Challenges of Indian IT and ITes Services industry

Indian IT and ITes services grew at 38% in 2006-07 as compared to previous year and clocked revenues in excess of 40 billion$ . It is expected to have a CAGR of 18% till 2011 and will have revenues more than 100 billion$. Indian IT is changing the face of Indian economy which also grew at 10% in 2006-07 and it is also developing many millionaires in India. That sounds like a great success story and no doubt it has been a great success and has given a nation a firm position in the global setup.

One wonders how and where this growth is coming from. The answer is outsourcing . Off shoring or outsourcing have become the buzz words with all the global corporations. It is a way of reducing cost by outsourcing work to cheaper locations. Indian IT vendors developed models to make outsourcing a success and provided cheap labour for IT and ITes operations of their global clients. The margins of these IT service players are very high and their growth rate has been envied by other sectors. They have been the favourites of stock market players who have made fortunes from them.

From the above one might conclude that the industry has been shining and will continue to do so in future looking at the impressive projected growth rate. But the sector is undergoing a tough time under this growth. I will mention a few problems faced by the players in this sector.

i.) Resource retention – Indian IT sector has become an HR manager’s nightmare. Their biggest challenge is marinating good people in organisation and keeping the attrition rate in control. With the job market in boom the salaries have been rising at a rate greater than 10% and average attrition rates also have risen in all the organisations of the sector. The demand for good resources is more than the present supply and they are paid premium salaries. The rising cost of people is reducing the profit margins of the companies though the profit has been increasing by leaps and bounds. With many global companies opening up captives in India to reduce their cost of operations the salaries have shot northward and this has augmented the trouble of Indian IT players.

ii.) Lack of trained people- The supply and demand of quality engineers who are capable of working in the IT field is having a huge gap. Companies have started looking for additional options of hiring science graduates and providing them adequate training to enable them to work in IT sector, but still the quality of talent is declining which in turn means lack of quality in work. Companies are struggling to hire new resources and salary war is becoming worse everyday.

iii.) Rising Rupee – Of late rupee has picked up northwards trend and has been strengthening against major currencies of the world. This is impacting the earning of the IT and ITes companies and reducing their profitability. With Reserve Bank and Finance ministry deregulating rupee it is going to be tough for the sector and their profits and earnings might take a hit if the trend continued.

iv.) US slowdown – Most of the revenue of IT and ITes ccompanies comes from US. A slow down in US would impact their growth and it has been a concern with many companies. Despite risk mitigation efforts from the organisations a US slow down would effect them negatively. They are maintaining a huge workforce currently according to the growth and hiring in huge numbers but if there is a slow down then to pay these huge numbers would be a big nightmare for these companies since firing people is not so easy in India.

Cause of varying attrition in the same organisation

I sometimes wonder why the attrition in one department is higher while another department working in the same field has lesser attrition though the policies governing both the departments are the same.
Organisations make performance appraisal system and swear by them that they are reliable. In my blog of 20-70-10 I had mentioned that any appraisal system for 20-70-10 needs to be monitored else it might trigger attrition and the people lost are usually the star performers the people who deserved to be top 20% but were denied the right appraisal.
Leaders under whom the attrition was lower were found to have a close watch on the appraisals of the people on the grass roots and ensured that their direct reports understood the importance of the candid appraisals well. They ensured that the direct reports knew that their appraisal would be directly linked to how effectively they managed the appraisals of their subordinates and how their subordinates understood the relevance of the appraisal system. They also create forums in their own departments in which if someone feels that he/she has not been given fair treatment can bring up the concerns and the issues are investigated and if something has gone wrong then the employee is ensured that he will be treated fairly and the mistake is rectified or appropriate compensation in form of trainings etc are provided. It has been my observation that the comments of appraisers and reviewers are not that detailed enough and in most cases are good job done or needs improvement etc. Such feedback reveals inappropriate appraisal system being in place. The leader should ensure that everyone takes appraisals seriously and the feedback comments are detailed enough and the appraisal discussions are detailed and should always have a road ahead discussion and how the milestones can be achieved. These milestones and road ahead should be fed into the appraisal system so that in the next appraisal they can be tracked and the employee can be rated based on the achievements of those milestones and the goals. The goals should be measurable so that there is accountability on both ends and the appraisal can be justified based on numbers. Leaders who ensure that appraisal system is taken seriously in their departments by everyone have lower attrition rates than those leaders who do not with the same set of rules in other departments. People specially appraisers who are indifferent to the appraisal system and its proper execution should be asked to leave or mend their ways. The reviewers should review the appraisals comprehensively and should have a discussion with both appraisees and the appraiser separately to ensure that right information is captured in the appraisal system. With these checks in place the leaders can ensure that appraisal system is effective in achieving its goals and it would reflect in reduced attrition.

Rewards and Recognition- Where does it go worng

The idea of this blog sparked from a discussion I was having with a few colleagues who had recently attended a reward ceremony and had also won a few rewards. In this blog I would try and elucidate the purpose of rewards and recognitions and what organisations miss while rewarding employees.

When we talk about rewards and recognitions, the first thing that strikes any policy maker or HR’s mind is why should I give rewards to employees and he might question that, “We have an appraisal system and a employee discrimination already in place based on performance and whoever performs well goes into top 20 and gets what he deserves, then why should I formulate a system of rewards and recognitions “. To understand this we need to understand human behaviour, specially that of the top 20 percent of the employees. When an employee achieves something extra from others he needs a pat on the back, i.e an appreciation from the organisation that “We acknowledge the good work you have done and in return we want to reward you for your achievement and we would let everyone in the organisation know that you have done a remarkable job”. If the organisation denies this recognition to him then after some time he would lack motivation to achieve something extra beyond his normal responsibilities. Expecting a reward is a human trait – from a kid to a CEO everyone has it and I don’t think we can deny this fact that after doing something beyond our job or doing some thing good we don’t expect a reward for that. When a child does his school work sooner than his brothers and sisters he expects more time to play from his mother and also a recognition for him in front of his brothers and sisters. When a manager turns around a dead brand, he expects a reward in return from the stake holders and also a communication to the organisation of his efforts,which would differentiate him from other employees. In conclusion, we all expect a reward and organisations should always have a transparent system of rewards and recognition in place to motivate their employees to achieve beyond their roles and raise the bar of performance of employees.

Second question that a policy maker might ask is, “I have a reward and recognition system but it seems to serve no purpose”. In these cases we need to analyse the effectiveness of rewards given in boosting employee morale. In my opinion any reward that doesn’t have fame and monetary benefit for the receiver, will not be able to boost employee morale. Reward is a prestigious possession because it brings fame and monetary benefit, that also are the two things which most humans struggle to achieve. The best awards in the world e.g Nobel prize, Booker prize etc, they all bring global fame and huge prize money. Money and fame clubbed together make these awards coveted.

With the above mentioned factors let’s formulate an effective Reward and Recognition Strategy which should work in most cases.

1. Rewards should be given at all levels of the organisation and employee categories should be defined based on their job function and role.

2. It is a good practice to give rewards for achievements beyond the scope of Job responsibilities and also link the achievement to quantifiable business benefit or organisational benefit.

3. Maintain high level of evaluation standards for the rewards and let the whole organisation know about the high level of evaluation standards for the rewards. If there is no one who qualifies on the evaluation then please ensure that you don’t give it to a non-qualifier. I have seen instances in organisations when awards were presented to receipients who were were non deserving, this might tamper the image of the award and it might not be a coveted possession in future. Hence if there is none who can receive the award then do not give it and let the whole organisation know about this phenomenon. Many would argue that not giving an award is a demotivator but I feel that not giving may increase the level of performance of the employees and it gives them the indication that the organisation is serious about the awards.

4. Please don’t forget to link a reward to a monetary benefit. I remember watching a movie on John Nash called “A Beautiful Mind”. Towards the end of the movie, there was a scene in which the peers of John Nash leave their pens as a mark of honour at his table for his contribution (This seemed like a great recognition in the context of that University, where he taught. Later he received a Nobel Prize which gave him worldwide fame and huge amount of money.) . In this example the recognition was peer recognition hence the value of the recognition cannot be considered but imagine an organisation giving its sales head a pen for overachieving his sales target . It happened at one of the award ceremonies a friend of mine attended; the awards presented were pens. People who received the awards were ashamed of their achievements. Instead of acting as a motivator the award turned out to be a demotivator. Awards should always be linked to monetary benefits and the monetary benefit should be enough to make them coveted.

5. Awards should bestow fame on the recipient. The higher the role of the recipient the higher the fame should be and ensure that the recipient receives the award in a ceremony according to his role and also there is a bulletin that mentions the achievements of the recipients. A monetary award without fame wouldn’t serve its purpose. Just a component added to the salary in award would give some benefit to the recipient but its’ of no use till others know about it. Fame alongwith money would ensure that the two important necessities of any achiever are fulfilled and others would also be motivated to achieve the award, since it brings in coveted benefits.

An effective reward and recognition strategy makes the employees competitive and competition drives excellence. I hope that with the above mentioned 5 points on awards an effective Rewards and Recognition strategy can be formulated.

Employee Discrimination- 20 – 70 – 10 Good or bad?

The topic is debatable and one hears debates on this topic from the boardrooms to the cafeteria’s . I intend to clarify some myths about the discrimination through the next few lines.

Let me first explain what we mean by this 20-70-10 phenomenon. Discrimination of employees based on their performance was first introduced by Jack Welch in his tenure of GE. Top 20 percent of employees are graded as high performers . There is a medium bracket of 70 percent who are average performers and the last bracket of 10 percent of people who are under performers.

Ever since it was introduced by Jack Welch there has been controversy on this discrimination. I will try and explain the benefits of this discrimination.
Discrimination helps the organisation differentiate its winners from averages and losers. The winners have a self sustaining zeal to excel and are the best people in their jobs. They need to be nurtured and given fast growth track. This section of employees excel at everything they do and benefits are reaped by the organisation. They are the people who help organisation differentiate itself in a competitive environment. They are the ones who drive growth in an organisation. When they perform high they expect the organisation to treat them different from others who do not perform brilliantly like them. If not given those perks on their high performance they feel let down and get demotivated. An organisation certainly cannot afford the de-motivation of its growth and high performing engine. Hence I would strongly recommend differentiating the high performers from the others. The organisation grows when these employees are motivated to outperform each other.
Discrimination of employees also enables organisations to identify different training needs of different category of performers. The high performers usually need different training from the rest of the lot and their career path needs are different. The average performers specially the top bracket of 70 percent who are nearly as good as the top 20 percent of performers are the most difficult ones to handle. They need to be motivated by providing the right training that would help them move into the top 20 percent. The managers need to discuss with them their growth plans and be candid in letting them know the value add they bring and the fact that with a little more effort they can make it to the top performing slot. The average middle also needs to be kept motivated by proper training and candid feedback. The average middle is the main bulk of the organisation and no organisation can afford to loose them. Hence they need to be dealt with utmost care.
The lowest 10 percent of under performers need to be watched carefully for their performance because there might be potential winners in them who are under performing due to some reason. The manager’s of such individuals should first check with them the cause of under performance. A special committee should be formed which handles such individuals. It should watch the individuals for two complete cycles of appraisals and should constantly take feedback from the manager and the team mates on the individuals performance. If there is no improvement seen then the organisation should have a transparent policy of employment termination. Under performers should be given a chance but the organisation should not bear their burden if they do not have the potential to pull themselves out of the red and they should soon be terminated . Terminating such employees will give the organisation opportunity to hire fresh talent and provide more benefits to the high performers.
Implementing discrimination alone wont do wonders for the organisation . This policy can be abused very easily by sycophants of bosses. I have seen people misusing it and have been its victim myself( But still I am a strong supporter of it:-)) . The organisation implementing this discrimination needs to ensure that there is a strong appraisal system and there is close watch on the performance appraisals. A grievance cell can be set up to resolve the disabuse in which the appraiser is not involved and third parties evaluate the performers against the upper bracket and if found guilty then the appraiser needs to be questioned and appropriate disciplinary action needs to be taken.
The top 20 continuously raise the bar of performance and the middle 70 try to achieve that new performance. In conclusion the performance levels of the employees rise continuously with discrimination and helps in removing complacency. It is a must in any organisation though the actual numbers can be changed slightly to suit the organisations needs as long the numbers are in concordance with the underlying principle of the discrimination.

Client Retention – Role of Sales, Operations and HR

We all have been a consumer at one time or the other. If we reflect back at our own behaviour as a consumer we would find a trait which can be termed as product evaluation or service evaluation. Whatever we buy starting from a small and inexpensive thing like a soap to a car or services like Banking etc. we always evaluate them once we have done the 1st purchase. Every consumer let it be a housewife or an Investment Bank does an evaluation of the product and services once they buy it. If the product is successful and meets the expectations and the other competitors are not able to showcase the same capability the consumer would become loyal to that product and would keep on buying it. The next few lines would explain the problem of client retention in the services sector.

The Sales teams of services sector usually make impressive sales presentations. The best people from management schools are hired to accomplish this typical task of marketing and sales. It has to be impressive since it is a competitive world and anyone who doesn’t make an impression is shown the door. Hence the sales team offer things in the presentation which they are not even sure of whether they would be able to deliver or not or whether the organisation as a whole has the right competencies to achieve the project. Due to the impressive sales presentations and goodies thrown in to the client the deal is signed off and is passed over to the execution team while the sales team moves on to the next client in order to achieve their aggressive targets.
The client who has signed the deal expects the goodies promised to him in the sales presentation. But is he going to get it?
The Execution team looks for people for the delivery but since the sector is highly competitive they realise that they need to hire more people. But in order to maintain their profitability margins they can’t hire people with the skills promised by the sales team. Ultimately they demand a few people from the HR by giving them the profile they want.
HR is more concerned by the number of people being hired rather than right skill set being hired . So a few people with inapproriate skills are hired and given to the Execution team.
The new as well as old resources find themselves out of the place on the project and neither the promises made to them by HR were fulfilled( Usual practice of HR:-)) . The Execution head tries to keep the morale up by making false promises. the project moves on but the employee morale and skill mismatch take a count on the quality of the things delivered and the project is not delivered according to the client expectations . The organisation failed on the customer evaluation and all the future growth prospects from that customer are lost. Hence a client is lost and linked to that many others are lost who would have chosen the service provider by word of mouth by the client.

If I look into the scenario of events and analyse then it seems that the lack of communication between sales,operations and HR finally cost a client’s repeat business and his good will which in turn would have got other clients. Had the 3 teams worked as one team and made a sales pitch and execution and hiring strategy even before making the sales pitch they would have been aware of the reality and the limit of over promise in sales could have been curbed. The silos and individual working nature of these 3 functions finally failed on the delivery and the customer evaluation. No future business was obtained from the client.

Hence if the intention is to retain a client then the Marketing,Execution and hiring strategy should all be nearly consistent and should be made by collaborating with other teams.

Leader: What it takes to be one?

This is a question which we humans ask very often. What does it take to be a respectful leader of society or corporations. What makes them different from us. What are the necessary Qualities of a leader.
The question was meandering in my mind from sometime and today I feel I have found a few traits of leaders if not all. I would try and elicit the ones I was able to identify and the reasoning why I consider them as a must in every leader.
1. Self-Confidence– I would rate this as the most desirable trait of any leader. You have to believe in yourself and your beliefs and ideas. If you are not confident about yourself then others will be even less confident of you. Your confidence drives your determination to succeed and make things happen. People follow the ones whom they trust. In whose hands they feel safe. If the leader is not confident about himself he cannot give his followers sense of security and confidence that they expect from a leader and they would eventually desert him.
2. Honesty and truthfulness – Many would disagree with me on this trait of a successful leader. There have been leaders in the past who were dishonest. It’s my personal opinion that a leader should be honest and truthful. These two qualities set him apart from the rest of the group. If he could uphold his morals and speak with honesty even in the toughest of times then even God favours such leaders. It might seem more philosophical rather than business acumen to possess these two traits but if we look back at all the great leaders they all were honest and truthful and we still remember them for their greatness. Leadership is not just leading people but it is rising above the rest of the group. A leader is different from the others and these two qualities make him stand out from the group.

3. Vision – Vision for a leader can be related to anything but a leader should possess a vision. Vision can be vision for his team or for his business or for the society but there would be a vision in every leader. Vision drives the actions of a leader and helps him sustain and stick to his goals of vision even in tough times. A leader drives his group towards his vision. If there is no vision then there is nothing he can drive the group towards to and the group would be lead by someone who doesn’t know where he is going which is as good as having no leader. If the leader is not aware of where he is heading then it is very difficult to maintain the group. The group would soon sense the lack of direction from the leader and would start deserting him for someone who has direction and can provide a safer future.

4. Self Driven – This trait is as important as self confidence. A leader should not be driven by external factors like his monetary benefits from a role, the reputed company name or the high post held in a company. Why I am saying this is evident from the fact that the external driving factors may be lost if the times are tough. If the performance of the leader was driven by the external factors then as soon as they are lost so would the performance of a leader and to sum it up the leadership of the leader deterioates. A self driven leader will work for excellence and for his own satifaction. He would guide his team towards success and would be able to motivate them even when the times are tough. If a leader is self driven he would automatically possess high levels of motivation which is an important factor for the success of any leader. A leader who is motivated himself can motivate his team.

What Does a Manager Do

This write up is Based on the article of Henry Mintzberg “The Manager’s Job”.
Since the day Henri Fayol introduced Planning, Organizing,Coordinating and Controlling as the manager’s job the myth has continued till day. In real life do manager’s do all these things. When we see around and look at the daily schedule of managers it can be easily made out that manager’s are more action driven rather than driven by the above mentioned activities. They work at a fast space and are in very rare cases reflective of their actions. They do not invest time in planning and organizing rather their time is spent more in short and brief activities. The work is executed on the basis of spontaneous decisions and not on basis of proper Plan.
The biggest myth about managers is that they use Information Systems to get aggregated data. The fact is that the manager’s of today use only email and social circles to gather information that influences their decisions. Manager’s always keep them informed by using Email and also through peer conversations or by meeting juniors. Time has come that manager’s of today start concentrating on the core functions of a manager so that we have things managed in a better way

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