How Indian IT cos are trying to delink revenue growth from hiring
As automation increases and new technologies mature, IT industry will have to look at newer ways to measure productivity, say experts.
The Indian information technology services industry has for long been talking about delinking revenue growth from a proportionate rise in hiring, but as automation increases and new technologies mature, the industry will have to look at newer ways to measure productivity, say experts.
While the numbers show a near-consistent decrease in the number of people hired for every billion dollar added in revenue by the Indian IT outsourcing industry, they do not show a sharp or drastic change.
According to industry body National Association of Software and Services Companies (Nasscom) data, last year the industry hired 17,143 engineers for every dollar billion it earned in export revenue, an increase from the previous year’s hiring of 16,199. This number was 16,868 in fiscal year 2015, and 17,496 in fiscal 2014.
Ideally, the number of people hired per dollar added in IT export revenue should go down each year, if companies are to improve their productivity and have a non-linear growth.
This move towards non-linearity, or decoupling revenue growth from a proportionate headcount growth has been talked about for almost a decade now.
“Non-linear growth is already a fact for the industry. No more do companies measure how many people you need to deliver a particular project,” said Sangeeta Gupta, executive vice president at Nasscom.
The top four Indian IT services companies have also, at different times, spoken about how they are achieving greater productivity through fewer people, and aim for higher profit margins by achieving non-linear growth.
“If you look at the incremental revenue generated in the last five years on a constant currency basis, you will see that it took far fewer additional people compared to the prior five-year period. I think this trend will continue into the future,” notes Ajoy Mukherjee, EVP, Human Resources of Tata Consultancy Services, in the company’s annual report.
Infosys said that last year “revenue per full time employee increased by 1.2 percent as a result of automation, utilisation and productivity improvements”.
Wipro said it aims to drive non-linearity through investments in intellectual property via acquisitions, organically developed platforms and increasing patent filings. “We have a dedicated unit to drive non-linear revenue growth by leveraging IP-based products, platforms and solutions as well as through automation and innovative commercial constructs and delivery models,” it said.
“Though decoupling is not fully in effect, it has started, and as automation and cognitive platforms gain more maturity, the metric of revenue per employee is going to be completely decoupled from the (revenue) projections,” said Rajesh Gupta, Partner, India Operations at Information Services Group (ISG).
However, companies have set some goals to improve revenue-per-employee efficiency that seem difficult to achieve in the near-term.
Infosys, for example, is now looking to revise its goal of reaching revenues of USD 20 billion with a 30 percent margin and the revenue per employee at USD 80,000 by 2020.
While revenue per employee would continue to be a meaningful metric for traditional IT outsourcers for some more time, there could be newer parameters that companies might have to factor in.
“These metrics or these numbers will change based on how many people they have reskilled, how much they have transformed, some of the different types of people they are hiring- data scientists, more intelligent automation, plus a smaller number of highly skilled people, who will be brought in,” added ISG’s Gupta.