The last two and a half years of the Covid-19 pandemic have brought about unprecedented challenges to human capital managers. On the one hand, human resource desks were hit by the need to take care of the employees physically and mentally even when they were not at their workplace, as health concerns mounted, especially during the brutal second wave of the coronavirus last year. But that was not all. They were then hit by the ‘great resignation’ or attrition, as demand for tech talent catapulted not just within the industry and from startups loaded with cash from venture capital backers, but also from other sectors. Over the last few quarters, the attrition levels only picked up the pace with the top IT firms seeing on average a fifth of their workforce moving out on an annualised basis. This is almost double the level they had a couple of years back.
For Infosys and Wipro, attrition has shrunk to the lowest level in three quarters. While the level peaked for Infosys in the first quarter that ended June 30, for Wipro, this is the second quarter of decline in attrition percentage. HCL, too, seems to have managed to control the resignation drive with its attrition level remaining at the same level as Q1 FY23. But TCS is an exception here.
In many sectors, the great resignation was accelerated due to the need for digital transformation in their processes.
The unprecedented demand led to a war for talent. This reflected both in terms of pay packets and wage bills but more from the attrition as the legacy IT services sector became the favourite hunting ground for tech talent.
Given that the top four Indian IT companies employ nearly 1.5 million people across the globe, this also means almost 3 lakh people are quitting jobs every year from the most prominent software services companies alone.
But there seems to be a silver lining for HR managers, as data shared by the IT firms for the second quarter ended September 30 shows. However, before we dive into that, let’s take a peek at how the top IT firms are scaling their headcount and if there is a trend to be captured.
For starters, the top software service companies seem to be trying to do more without adding an equally big workforce. In other words, they are not adding to their workforce at the same pace as they were in the recent past.
This could be partly due to the concerns about an impending slowdown globally and especially in the US, which is the key market for Indian tech companies, as high inflation due to the war in Europe and associated impact on commodity prices at large leads to tightening of monetary policy. As the US Federal Reserve goes about hiking policy rates to fight unprecedented levels of inflation, it tends to create a disincentive for many forms of business activities including capital expenditure for expansion.
At the same time, firms may be looking to improve their productivity to create better value for their shareholders.
Broadly, as against the previous four quarters when the top IT companies were adding 50,000 or more additional employees to their headcount, the quantum has almost halved last quarter. This is majorly due to Wipro, which added just a few hundred employees as against over 10,000 net additions in the previous quarters. Tata Consultancy Services, the No.1 IT firm, also reported a significant moderation in net additions.
HCL, which had seen a similar though not as dramatic cutback, was an outlier on a sequential basis.
If we compare over the previous year, HCL and Wipro have added over 30,000 people in their ranks while the number for Infosys and TCS is almost twice and thrice, respectively.
As a result, sector behemoth TCS continues to account for around 43% of the total employees among the top four IT majors.
Meanwhile, what comes as a sign of relief for HR managers is that the attrition level, for the most part, is not increasing anymore. For three of the top four companies, attrition levels for IT service personnel for the trailing twelve months have either declined or remained stable on a sequential basis.
For Infosys and Wipro, this has shrunk to the lowest level in three quarters. While the level peaked for Infosys in the first quarter that ended June 30, for Wipro, this is the second quarter of decline in attrition percentage.
But Nilanjan Roy, Chief Financial Officer at Infosys, struck a cautionary note: “While supply-side challenges are gradually abating as reflected in the reducing attrition rates, they continue to exert pressure on our cost structure.”
HCL, too, seems to have managed to control the resignation drive with its attrition level remaining at the same level as Q1 FY23.
But TCS is an exception. Just a year ago the company had said: “TCS’ philosophy of investing in people and its progressive workplace policies have resulted in industry-leading talent retention. IT Services attrition rate (LTM) was at 11.9%, the lowest in the industry.”
To be sure, at 21.5% it continues to enjoy the lowest attrition level but the percentage has almost doubled and what’s more, it continues to be on the ascend.
Milind Lakkad, Chief HR Officer at TCS, said earlier this month: “Our investments in capacity building and organic talent development have allowed us to substantially grow our business ahead of headcount addition this quarter. We believe our quarterly annualized attrition has peaked in Q2 and should see it taper down from this point, while compensation expectations of experienced professionals moderate.”
With normalizing wage expectations and talent supply catching up across the industry, the company expects attrition to start to taper down in the October-March period.
On the flip side, it is notable that the attrition level for the past twelve months for all the top IT companies remained way above the level in the same period a year ago.
India’s biggest IT service companies have returned to their HR strategy in the recent past. If the numbers for the three months to September 30 are anything to go by, the focus seems to have shifted from hoarding talent to driving more productivity from them. This is reflected in the tapering in net additions over the last three months. To be sure, this is also due to the concerns about a global economic slowdown on the horizon.
But the good news for HR managers is that the headache of attrition seems to be dissipating. TCS is an outlier in this regard, with its attrition levels still climbing on a sequential basis. But it, too, expects a tapering down in the coming months.
This comes at a time when the startup ecosystem, one of the new magnets for tech talent has been facing hiccups with venture funding drying up.
Interestingly, the attrition level is peaking at a time when organisations are going back to a physical work environment. Surveys suggest employees are keen on more flexibility in their workspace and would like to avoid a five-day week going forward.
How the HR units manage the employee expectations would be key in how the attrition levels could look in the coming quarters and if indeed they are to go back to the old levels.