Bangalore: Investors looking at the latest financial results of Wipro Ltd, India's third largest software exporter, were surprised at the low level of hiring by the company compared to its peers such as Infosys and Tata Consultancy Services. Was it a knee-jerk reaction to the global financial meltdown or a careful strategy to realign cost structures? They wondered.
Wipro says the slowdown in staff addition is part of a plan to de-link the number of new software professionals to growth in business. Known for a cost-conscious approach under the leadership of Azim Premji, the company is challenging that linear model used by outsourcing companies all these years. Henceforth, the mantra would be to do more with less, a senior Wipro official said.
“There will be a shift in the IT services model,” Pratik Kumar, corporate vice-president for human resources, told Network 18. In a constantly evolving market place, now also hit by the financial crisis, pricing models are changing and so will the cost structure. "Companies have started looking at profitability per employee,” he said.
The company added only 1,895 people to its rolls in the first six months of the financial year 2008-09, compared with 11.321 people in the same period last year. Wipro’s hiring in such small numbers is unusual, but looks like it is working given that revenue and profits in the last two quarters have grown. IT services revenue grew 32 per cent to $2.1 billion even as this hiring squeeze was put in place.
Kumar said widespread salary increases, soaring property rates, rupee volatility and increased commoditization of the offshore business indicate that a revenue model leveraged on the headcount was bringing lower and lower margins. For instance, operating rating margins in Wipro’s global IT business have fallen from 28 per cent in 2003 to 22 per cent last year. Other companies, too, face a similar trend.
Kumar says that Wipro has been trying hard to send the message to analysts that they should no longer link the revenue growth of the company to its headcount growth.
To make the model more efficient, Kumar says managers will have to do “more with less”. The first step in that direction is to bring more people out of the 'bench' and put them on active projects. At the moment utilization rates (not including trainees) are at an all time high of 80 percent in Wipro. Last year, it was at 70 per cent.
Kumar said that the company introduced a scheme which tied in every engineer’s salary to the number of days in the year he was engaged in a project. Those on the bench (or not billed to the client by the company) would lose a part of the salary. At junior levels almost 10 per cent of an employee’s variable part of the salary was linked to his utilization rates.
The move ensured that engineers tried harder to get into project teams. According to Wipro, a 10 per cent jump in utilization in the last one year has added at least 2.5-3 percentage points to its operating margins.
A senior analyst at a Mumbai brokerage firm welcomed the move saying it was time for a re-look at the conventional model. "Two years of a decent operating environment has caused certain inefficiencies in companies. Wipro's utilisation still has space to go up. In tough times like these, you need to have better management of resources. Inner skills have to be developed. What Wipro is doing is actually applicable to all companies. There is no point simply hiring people right now and letting them sit on benches."
The company has made other changes. Sales professionals who bring in projects where a customer only needs 30 employees for a certain skill for a very short period of time do not get the same incentive any more.
The company is also trying out a different model of selling IT services. Instead of only using a time and material (where clients would pay for an engineer’s time and effort) approach, it is now actively seeking work where clients pay the company on the basis of an outcome. For instance, instead of paying Wipro per hour of work, a bank would now pay it for every loan application that Wipro processes.
This kind of work leaves the company free to decide how many employees it would need or from where it would deliver the work, said T. K. Kurien, president of global programs management at Wipro. According to Kurien, 40 per cent of all work done by Wipro’s business process outsourcing operation, is on outcome-based pricing.
IT companies have typically kept three out of 10 programmers on the bench, to be able to staff project teams quickly when orders are won. Wipro's new human resources model could crimp that ability, warn analysts. Kumar admitted that many industry experts and even Wipro employees felt that the new HR model was too aggressive. But he said the company was confident of its ability to ramp up hiring when demand for outsourcing picked up again.
(Mitu Jayashankar is Technology Editor at the new business magazine to be launched by Network 18 in alliance with Forbes, USA. )