Moneycontrol IT hiring series Part 5: Are we nearing the zero bench period?

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The Indian IT industry generates at least one lakh new jobs a year. But if you think that makes jobs readily available, the reality is different. That is because the industry, which employs more than four million people, has changed the way it hires. Basic skills are no longer in demand, and companies want candidates to be job-ready from day one.

At a time when the sector continues to be on a hiring spree, Moneycontrol looks into what has really changed in the way IT companies recruit. The five-part series looks at each emerging trend with a detailed lens.

Last time N Shivakumar*, a software engineer, was on the bench was over seven years back when he was a fresher and eager to learn. It was a frustrating time.

“I started looking for other jobs during my three-month bench period and was ready to accept the first job I got. Anything felt better than sitting and doing nothing,” he said.

Fast forward to 2019, the number of engineers on bench has reduced significantly. Though this is yet to reach the zero mark, duration on bench has fallen from few months to a few days as companies look to utilise its employees more effectively.

Bench utilisation in IT companies are important at this juncture as digitisation is not only changing the way businesses are conducted but also the hiring process. This change is reflected in bench as well, which was an important factor when they start new projects.

What is bench in IT parlance and why companies want to reduce it?
Bench refers to employees who are not assigned to any project but are on company’s payroll. They are in short kept as reserves by companies on their payroll in anticipation of future projects.

Every year the company sets aside a set of talents for the bench in anticipation of future projects for that fiscal. Supaul Chanda, Business Head, TeamLease Digital, an IT staffing firm, said, “Bench was more like a marketing tool for a company to show clients their project readiness.”

This was six years ago when companies had close to 10-12 percent of their total resources on the bench. However, the cost of maintaining a bench is not yielding sufficient returns anymore. So, the bench strength is coming down significantly.

Yugal Joshi, Vice President, Everest Group, a management consultancy, said, “Bench development is a loss to the provider as those resources aren’t billed but paid. As the digital disruption gains pace, it will be difficult to build bench anyways as the requisite skills won’t be available.”

Another downside is employee attrition. Longer the period an employee is benched, greater is its impact on morale. Nalini N*, who is now a business consultant, said, “I was on bench for close to 10 months. I was afraid that if it were to continue my career graph, it will look bad. I started preparing for CAT (Common Admission Test) and got accepted to an MBA programme.” Gayathri D* started enrolling in technical courses so that she could secure employment in a products company, which she did within a year.

Chanda of TeamLease confirmed, “The attrition rate is pretty high when you keep employees on bench for months. It affects employee morale and the company losses a good worker. No company will want that.” It is one of the reasons why companies want to reduce the people on the bench.

How are companies reducing their bench strength?
IT majors are using different ways to reduce their bench strength. Infosys at the beginning of 2016 started a zero bench initiative to utilise bench resources effectively through a platform called Accelerate. Project managers can post projects details on the platform, which bench resources can work on.

This was to utilise their staff efficiently and help employees transition to the digitisation wave, which saw demand for new age technologies such as artificial intelligence and machine learning.

This is indeed resulting in better utilisation rates. Most IT majors posted a utilisation rate of over 80 percent for the year-ended March 31.

While Infosys has come up with a policy, other companies are doing it internally through regular upskilling of employees and better bench management by faster reassignment of projects to increase their efficiency.

Least bench and high utilisation
Thanks to all these efforts, bench strength is at an all-time low (4-6 percent) and in some cases close to a percent. Resource utilisation is at its highest now.

Utilisation rate a few years back was in the range of 70-75 percent. The ideal rate is 80 percent, by when companies start hiring additional resources in anticipation of future projects.

“At present, companies do not want to add additional resources and are looking to hire based on demand,” a senior IT executive explained. As companies hire based on demand, resources are utilised effectively and your bench strength reduces.

Increasingly, IT majors are also hiring subcontract firms to bridge the gap.

Rise in contract hiringChanda said companies were able to reduce bench strength as they look up to IT staffing firms for contract employees.

Overall subcontracting costs for providers have risen up to 10 percent of total revenue at present from nine percent earlier, according to a market analyst.

However, Chanda said a company’s overall spent is reduced by nine percent when they go in for contract hiring. He explained that while contract hiring comes at increased cost, the company saves on other costs such as hiring, training and maintenance of the bench.

“Also, demand for contract hires have increased over the last couple of years. This means that the turnaround time for projects is less,” he added.

In 80-90 percent of cases, a contract employee gets reassigned to a new project immediately. “Sometimes it takes a week depending on the skill,” he added.

While people with skills such as mainframes, networking and Java secure projects immediately, others with new-age skills such as Python and cloud take longer. “This is because most projects are legacy systems that need mainframe and networking skills,” Chanda added.

In terms of payscale too, contract hires get the same or in most cases earn more than full-time employees. For instance, if a full-time employee with an experience of three years receives a salary of Rs 45,000, a contract employee with the same experience could earn Rs 60,000.

According to a senior leader in an IT staffing firm, “Apart from the pay, employees are also want to experience a challenging and different environment. In a single company, that will never be possible.”

Elaborating further, the senior IT executive said, “As a contract employee you can work on an IBM project one day and move on to Microsoft and Benz. An employee gets to sharpen his existing skills and develop new skills.”

“Employees also realise that at this juncture talent is their only strength and they are willing to take up any projects. Brand name is no longer their priority,” he added.

*Names changed to protect identity

(This is the fifth and final part of the hiring series that looks at how bench has evolved in companies. The fourth part of the series looked at what has really changed in the hiring practices of IT services companies. The first part of the series looked at hackathons being used for hiring, the second part of the series looked at how H-1B visa issues could be a blessing in disguise while the third part looked at skills in demand among IT firms. )