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A majority of the Fortune 500 companies such as Google, Amazon, JP Morgan Chase and Walmart have large global in-house centers (GICs) for information technology (IT) or have outsourced their IT support to service companies. Hence, high attrition in the Indian IT industry hurts companies across the globe.
2021 is turning out to be a banner year for attrition in the IT industry in India and continues to climb. After a depressed employment market in 2020, this year the average attrition may touch 25% this year.
Why should you pay attention?
More than 1,000 multinational corporations (MNCs) have GICs in India, employing more than 745,000 employees and generating billions in revenue. The Indian IT service industry is a vendor to companies across the world, and, employing 4.6 million employees supporting both domestic and primarily international businesses, the IT industry in India has a global impact.
So, what’s so special about 2021? The global impact of COVID-19 has been seen in the increased pace of digital transformation and NASSCOM estimates that the Indian IT industry will have revenues of $194 billion, excluding eCommerce in fiscal year 2021. More than half of the organizations in the Indian IT industry plan to increase their headcount this current year.
In June 2021, hiring demand by the IT software and services sector was 55% higher than it was in January 2021, and 51% higher than it was in June 2019, according to Naukri JobSpeak, an index of hiring activity across a range of industries in India. India's large IT services and outsourcing companies have also started ramping up recruiting to help fulfil large client orders.
Why is attrition rising? Attrition was lower in 2020 due to a subdued business and employment market. With business and employment opening up, employees, especially those with high demand skills such as cloud engineers, data scientists, cybersecurity officials, artificial intelligence, machine learning, cloud computing, big data and automation are in high demand.
The issue of attrition has become severe enough to affect earnings, and last quarter’s earnings calls included this as a topic. For instance, UB Pravin Rao, chief operating officer at Infosys, said during the earnings call on July 14 that “rising attrition was a concern and the company had gone for multiple employee interventions, including promotions for retaining the workforce.”
Similarly, “with the demand at an all-time high for technology professionals, employee attrition at Accenture is back to pre-pandemic levels in the hot market,” said CEO Julie Sweet during the earnings call on June 24. Many companies, especially those in the IT services sector, do not report attrition of employees who depart in the first three months of joining, which contributes to an understatement of the problem.
The attrition rates at GICs are similar heading higher. GICs offer higher pay packages and better work-life balance and tend to see lower voluntary attrition rates but rates have edged close to 15%.
What can you do about it? The traditional and short-term solutions do help stem attrition to an extent. For example, you can offer salary hikes, retention bonuses, long-term incentive grants, faster promotions and increased notice periods (three months is most common in the industry).
It is easy for competing companies to match the above and provide packages and titles that are more attractive. In the short term, these can help reduce attrition until the rest of the market catches up. Start-ups flush with cash and options and companies setting up new operations are able to provide enhanced packages and it is common for employees to receive offers with up to 100% salary increases.
In the medium term, organization culture programs can provide greater retention and stickiness by improving work-life harmony, providing short- and long-term onsite work opportunities, offering better health care benefits and savings opportunities and implementing employee-friendly policies such as generous leave, for example.
These improvements are difficult to copy and provide higher stickiness, especially for more tenured employees. But IT employees at the beginning of their careers tend to be more mobile and also bring the newest skillset with them. Attrition for employees with up to five years of experience tends to be highest in the industry.
Long-term changes in organizational design can help ensure that your best-skilled staff stay with you and bring their friends too. These are:
- Designing work that provides tech learning opportunities, end to end sight, and variety of roles in new technologies and skills,
- Creating structures that allow for fewer management layers and giving greater control on the outcome to front-line staff,
- Having a strong technical path for growth rather than emphasizing management path for promotions,
- Having an inspirational business goal that employees feel attached to rather than routine work, and
- Having a culture where managers take a personal interest and ownership in supporting career development and provide technical mentorship.
A combination of short-, medium- and long-term programs can help companies deal with the challenges posed by attrition. There are success stories. Start-ups are able to attract through a focus on organizational design programs built on learning and growth, for example, while companies such as Google and Microsoft are able to have 5% to 7% lower attrition through their investment in the above initiatives. The payback of low voluntary attrition in employee morale, lower hiring, training costs, product quality and business results are many times higher than the financial and HR cost of implementing the above programs.
About the Author
Kamna Vij is a partner at TalentResults.