TCS CEO Says Attrition May Worsen; Doubles Hiring Target
Attrition is rising across the IT services industry, in India and world over. In the July-September quarter, India's largest software services company, Tata Consultancy Services Ltd. said attrition spiked to 11.9%, up over 300 basis points over the preceding quarter. Infosys Ltd. said voluntary attrition rose from 13.9% to 20.1% quarter-on-quarter, Wipro Ltd. also reported 20.5% attrition whereas HCL Technologies saw a much smaller increase—from 11.8 to 15.7% for the same period.
Global peer Accenture Plc., too, reported 19% attrition in the quarter ended August.
While TCS has fared better than most of its local competitors, Rajesh Gopinathan, managing director and chief executive officer, cautions that the number will rise further before tapering off. "We have been at 12-13% and we have had a peak of 16% in the past," Gopinathan said in an interview to BloombergQuint. "But this significant increase quarter on quarter will start tapering off in a couple of quarters."
The rising employee turnover at a time of strong demand has prompted TCS to almost double its hiring target for 2021-22. The company crossed its initial target of 40,000 additions in the first half itself. It now expects to add another 35,000 in the second half, taking the full year hiring to 78,000.
Gopinathan says the company's national qualifier test platform has helped create a large pool of identifiable talent allowing to scale more rapidly than anticipated. "...the digital platform that we’ve created, that's a hugely powerful data set that we have which we are constantly mining. That’s why we are able to, midway through the year, go from 45,000 to 75,000 - because we have the pool available with us."
Its current headcount is 5,28,748 employees.
Menaka Doshi: Your overall hiring for the full year will be more than earlier estimated. At maybe 78,000 in FY22, versus an earlier estimation of what between 40 to 45,000. Talk me through the talent crunch. Is there an opportunity to it? And how does it play into your costs and margins? When do you think it might resolve itself?
Rajesh Gopinathan: When we started speaking about this demand environment about a year back—and we were a counter industry narrative with that—we called out the strong demand environment that we're seeing in the future. We backed it up by increasing our campus hiring. So what we've done is, we had said 45,000 for the year but we onboarded those 45,000 people in the first half itself which gives us the space to onboard more in the second half of the year.
We have taken a very structured approach to that capacity addition in line with our own expectation of demand. We also significantly increased our internal training, and we were the ones who went out and said in the pandemic that we are not going to retrench anybody because we believe that this is a passing phase and these are the people that need to be trained and retained as we go forward.
So, a very strong doubling down on our internal talent, retention of the talent, investment into it and then a very strong hiring on campus, these are all in anticipation of the demand.
Now, parts of the industry did not participate in that and therefore there is the significant crunch that you're currently seeing - that everybody is trying to scramble to meet the demand that is there.
Coming to your point as to how long this will last, probably it'll last a few more quarters till the individual supply chains at each of these levels stabilise with the more longer-term hiring. Till then, this extreme movement will continue.
I would think that by the time we get into the middle of next year, that is Q1 and Q2, a bulk of this would be behind us and we will be in a more stable but elevated attrition.
We are currently at about 11.5% on an LTM (last twelve months) basis. We have been at 12-13% and we have had a peak of 16% in the past. So, in a high demand environment, 12-13% is something that we have seen in the past. But, this significant increase quarter on quarter will start tapering off in a couple of quarters.
Menaka Doshi: You're preparing us for maybe a worse attrition number, but you're hopeful that it will ease in Q1, Q2 of FY23. How does this hurt your ability to maybe achieve the growth that you want?
Rajesh Gopinathan: Again as I said, having spotted the demand opportunity earlier, having invested in that capacity side, currently, the capacity crunch is not yet impacting our growth momentum.
But our bench is getting squeezed with the kind of attrition that we are seeing and it is not a stable one. So, we are offsetting that by more campus hiring and more tactical, lateral hiring that we are doing. So, currently it is not impacting our ability to meet the demand that is immediately with us. But this is something that we need to be very vigilant on and stay on top of it and that's why the 78,000 comes in.
Menaka Doshi: If you wanted to hire more than let's say 78,000 people is there talent available?
Rajesh Gopinathan: Oh absolutely, we're in a good position to hire. 70% of what we are currently hiring, in fact, more than 70%, is coming to us directly.
And, the investments that we have made in the TCS national qualifier test and the platform that we have created, more than 3-3.5 lakh people participate in each of our hiring waves. So, we are still hiring only 1 out of 5, or less, people intending to apply to us.
We have done this in a very digitally transformative way. Even the ones who are near but didn't qualify, we go back to them and share with them the areas where they were short on because they are interested in working for us, we're interested in them and then they use the opportunity to skill themselves. We are very interested in bringing them on. So, the digital platform that we’ve created, that's a hugely powerful data set that we have which we are constantly mining. That’s why we are able to, midway through the year, go from 45,000 to 75,000—because we have the pool available with us.
Menaka Doshi: I'm looking at revenue per employee. Accenture has 6,24,000 employees and a total revenue of $50 billion in FY21. You're at 5,28,748 employees with an estimated total revenue of around $25-26 billion this year. Does that ratio change anytime in the near term, over the next three to five years?
Rajesh Gopinathan: That is not a metric that we target per se. As I said, in most areas you will think of value addition per employee. And, the economic value addition per employee that we have is actually much higher or almost, I would say 70-80% higher than the next largest competitor. That's a more important metric because the key resource for us is the employee and for each employee, are we able to create that economic value? That is the key question for us, and we have built our model to maximise that.
Menaka Doshi: Doesn’t that have a direct linkage to costs—wages or remuneration per employee?
Rajesh Gopinathan: It's a free market. Everybody is in the same space, in the same operating model.
Our focus is to be in the business spaces where the value addition is the most and that's the metric that we are tracking and within that spectrum, we believe that the adjacencies that we're seeking, on the growth and transformation front, will actually continue to help us deliver on that. That's the investment that we are making. So, the metric that we're chasing is a different point.