With the breakneck speed of hiring in the IT sector that we have been witnessing for the last couple of quarters, there is another number which is going up rapidly – Attrition rate!
Now, for those unfamiliar with term, Attrition rate is the percentage of your employees that leave the organization in a particular year. Its also used interchangeably with employee turnover, though they are slightly different.
Infosys reported an attrition rate of 20.1% for the quarter just gone, compared to 12.8% for the last year – a spike of 60%! That is a very worrying number as it destabilizes your delivery schedule and budgets are thrown out of gear.
Not just Infosys, Wipro also reported an attrition rate of 20.5%, up from 15.5% just 3 months back! And TCS’s, while still low at 11.9, was 8.6 just last quarter.
Long story short – IT sector is seeing a very high churn of employees – almost 1 in 5 employees is leaving their job within 1st year, which is a very worrying situation.
Why is it happening? Primarily because there is a Talent War going on – with the world going online at an exponential pace, IT services’ demand is also growing exponentially. This means the companies are trying much harder to lure away talent from their rivals and IT service companies typically are seen as similar
Now, how does this impact the organization. The 1st impact is that your costs go up – Companies typically spend 1 month’s salary on lateral hires, and 2-3 days salary on freshers. But of course they have to spend many more days on training them. You also have to have a larger proportion of backups (bench), which is again a cost.
Not just that, the hiring process also takes up valuable time of hiring managers for interviews, etc. That is a significant indirect cost.
The 2nd impact is it creates unpredictability – your projections have to have a wide margin, and delivery gets impacted at times if a critical resource leaves and position is not filled in time.
The 3rd, and perhaps a more devastating impact is on the internal morale – how do you build a team when anytime one can walk out? It hits HR practices, hurts team bonding, and if not controlled, can become a downward spiral that will take a long time to control, if ever.
Let me give an illustration – Suppose you have a delivery team for a client project of 50 people, you would expect having to replace 6 people through the course of the year, or 1 every 2 months.
But with 20% attrition, this jumps to 10-11 people in an year or almost one every month. So you are always short on budgeted people, making everyone stretch (and grumble), your hiring costs have doubled from budgeted, and you are no longer the chilled out place you were for the team.
So what can the companies do to counter this? They have 2 possible solutions-
Hire freshers in bulk & train them, which means they can add talent in bulk and also have much greater visibility of talent pipeline. We are already hearing the first – all IT majors like Infy, Wipro, etc have said campus hiring will be ramped up significantly from previously announced plans. How and where they are going to find the freshers, in another challenge though.
The 2nd isAutomation. Today there is so much pressure that a lot of investment is going to find solutions that streamline work or reduce manual inputs. Its not for nothing that a firm like Ally.io gets picked up by Microsoft for a cool 500 million dollars.
Bottomline, Attrition is here to stay for the next year or so, but if it doesn’t abate by then, companies will find solutions which will take away the pain, and the pricing power form talent, again.