Tata Consultancy Services' net headcount reduction in Q3FY23 must be seen in the context of the pandemic's demand spike period in 2021, as well as the trainees it has now deployed, CEO Rajesh Gopinathan said in an interview with Moneycontrol's Chandra R Srikanth. This comes as the company reported its first net headcount decrease in ten quarters amid a challenging demand environment.
According to Gopinathan, the company doubled its typical trainee intake during the quarters of increased demand in the 2021 calendar year.
“In fiscal year 2021, when the industry went through a demand spike, we had called it early that we expect the demand will return strongly by December 2020, and onwards. We significantly increased campus offers and off-campus hiring in the 2021 calendar year. When I say significantly, we had more than doubled our typical intake,” he said, adding that the company invested at the bottom of the pyramid, trained them, and deployed them simultaneously to backfill peak attrition rates.
In the seven quarters preceding FY23, the company’s net addition had increased each quarter to keep pace with the demand.
In Q3FY23, TCS' headcount closed down 2,197 employees from the previous quarter. The last time the headcount addition was in the negative was in Q1FY21, during the first wave of the pandemic. As of December 31, 2022, the company had 6,13,974 employees on its rolls.
Explaining the headcount reduction, Gopinathan said that between December 2021 to December 2022 period, the company had added between 55,000-60,000 employees on a net basis.
In 2021, he said they decided to bring in all their trainees in two quarters rather than spreading it throughout the year, and took in 35,000 freshers, he said.
“We tested whether we'll be able to absorb it, and how does it play out for us? We had done such experiments a couple of years before the pandemic and then went on to a normal cycle. So we knew that we could flex this system,” he said.
He added that headcount growth in 2021 was ahead of revenue growth, and that headcount growth in 2021 and 2022 together is roughly in line with revenue.
However, the period during which TCS doubled its campus hires intake was also marked by elevated attrition levels across the industry.
Gopinathan said that TCS’ approach was that as attrition increased, they must invest at the bottom of the pyramid and train them so that the company has the people available to backfill that attrition.
“At the peak attrition levels, we needed to be much more focused on lateral recruitment to backfill it. But what is really happening is the pool that we hired in calendar 2021, is becoming much more productive. And we are backfilling attrition using that pool, rather than lateral,” he said.
Now, Gopinathan said that they will resume their regular hiring cycle.
Attrition too has begun to moderate. While it was 21.3 percent in Q3FY23 (down from 21.5 percent the previous quarter), the company's management stated that quarterly annualised attrition has decreased by nearly 6%.
The company hired around 7,000 freshers in Q3FY23, taking the total number of freshers hired this fiscal to around 42,000.
Gopinathan said that attrition is not backfilled from the current hiring but from previous hiring, internal resources and lateral hiring.
“As attrition comes into control our ability to backfill attrition with internally trained resources increases. When attrition peaks, you need to backfill laterally. But we are able to do that,” he said.
He added that attrition moderating is important for TCS’ business model.
“It improves operational stability as delivery quality, customer satisfaction, everything is high when attrition is low. It's very critical to our business model, plus the cost benefit of that. When you're doing lateral hiring in a much accelerated manner, price points become unreasonable. Now it is much more rational,” he said.
During the analyst call too, Gopinathan stated that the hiring trend should be more normal from here on, with a gross employee addition of 1.25-1.5 lakh expected for the year. Along with lower attrition rates, he added that this will give the company enough capacity to handle growth, and they can bring in talent on a short-term basis depending on demand.
The company currently has over 1.25 lakh employees at the mid and senior levels who have been with the company on average for over a decade.
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