Sunday, April 24, 2016

IT biggies hit the slow lane on hiring

Increasing use of automation and artificial intelligence seem to have hit hiring in the Indian information technology (IT) services industry, with all the top-tier players hinting at lower recruitments in FY17 and beyond.

Tata Consultancy Services (TCS), India's largest IT services provider and also the largest recruiter in the industry, said lateral hiring for FY17 will go down and, subsequently over the years, campus hiring too will.

N Chandrasekaran, CEO & MD, TCS, in an interview toBusiness Standard said gross hiring for FY17 will decline as the company plans to reduce its lateral hiring. "Improved retention and increased productivity should result in reduced overall hiring next year. We expect around 32,000 trainees to join us from the campus offers made in FY16. Any other lateral addition will be very calibrated, but it will be a much lower figure, compared to FY16."

IT biggies hit the slow lane on hiring

The Indian IT industry is the largest employer of engineers in the country. The total employee base of the industry touched 3.7 million in FY16. Nasscom, the body representing the IT services industry has also hinted towards a low hiring trend. The industry added 200,000 employees in FY16, compared with 230,000 in FY15. For FY17, the industry expects the employee addition to be around 200,000.

The slowing hiring trend is also reflected when one analyses the data for the past five years. The combined headcount growth of the top five IT firms grew at 18-20 per cent year-on-year in FY12 which dropped down to six per cent in FY14 and 11.7 per cent in FY15.

It is not just TCS that is saying its gross hirings will come down. Infosys and Wipro, too, have been hinting at a similar trend over the past few quarters. The drop comes at a time when all three are projecting strong growth for FY17.

Vishal Sikka, CEO, Infosys, who has been talking about automation and design-thinking even as the company aims to increase revenue per employee to $80,000 by 2020 from about $50,000 currently, said: "We want to reshape the cost curve in a purposeful way. We do not just look at it as reduction of people and costs, but as unleashing the potential that is inside. We can bring more innovation per person through zero distance, bench initiatives and marketplace, and increase the revenue per employee."

Infosys expects around 20,000 freshers to join in the June-July timeframe. Pravin Rao, COO, Infosys, said the company wants to leverage the benefits of automation, particularly at a lateral level, and figure out how to do more of just-in-time hiring on a fresher level. "On an average last year, we did lateral hiring of about 2,500-3,000 every quarter (for Infosys standalone), but with more and more full-time employee equivalents being released through automation, and automation benefits kicking in, we would expect to see some part of reduction in the hiring numbers," said Rao.

The commentary from the third largest IT services company is also on similar lines. "It is very simple. The number of people that is required at the lower end of the pyramid is going off. Robots and bots are taking over. You will see a slowdown in hiring across the industry. Also, a lot of work earlier where you were sending people from India to onsite is changing by locally hiring onsite. Even if the company hirings are higher, the number of hirings in India will be lower," said Abidali Neemuchwala, CEO, Wipro.

The shift has been happening for some time now. It's only now that the companies are coming out and saying it. The top five Indian IT vendors (Indian top four + Cognizant) together added 77,265 employees in CY15, a 24 per cent decline year-on-year (YoY). Drop in hiring at Cognizant and HCL Tech contributed a lion's share to the decline. Vendors across the pack are focusing on automation and "we believe FY16 would be an inflection point," said a report from analyst firm Centrum.

Sagar Rastogi, IT analyst, Ambit Capital, said, "You will see revenue per employee for most IT companies trend up gradually. Automation tools now have reached a certain level of maturity, which was not true four-five years ago. Given that a lot of clients have got their first round of cost savings from just offshoring, they are now looking for the second wave of cost-cutting, which specifically comes from automation and code reuse. Improvement in margins from automation though will kick in only from FY18/FY19 onwards and will be gradual in nature."

The other upside to increasing use of automation is moderating the pressure of wage hikes. "Indian IT sector has persistently suffered from higher wage inflation and attrition. With automation enabling improved delivery-efficiency and productivity, the sector could be facing a scenario of lower net additions in FY17/FY18. Hence, an interesting moot point would be whether Indian IT vendors could wield the bargaining power and moderate wage hikes," said the report from Centrum.

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