Three companies

The challenge

Recently three IT companies were in news for job related issues. Due to the appreciating rupee most of the Indian IT companies are under margin pressures. The way these three companies are responding to the situations shows their character and the underlying message they want to give to the industry and the investors.

Actions

TCS in response to the challenges decided to cut VA of its employees. In addition to that it asked 500 of its non performing employees to look for jobs elsewhere. While responding to the question related to similar condition, Infy replied that if you want to retain talent you need to pay more. While IBM without much noise, conducted tests for its junior staff and removed the under performers. It did not give any number and responded that it is part of their regular appraisal process. TCS also responded that the job cuts are part of regular process.

Response

In most of the capitalist world job cuts are a regular affair and investors take it positively, as a measure to cut costs and increase efficiency, In India everyone has taken it pretty negatively. Investors feel that this is a sign of bad times ahead. The employees affected by these harsh measure have vehemently posted their replies on the various websites. Many of the TCS' past employees reiterated the reasons for leaving the company. Interestingly enough, many of them could not write their posts in decent English. Indian media, specially business news teams, gave many of these news as headlines or breaking news. One channel went on to interview failed employees of IBM and reported that the employees complained that they were not given enough time to prepare etc.

Analysis

Now when one analyzes the actions of each of these companies and tries to read between the lines, it shows the character of these companies, their management and employees. Let's take one by one. TCS' message is loud and clear. All employees are part of the performance and if the performance is bad all are equally responsible. The VA cut is informed to be same percentage across board. About two years back, TCS paid additional EVA to its employees but only the high performers. TCS also first time publicly declared that it had asked its non performers to leave the company. Although it says that it is part of their annual process and goes on to explain that this is just 0.05 % of it's total strength, the message is clear that the non performing employees no longer have place in the organization. TCS traditionally being known as "government like" company, this message is very important. Infy on the other hand is known to be a modern company. It has risen from scratch. Employee retention has been a major challenge for Infy as it is for most of the new companies in Indian IT. TCS on the other hand has enjoyed very low retention rate for years. So it is highly important for these companies to retain their employee base. The statement from Infy is therefore not a surprise. For IBM it is business as usual and it has not given importance to the media or the reports in media.

More about TCS

Me being associated with TCS, has to talk more about it. In last 3 years, TCS has grown to raise it's employee strength to 4 times. This means that there are at least 3 new employees per a seasoned TCSer. I am assuming it takes about 3 years to be mature in an organization and talk about it as your own company.

Now this poses a great challenge for any management to enforce the same values and principles in the organization. Over these three years the recruitment criteria for TCS has also diluted due to strong demand for resources. When you open the gates for all, then obviously there will be all sorts of people coming in. There has to be either a strong filter or a regular review of the intake.

Recruitment today is a very tough task. Due to the lucrative pay package, all sort of people want to join and IT company. Choosing a real good candidate is like finding a needle in haystack. There are already enough filters in the recruitment. Also when you induct such a high number of fresh graduates, it is not possible to strengthen the process any further. For lateral hires this is possible to some extent. However the cost of such filters today is also very high if you consider the loss of business due to opportunity loss. When we look at this, one will realize that applying the filter to the new joinees on a regular basis may be the best option. This indicates that the quarterlies (quarterly appraisals) for new joinees have to be taken very seriously and this process must be strengthened. Today this is left to the project where the new employee has joined. But it may require intervention from HR/ senior management. From this perspective asking non-performers to leave should be a more regular activity in an organization like TCS and it can pick up few things from IBM in this regards.

Continuing on the same lines, the VA in TCS has been stable and assumed to be constant part of the salary till date. Going forward, this should really be a variable. Cutting VA also giving a message to non performers not to assume things. This is kind of a shakeup. In terms of amount, TCS senior management will be the most affected set of people as the percentage of VA in their pay is bit higher than the junior. It will be interesting to see how these people respond to this corporate action in coming quarters. But it is the not so junior employees who will be impacted the most by this decision. Many of them must be recently married, have had purchased a home and car and may be paying heavy loan installment. A lot of these people actually go overboard and take loans more than they can repay. VA is also taken into account while taking loans. Now there is a good chance that many of them will seek better opportunities, whether they like TCS or not due to such financial constraints. This also indicates that there could be a gap in the lower management and these positions have to be filled by someone senior or junior. Will the top management will be able to drive profitability through junior management? Will the middle management be able to take up this additional work? Answers to these questions will decide the future of TCS in coming quarters.

Story of two salesmen

There is one short story about marketing which is relevant in this context. In a candy store, one of the two salesman was always flocked by children. The other guy was hardly selling anything. The manager asked the first one, do you have some magic that attracts the children towards you? The salesman responded, I don’t need magic. What I do is I put less candies in the balance and then top it up for correct weight. The other guy adds more candies and takes out some to adjust the weight. This give the children a feeling that I give more candies than the other.

PS: As this post is getting published, TCS CEO announced that the annual pay hike in TCS would be around 15% despite the cut. Hum ...