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When the Going gets Tough..
Jaya Smitha Menon
Monday, September 1, 2008
It is well said that when the U.S. sneezes, India catches cold. Nothing could have proved it better than the current scenario in the IT industry which is facing a tough weather since the U.S. economy went into its cyclic recession. They are resorting to various measures to cut costs and firm up the situation. The measures range from slowing hiring, deferring placements, cutting on the variable components in the salary, or even handing out pink slips to serveral hundred employees. Besides the recession, there is yet another peril to the IT Industry—the U.S. elections, which will probably decide the future of many outsourcing companies that concentrate largely on the U.S. market. The new government could take a stand that American Corporations should not outsource to countries like India. Hence the industry is keeping a close watch and is planning every move very cautiously—a lesson learnt from the dotcom bust in 2001.

Layoffs, or is it Fine Tuning? As the industry is cutting the corners to tide over the tough times, there is a big question that is looming in the minds of every techie today— Is the sword of Damocles hanging on my head too? It all started when news on layoffs and retrenchments started hitting newspapers, websites, and channels with a frightening regularity. Never in the past has retrenching excess people or weeding away non-performers caught so much attention. As of now, around 10,000 employees have been laid off after companies like Siemens, TCS, IBM, Hexaware, Keane, Sapient, Yahoo, Lehman Brothers, 24/7 Customer, Magma Design Automation, and others took to the strategy of down-sizing. Market is also agog with names of tier II software services companies laying off people. According to our sources, companies are even asking some of their employees in IT divisions to move over to the BPO segment to avoid being laid off.

When the economy was booming and business was at its peak, companies hired talents in bulk anticipating future needs. But now, as future looks bleak or uncertain, they are reducing the numbers while hiring, and weeding out non-performers. However, it is true that the process of weeding out the non-performing employees was always there, but not in such a large scale. This time, top companies are defending themselves by giving the reason as ‘poor performance’. Moreover, it is a known fact that these IT companies hire after 3 to 5 rounds of interview. “Lay off is not a new phenomenon however, it’s true that it’s happening, but not at the scale it happened during the 2001 dotcom bust. It’s the imbalance between talents - who meet the company’s performance standards and who do not meet - that is pushing companies towards weeding out non-performing ones,” says Dhananjay Bansod, Chief People Officer, Deloitte, India.

Notably, hiring has also slowed down. Now companies are following a just-in-time hiring policy. Earlier, the companies used to hire people on anticipation of adding new clients or projects. Hence 20 to 25 percent of people in the bench were considered normal. But not any more. “Firms are in the process of utilizing their bench strength to the maximum and gain billability,” explains Anshuman Das, Co-Founder and COO, CareerNet Consulting. However, niche skills are still in demand.

Quality hiring is gaining more importance today. “Earlier, companies used to hire candidates who used to meet 50 percent expectations. But now they are insisting on candidates who meet 80 to 90 percent expectations,” explains Ajay Dutt, Vice President, NewEra Consultancy.

Another point worth noting is that when the business was booming, the companies hired talents in thousands without conducting any background check. Hence, many candidates were able to join these companies by putting fake experiences. Interestingly, even recruiters knew the guy was a ‘Fake’ but during that time companies were forced to recruit, as demand was high for experienced professionals. Also, competence wise, ‘Fake’ candidates exhibited equal capabilities to those of genuine candidates. According to a Senior Software Lead in TCS, “All those employees who are suspected ‘Fakes’ are given rigorous performance tests to prove themselves. And they are being targeted to weed out. Also, employees with experience of two years and above across the company who were unable to meet the performance requirements of TCS are asked to look for other jobs”.

However, the saga of cutting the costs doesn’t end with laying off employees in the name of poor performance and fake identity. There is yet another group of people affected by the slow down— the contract employees. According to our sources, IBM has ceased contracts of 4,000 contract employees. Since ceasing of contracts will not be termed as lay off, the company doesn’t have any commitment for employment of contract workers. The heat is felt in the campuses too where placements have received a setback— a rare phenomenon in the last few years.

The Campus Picture
Every year during this season campuses, especially engineering college campuses, will be abuzz with placement activity. But the case this year looks different as campuses wear a deserted look and student community is becoming more and more apprehensive. IT firms are hiring less and offering less as they pick talent from campuses. In some cases, they are even refusing to honor the offers they’ve already made. While the prominent colleges record decent placement figures, it is the tier two and tier three colleges that are affected the most. University of Visvesvaraya College of Engineering Placement Co-ordinator S Gangadhar says, “Companies like IBM Global, HCL Infosystems, and Satyam who turned up last year, have decided to give placements a miss this year.” He points out that companies like MindTree, which hired 55 students last year, have taken in only 10 this year. According to our sources, Tech Mahindra had recruited 111 students from the Noida-based Amity University last year; and the number is down to 20 this year. The category of companies that failed to honor the offer includes companies like Sapient, Scheneider, and IBM.

Usually campus interviews are held between December and June for students in the third year of engineering, and once the students accept the job offers made to them they are not allowed to pitch for another company. When they are through with their exams the next year around June, they start working with the companies. Take the case of Sumit Jain (name changed to protect identity). He is bitter and frustrated. He completed his degree in computer engineering from a tier two college in Bangalore two months back. During his sixth semester he was picked up by Sapient. Life couldn’t have been better for this engineering grad that had filled his days with hopes and dreams of an exciting life ahead. But today, all his hopes are shattered and dreams broken. The company has called off the offer letter. He belongs to that unfortunate class of students whose prospects have turned bleak when the economy turned sour. “It was a shock for me. I don’t have any other offers and the trend suggests it is difficult to get one,” he explains. Jain also points to his classmates who have taken educational loans to study. “They are totally shattered. Some were supposed to turn into breadwinners for their families,” he adds. If Jain and his classmates are worried about the cancellation of offer letters, there is yet another unfortunate group that is still waiting to join the companies that have recruited them but are yet to give the date of joining. Companies like Mindtree, Syntel, Siemens, Accord, Integrra, and Infosys have extended joining dates for students. Hence, students are in a dilemma now.

However, standing out in the crowd, Infosys claims that it plans to hire 25,000 in the current fiscal and among them 18,000 would be hired from campuses across the country. The strategy is to cut per-employee-cost to the company. Freshers come at a much less cost, compared to experienced professionals. Hence, the company plans to hire young grads and train them for 3 to 6 months. This announcement came at a time when many students who are hired are still waiting for joining dates from the IT bellweather.

What irks the students the most is the lack of communication from companies. Companies fearing negative press remarks often avoid communicating the real scenario to the students. “It is a sad thing to tell students that we won’t be able to hire you and it is better you look out for other options. But leaders of such companies should be bold enough to communicate very clearly to the students and the heads of the institutions, rather than giving false hopes” explains C Mahalingam, Executive Vice President and Chief People Officer, Symphony Services.

Some colleges are also helping students find alternative employment opportunities during this period. “We are encouraging students to join the college as guest lecturers”, says Prof. Savitha Konni, Placement Co-ordinator, Sapthagiri College of Engineering. She says that some of them have shown keen interest. In fact, three students have already joined as Placement Co-ordinators”, she adds.

The upside to this story is that students are looking beyond IT as a career. Manufacturing, real estate, and automobile companies that often blame the IT industry for causing talent crunch in other sectors are now finding more and more students willing to join them. Placement officers also claim that this year saw a lot of students opting for non IT sectors.

“I am happy that I took a career in the branch which I studied,” claims Soumya Krishnamoorthy, a structural engineer. “Recently I heard about the woes of my batch mates who joined the IT industry. They fear not only layoffs but also salary cuts and zero hikes,” she adds.

Money Matters During Slow Down
Soumya’s words cannot be dismissed as mere exaggeration in today’s scenario. Layoff is not the only concern for techies today. There is yet another important aspect for them to brood on — salary, which has undergone changes in different ways. Variable pay has assumed greater significance in the pay package with the percentage of variable component in the salary of midlevel and senior level professionals increasing.
Also, in the first quarter of the year came the news of TCS’s decision to cut variable pays of its employees. This set alarm bells ringing among the country’s code-writers, bringing back memories of 2001. TCS said in an email to its employees that it had failed to meet its economic value-added target, which forced it to cut employees’ share from the variable pays linked to the company’s performance. Though at that time the industry officials were quick to dismiss it off as ‘company specific’ and allayed concerns of wage cuts, many companies followed suit in the next quarter. Some companies even gave an option to employees to take a 10 percent wage cut to avoid layoff.
Apart from reduction in the variable component, the salary hikes have also seen much reduction. Companies are taking a cautious approach. As per our data, salary hikes will be moderated around 8-10 percent from the earlier average of 15 percent and this is good for the growth of the industry.

TCS announced a 10 percent salary hike for this fiscal, compared with 10-13 percent in the previous year, while Infosys Technologies offered a 11-13 percent increase against 12-15 percent a year ago. According to our sources, salary hikes for Wipro’s India-based employees in the third quarter are expected to be in the range of 8-9 percent.

“There has to be a moderation in the salary. Sky rocketing salary definitely needs a reality check. Compensation costs have been rising 14-16 percent per annum for a few years and a new balance level has to come in,” says Ganesh Natarajan, CEO of Zensar Technologies.

However, there has been a blessing in disguise for the industry. HR managers, who had to face a huge attrition problem over the last few years, are finally breathing easy. Attrition has come down from 20-30 percent from 30-40 percent in both the IT and ITeS sectors. Infosys’ attrition rate now hovers around 13 percent from the earlier figure of 15 percent.

The scene is now for all to see and judge. After the dizzying growth of almost 10 years, it’s time to pause, reflect, and realign strategies for employers and employees alike. As Mahalingam puts it, “Even though y2k was major concern for the IT companies way back in the late 90’s, the stalwarts in the industry had the insight to understand that once the problem was solved, the industry would certainly flourish. Hence, they invested in retraining and re-skilling resources. Similarly, the current setback in the industry is also temporary. Veterans in the industry should closely watch the evolving trends and accordingly retrain people into different domains and technologies.

Organizations like Nasscom have a key role to play in pursuing the HR challenges and setting the standards in this decisive period rather than hushing it up. According to a recent Nasscom-AT Kearney report, the IT-BPO industry today employs around 2 million people, which is set to increase to 8 million by 2018. As an industry which holds the future of a few million people, the industry should use this period for a meaningful introspection and substantial realignment of its hiring and retention process, instead of resorting to layoff and other harsh measures. As is truly said: Adversity doesn’t build character, but reveals the true one.

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