Human Capital & Careers

India’s Most Wanted IT Talent

As the global competition for IT talent heats up, CFOs on the subcontinent are struggling to stem their losses.
Steven CraneJanuary 1, 2001

It’s a long flight from California’s Silicon Valley to the heart of India’s high-tech corridor. By the time US corporate headhunters emerge at Bangalore’s airport, they’re red-eyed from jet lag and daunted by the heat, the chaos, and the task ahead.

They should be, because their job just got a little harder. Indian companies are using new methods to plug the brain drain that has afflicted the nation’s high-tech industry in recent years. In the last three months, six large Indian IT companies have adopted a technique developed in an American think-tank designed to retain employees in software engineering jobs. Already, Mastek (www.mastek.com), a Bombay software manufacturer, has managed to slow the outflow of its top talent, and others may follow suit. That’s because the stakes are high. On average, the cost of replacing an employee runs at about 120 percent of his or her salary, a devastating sum for a company with annual employee turnover of 15 to 20 percent.

India suffers from this affliction more than other Asian countries for two main reasons. First, its tech companies have scored big successes in terms of innovative products and worldwide sales and profits. Second, its IT workers are English-speaking, computer-savvy, and eager to earn high salaries.

“The war for talent is fought everywhere,” says Delhi-based Pramath Sinha, partner of US-based consultants McKinsey & Co, “but more so here. Five years ago, Indian graduates would trade their life to work for a company like ours. Now, [India is] full of white, bleary-eyed, jet-lagged recruiters from small dot-coms in Idaho to companies like Oracle and Microsoft.”

Senior Indian managers know the problem well. “A well-qualified software engineer with a good background is like the US dollar — basically, he’s good anywhere in the world,” says Aadesh Goyal, vice president and head of HR at Hughes Software Systems (www.hssworld.com), a Delhi-based software design subsidiary of multinational Hughes Electronics Corporation. Hughes suffers a whopping 25 percent yearly turnover, the highest in India, because of the high caliber of its workers.

The US remains the number-one choice for Indian engineers and will likely remain so for a while yet; half of its allotment of the highly prized 115,000 H-1B visas for skilled workers went to Indians in 1999. This year, with the H-1B quota increased to 200,000, Indian tech talent is again expected to grab 50 percent.

The US, while the biggest poacher of Indian talent, isn’t alone. Company and government representatives from Austria to South Korea have set up active recruiting programs in the subcontinent. German IT recruiters are even offering vegetarian food in their incentive packages to induce Indian professionals to take part in the government’s plan to import 20,000 foreign IT workers.

Brain Food

According to many analysts, it’s just a matter of time before those recruiters start targeting other Asian employees. In Hong Kong, Malaysia, and South Korea, where young high-tech companies are sprouting up, CFOs are already concerned about the possibility of losing talented staff to foreign recruiters. All the more reason, then, to look closely at India’s moves to stanch the flow.

India’s current weapon of choice against the brain drain is a technique dubbed the People Capability Maturity Model (P-CMM), developed by the Software Engineering Institute (www.sei.cmu.edu), a unit of Carnegie Mellon University in Pittsburgh. It’s comparable to the Total Quality Management (TQM) rage that took Japanese manufacturing companies by storm in the early 1980s.

P-CMM’s aim is to grade companies according to complex criteria, certifying such “soft” human resources issues as business environment and mobility within the company, as well as “hard” issues such as compensation and accountability. The certification process ranges from levels one to five; five represents the most sophisticated and effective organizations. Mastek is the first company in India to rate a level three from the institute. In the US, only Lockheed Martin, the defense contractor, and the US Army, which struggles to retain high-tech talent on government salaries in its peacetime ranks, have been awarded a level three.

The P-CMM method, in a nutshell, can make a company more dynamic so that in spite of lower salaries or less appealing living conditions, people will want to work there. Though the improvements can often seem intangible or inconsequential, in fact, they are not.

For an employee, improvements in the workplace — such as more responsibility, more ownership of projects, and a greater stake in the company’s long-term financial performance — are substantive. For a CFO, the system allows for a measurable method of continuously upgrading these performance “drivers.” Overall, these improvements help retain employees in two ways: They encourage and reward creativity and foster leadership. They also streamline costs so that the found money can be redirected to incentive compensation.

Says Mastek’s general manager of finance, JB Jussawalla: “CFOs have to view the HR function as materials management. It’s the same as a shortage of material at a plant — if you run out, the entire operation can come to a standstill.” He adds: “P-CMM allows us to improve systems so current staff levels are better utilized and productivity is increased.” He should know. Mastek spent a year fine-tuning its HR processes in pursuit of the P-CMM level-three certification. Jussawalla did this by increasing the investment in training threefold.

Rising profitability, of course, has helped. Mastek’s assistant general manager of human resources, Vijay Kanbur, says that fatter profit margins have led to higher salaries across the board. Thanks to increased global sales, the revenue per employee increased to US$55,500, up 20 percent over the previous fiscal year. Even better, profit after tax per employee jumped 94 percent to US$6,600 over the previous year.

This last figure reveals that the drive for the higher P-CMM certification has prompted a fundamental, companywide change: a focus on adding cost to the measure of employee productivity. To illustrate, Jussawalla compares the performance of two companies, one paying $70 an hour per employee and the other $100. If company A gets only 45 percent utilization and company B gets 90 percent, he points out, company B is creating more value per employee. Since the drive for P-CMM, Jussawalla says: “We look at the total cost per employee, including base and variable pay, office space, telephone costs, machinery depreciation, etc., and track it against billing rates.” He adds: “If manpower costs are rising 25 percent and revenue is rising 10 percent, then you’re in trouble.”

The new focus on higher P-CMM certification has paid off. Kanbar says: “We’ve reduced the attrition rate from a high of 20 percent in the last two to three years to about 15 percent this year, and as low as single digits in some quarters.” In a follow-the-leader scenario reminiscent of TQM in Japan, Mastek has spurred multinationals with operations in India — Oracle, Samsung, and Hughes — to pursue P-CMM level three as well.

Other Indian software companies, including Intelligroup (www.intelligroupasia.com), Datamatics (www.datamatics.com), and Wipro (www.wiproindia.com), have been certified for P-CMM level two. Jussawalla, however, regards such initiatives as P-CMM as a building block toward long-term retention, not a bona fide cure for brain drain. “Poaching is driven by the market,” he says, “the same as corporate profits. It can only be minimized, not eliminated.”

Production for Hughes

Something of the same stoic attitude is in evidence at Delhi’s Hughes Software Systems. The company has the dubious distinction of what is perhaps the highest talent exodus of all: 25 percent. Many gave up valuable stock options — since the company’s IPO on the Bombay Exchange last November, HSS’s shares have risen from the offer price of 630 rupees (US$13) to 3,110 rupees (US$67) — for a passage from India to the US. Part of the problem is that HSS is product-centric, not service-centric like many Indian companies. As a consequence, most of its workforce is based in India, and the chances of a move to an overseas posting are remote. Another reason, says one analyst, is simply that “the quality of people Hughes hires is excellent. They’re in high demand for US companies like Cisco and Intel.”

Like Mastek, HSS is adopting the P-CMM process, targeting level-three certification in 2001. One goal, says Hughes’ Goyal, is to increase employee satisfaction and prevent staff leaving for a lack of challenge, but he knows it won’t be easy; “I’m a believer in market forces. Every country has a big demand for high-tech workers, and a lot of people from India want to work abroad. We can’t stop them. We can only try and minimize the impact,” he says.

For Goyal, that means increasing the time employees stay with the company by concentrating on training, career growth, recognition, compensation and international exposure. Currently, one-quarter of employees that leave Hughes do so in the first year, one-quarter in the second, and one-quarter in the third. “If we can maximize the number that stay through to the third year,” he says, “then turnover should stabilize by the fourth.”

HSS’s vice president and CFO, Vimal Khanna, agrees that managing the company’s human assets is critical to its success. But even with high attrition levels, he says, the business is thriving. “Obviously, managing manpower costs, developing utilization and deployment strategies, and calculating productivity, sales, and revenue streams is time-consuming,” he says. “In other industries, CFOs manage raw material. Here, people are our raw material. In the last eight years, our staff turnover has ranged from 5 to 25 percent, yet we’ve grown our revenue on average 60 percent.”

Xanadu

While the P-CMM technique is just catching on, some Indian companies are seeking to apply some of the same principles without the gloss of academic certification. The attrition rate at Satyam Computer Services (www.satyam.com), a Hyderabad software developer, had an attrition rate of almost 17 percent last quarter. For the last six months, attrition increased 4 percent, mainly because the software industry has had a healthy year. Out of the total lost, 77 percent went overseas. But Satyam has opted for a 360-degree approach to employee retention. Vadlamani Srinivas, CFO at Satyam, says: “Because the human animal is a very difficult animal to handle, we’ve had to give something from all angles.”

Such was the thinking behind the Satyam Technology Center (STC), which cost US$15 million to construct. It encompasses a 120-acre live-in training campus, including dormitories for single employees and villas for the entire family. The slick brochure depicts the grounds as a kind of Xanadu where employees can “please their senses watching the doe dance or gazing at the antics of a variety of exotic birds” at the company’s deer park or aviary.

Skeptics who bristle at the utopian language are missing the point. Satyam’s STC provides a first-world environment within India, offering the basic amenities (a shopping center, laundry services, a pre-nursery school, and a travel desk) and the not so basic (a gym, swimming pool, tennis courts, and a nine-hole golf course).

Satyam’s STC strategy is having some success in reversing the brain drain. One recently hired executive vice-president, Ram Mynampati, joined the company after 21 years working at a US insurance company. “The Indian IT industry is maturing rapidly,” he says, “and provides the right opportunities for nonresident Indians [to return].” But culture, too, played an important role in Mynampati’s return to his motherland. “I also wanted to provide the Indian connection to my children,” he says, “while they are still at an impressionable age.”

Mynampati isn’t alone. “We now have 150 expatriates working in India,” says Srinivas. Adds Hari Thalatalli, Satyam’s head of HR: “With the annual savings of expats and those working at Indian companies almost the same, and a chance to move up the value chain, IT professionals with 10 to 15 years abroad are now finding Indian companies attractive.”

In addition to beefing up training in India, the company has adopted an offshore sites strategy — in Singapore, Tokyo, the US and London — which provides international exposure for Satyam staff. This plan, says Srinivas, helps keep internal staff with overseas ambitions from slipping away. “People can stay and work here or visit the US or UK two or three times a year,” he says.

Providing the right opportunities and environment for staff, however, has cost Satyam a small fortune. The STC, says Srinivas, adds another 8 percent to manpower costs per year (which in total account for 40 percent of turnover). Personnel expenses accounted for the bulk of total expenditure for the quarter, at US$24.2 million out of a total of US$37.9 million, up from US$12.4 million out of US$24.2 million the previous year. With annual revenue growth between 50 and 70 percent, Thalatalli forecasts total staff requirements will more than double to reach 15,000 by 2002.

Fortunately, the growth of the company’s workforce costs virtually mirrors its economic growth. Satyam’s current staff totals about 7,000, with roughly 1,300 added in the last quarter. Compared with the same quarter the previous year, revenue soared 80 percent to US$60.8 million and post-tax profits rose 118 percent to US$14.3 million.

Naturally, that sits well with investors. When subsidiary Satyam Infoway listed on Nasdaq last October, the American depositary receipt (ADR) offering was 25 times oversubscribed. Parent company SCS plans a float of its own ADR in the next few months. With ambitions like that, it’s only a matter of time before Satyam falls into rank with its Indian competitors in the race for a high certification under P-CMM.

Steven Crane is an executive editor of CFO Asia.