers of outsourcing - or in manufacturing terms, 'contracting' jobs - realising the value of getting things done through specialists. A 'make versus buy' conundrum, so to speak. Firms learnt that for greater manufacturing efficiencies, they need satellite firms for non-core businesses. The need to contract jobs also arises when companies need some additional work to be done - jobs that are seasonal/temporary in nature. To have a better end product there is also need to up the skill quotient of your suppliers/vendors. "When Hyundai came in, they came with a whole separate ecosystem of suppliers - partners in automotive accessories etc," says Rajiv Krishnan, partner and leader, people & organisation services, EY. "The services industry has learnt this, especially when it comes to vendor development."
Largely, the trend of outsourcing is about portfolio rationalisation. There are instances when multinationals from India have gone and acquired brands/companies in Europe and Asia but still retain a manufacturing/service base in India to stay cost competitive. Some feel outsourcing also allows you the opportunity to prune your workforce during a downturn. Outsourcing of skilled and technical roles also helps in a project-based assignment (you need not absorb employees after project completion). "The IT services industry's practice of maintaining a 'bench' of people between two projects is fast becoming outdated as there is a huge cost associated if they aren't being billed on a project," says Batliwala.
Conversely, in the telecom and BPO segment, the old model of insourcing (purely for non-core services) is back - which, strangely, has its roots in manufacturing as well. The cost of outsourced call centres has gone up; ditto for managing network operations. Telecom growth has slowed down from 40 per cent a few years ago to 5 per cent currently. Add to that, the ARPU (average revenue per user) today is only Rs 150-160. "There was a time when we used to outsource our network operations to vendor partners. This became an expensive proposition. While it saved CapEx, we lost a lot of OpEx," says Gandhi of Aircel. Today, almost every telco player is revisiting its outsourcing models including network operations and retail management. For instance, Bharti Airtel recently brought its network planning in-house, along with some IT functions.
Work environment, referrals and more
Classically, manufacturing has instituted a multi-shift work environment. Take a process type manufacturing plant (processing oil and gas, chemical, steel etc), which demands that you operate in shifts as you can't simply stop certain types of machinery after a certain number of hours. In other words, you need people to operate/maintain them round the clock. In discreet manufacturing (producing finished output like cars etc) continuous operation has never been in vogue; now many firms are moving to it, if only to "do more with less".
Services may have picked this trend for entirely different reasons: when we look at IT and ITES, it is more about alignment with different time zones. They need their workforces to give real-time support to clients at different time-zones. But even if we remove that linkage of serving customers abroad, the 24x7 work environment in BPOs or IT/ITES companies has proven beneficial by saving costs - by utilising the same facility round the clock by different shifts.
Apart from these big-bang shifts, there are other smaller trends the services sector seems to be borrowing from manufacturing. "Particularly in BPOs, background checks have been borrowed from manufacturing. As the industry evolved, it became an important part of HR, particularly when people were jumping jobs in BPOs too quickly or when cases of fraudulent education degrees were reported," says Sanchit Gogia, chief analyst and CEO, Greyhound Research. Ditto with conflict resolution. These could be territorial wars, like deciding who gets to "go to the US" and who stays back. "How do you ensure people dependency and their expectations are managed? Services has learnt this from manufacturing," opines Gogia.
The success of manufacturing process anywhere in the world largely depends on three factors: appropriate manpower, the quality of products and efficiency of production. India's manpower strategy for manufacturing was heavily influenced by the German apprenticeship model and, hence, the establishment of our own Apprentices Act in 1961. Identifying freshers directly from engineering institutes/polytechnics and keeping them as apprentices for a period of one to four years was done to gradually enhance their skill of operating heavy machinery and become productive.
Manufacturing in India seems to have lost the plot to new age industries like ITES, telecom and retail on account of archaic labour laws that were resistant to change. Interestingly, taking a cue from manufacturing, the IT sector has started hiring a large number of freshers - though not exactly as apprentices because law restricts the appointment of apprentices in the services sector currently. In case of the ITES, the trend was set in motion by the coming together of the needs of the youth as well as the employers, which made the 'taxi cab' employment relationship (marked by rampant job hopping) look cool. While young people right out of college got the chance to make decent money every month before they could figure out what they wanted to do, employers got ample time to train them and make them productive. Plus a churn was essential every two years to ensure that wages don't go up and corporates remained competitive. The idea of flexi-staffing gained currency as the services sector took the lead in employment and in contributing a big chunk to the GDP. Given that proposed amendments and the various innovations which have been instituted around the apprenticeship regime, I wouldn't be surprised if apprentices along with flexi-workers start playing a bigger role in corporate India's blended workforce strategy.
President, Indian Staffing Federation