May 11, 2017
Bengaluru: Information technology (IT) companies in India are in the midst of the industry’s largest retrenchment drive with seven of the biggest IT firms planning to ask at least 58,000 engineers to leave this year.
May 11, 2017
Bengaluru: Information technology (IT) companies in India are in the midst of the industry’s largest retrenchment drive with seven of the biggest IT firms planning to ask at least 58,000 engineers to leave this year.
The top IT firms are still in denial mode and attribute the planned lay off to a 'marginal' increase in the number of poor performers on account of a 'more rigorous' performance evaluation process.
The number is at least twice the employees laid off by the companies last year, reflecting their under-preparedness in adapting to newer technologies and dealing with fallout from US President Donald Trump’s protectionist policies.
The companies include both Indian and multinational firms with a large footprint in India.
The seven companies — Infosys Ltd, Wipro Ltd, Tech Mahindra Ltd, HCL Technologies Ltd, US-based Cognizant Technology Solutions Corp. and DXC Technology Co., and France-based Capgeimini SA —and which together employ 1.24 million people, plan to let go of 4.7% of their workforce in 2017.
Most of them will end the year with fewer employees than they started with, despite continuing to hire young engineers, according to the HR heads at two of the seven companies.
The numbers were collated by Mint after extensive interviews with 22 current and former employees across these seven companies.
Preparing the ground for layoffs, each of these seven companies has already put a higher number of employees on notice by awarding them the lowest ratings. Cognizant has placed more than 15,000 employees in the lowest category (bucket IV), and Infosys placed more than 3,000 senior managers in the category of employees needing improvement.
Some companies are doing more
DXC Technology (the company formed after the merger of the services business of Hewlett Packard Enterprise Co. and Computer Science Corp.) is in the midst of a three-year plan to reduce the number of offices in the country from 50 to 26. The company plans to ask 5.7% or 10,000 of its 175,000 employees in India to leave this year.
All seven companies are still in denial mode and attribute the planned exits to a “marginal” increase in the number of poor performers on account of a “more rigorous” performance evaluation process.
“Cognizant has not conducted any layoffs,” a spokesman said, adding that the performance-based reviews this year are consistent with past ones.
“Our performance management process provides for a bi-annual assessment of performance,” a spokeswoman for Infosys said, declining to share the number of employees asked to leave in the current quarter. “We do this every year and the numbers could vary every performance cycle”
“Performance appraisal may also lead to the separation of some employees from the company and these numbers vary from year to year,” a Wipro spokesperson said.
Spokespersons for Wipro, Infosys, and Capgemini termed the numbers cited in this article, in terms of employees being laid off, as speculative. A DXC spokesperson declined comment. A Tech Mahindra spokesperson said the company “has a process of weeding out bottom performers every year and this year is no different.”
An HCL Technologies spokesperson did not respond to an e-mail seeking comment.
In the past, between 1% and 1.5% of a large Indian IT firm’s employees would be asked to leave every year on account of poor performance. The number was 3% for foreign companies with large Indian operations.
This year, across Indian and foreign companies the range is likely to be 2-6%.
Tata Consultancy Services Ltd (TCS), the largest IT employer with close to 390,000 employees, is not among the companies planning layoffs. A spokeswoman clarified that the company does not have any plans to ask anyone to leave this year.
At the heart of the problem is the fundamental change in the business model that Indian IT companies are wrestling with. It’s as if the world has become digital, and they haven’t (at least, not enough).
“Digital revenue is still less than a fourth of traditional business. Meanwhile, traditional business is slowing. All of us have to re-look at the existing talent pool to make sure it is aligned to future needs,” the head of human resources at one of the seven companies said on condition of anonymity.
As IT companies start working on newer technologies such as cloud computing, they are fast moving from a people-led model, which means they need fewer employees. Meanwhile, many of the IT companies have embraced automation tools do perform the mundane, repeatable tasks that earlier were performed by an army of engineers.
“The entire pyramid structure (organizational structure) is getting disrupted,” the HR head at the first company added.
That speaks of a bigger problem, said an expert.
“What required 50 programmers, analysts or accountants 5 years ago, can be done by a handful of smart thinkers and much smarter systems,” said Phil Fersht, CEO of US-based HfS Research, an outsourcing-research firm. “If I were Prime Minister Narendra Modi, I would be very concerned that a whole workforce generation needs reorienting to address work activities that are growing in demand.”
Poor growth and pressure on profitability has prompted most companies to save on costs. In the year ended March 2017, For the first time since 2009-10, TCS, Infosys and Wipro grew slower than industry body Nasscom’s 8.6% growth in constant currency terms in the year ended March 2017 even as profitability of all the companies declined.
“As employee cost is the single-largest cost for Indian IT companies (52% of revenue for top-5 Indian IT firms, CY16), this has borne the brunt of the cost-cutting pressure,” Sagar Rastogi and Sudheer Guntupalli, analysts at Ambit Capital, wrote in a 5 June note titled “From hiring machines to firing machines.” “As per our channel checks, these steps have already started to hurt employee morale”
“Big is no longer beautiful. When you look at the overheads the Tier 1s are spending on increased onshore staff and facilities, insane travel costs, excessive marketing, and combine this with a flat market, where prices are decreasing, clients (getting) smarter at negotiating, we are staring at a large number of the ‘traditional’ service providers circling the drain to commoditization and eventual revenue decline,” said Fersht of HfS Research,
Trump’s protectionist policies mean more Indian IT companies are asking Indian H1B Visa holders to return home.
Infosys has already announced that it plans to hire 10,000 US citizens over the next two years. Wipro has hired over 2,800 locals over the last 18 months and expects half of its total workforce in the US to be locals by the end of June 2018.
Cognizant, Capgemini, Wipro and Tech Mahindra started letting go of employees in February while Infosys, HCL, and DXC are expected to do so later this month. Most employees being asked to leave are engineers with at least six-eight years experience.
“IT industry grew on the twin premise of talent and mobility. Now both these are being questioned. Because of protectionist policies across the world, we have to go for more localization. And the business requirements of clients are in newer areas such as data analytics. Traditional maintenance work is getting automated. So we are seeing a more stringent appraisal process and more people being asked to go,” the HR head of another of the seven companies said on condition of anonymity.
Courtesy: LiveMint
