Infosys’ Struggle to Retain Resources: How Your Organization May Be Affected

Infosys Check SheetBy many accounts, Infosys’ numbers exceeded their Q4 expectations. Fiscal year 2014 saw revenues of $8.2M, a growth that doubled to 11.5% in US dollar, while the revenues for Q4 grew to $2M, representing a 7.9% year-over-year growth.  Infosys’ net profits were also on the rise, with a year-over-year growth of 9.7% for the quarter, and a growth for the year that reached 1.5%. Such growth was primarily supported by the addition of 92 net new clients (including 53 “million dollar” clients), as well as the execution of 20 cloud and big data deals and 15 mobility deals, resulting from the significant investments Infosys has made in emerging technologies. Overall, and aside from a slight revenue decline from Q3, Infosys’ CEO S.D. Shibulal reinforced in the year-end earnings call a solid year end and a positive company outlook for next year with an estimated 7-9% revenue growth.

The pasture is not as green from a staffing standpoint. If Infosys was able to make a gross addition of 11,000 employees in Q4, and 39,985 during the year as expected, the firm’s ability to retain talent remains in question, with an all-time high attrition rate of 18.7%, up from 16.3% at the end of Q4 2013. Even though retaining resources has been a challenge for many large Indian IT services firms, Infosys’ attrition rate remains higher than major competitors TCS and Wipro, and has now reached a concerning level, according to S.D. Shibulal. In order to derail the negative trend and be able to maintain an established pool of qualified resources, Infosys’s on-going strategy has been to increase staff salaries (in the range of 6-7% for offshore resources and 1-2% for on-site resources) and restructure a variable compensation, as well as give a significant number of promotions to its employees. As S.D. Shibulal stated, “[Infosys] will focus on promoting people inside rather than bringing people from the outside”.

Infosys’ difficulties with staff retention, along with the strategy they are undertaking to resolve the issue, should raise some concerns among the firm’s customers and prospects (in fact, among customers of every large Indian IT services firm). As we have heard from our customers over the past few years, resource availability and continuity are key when it comes to project success. Resource continuity is at the core of a fruitful, stable and rewarding partnership, and most of our clients cite a provider’s ability to assimilate to an organization’s culture as one of the most important factors of a successful IT project. This can only be done through a long-lasting exposure to the ins and outs of a project, along with the knowledge of how an organization functions internally.  A provider’s inability to ensure resource stability can, conversely, have a significant impact on a project’s schedule and costs, but also on the overall quality of the services that are being delivered.

With this, it is critical that organizations take the necessary steps to alleviate unexpected resource related issues, and address the following terms in every contract negotiation or renegotiation with their respective IT services firm:

–  Key Personnel Commitment: Ensure key resources are committed through project completion

Recommendation: Key personnel continuity can be achieved by requiring a contractual commitment from your provider that resources identified as key personnel will not be removed for the duration of the project (for reasons within the provider’s control).

–  Resource Ramp-up: Alleviate the impact unexpected resource departures can have on your project

Recommendation: Upon the unexpected departure of a resource, an efficient and effective transition can be ensured by negotiating a no cost “onboarding” commitment during which the replacement resource will be ramped up and given the level of insight and exposure necessary to be in a position to provide full value once the actual billing of hours commences. The duration of the “onboarding” commitment varies depending on the complexity of the project.

–  Resource Sourcing: Ensure your organization is not subject to unpredictable rate increases

Recommendation: In the event a new or replacement resource needs to be brought into the project and your provider needs to source this resource from a more costly location, resource rate predictability can be achieved by requiring your provider to commit to invoicing your organization at the final negotiated hourly resource rate applicable to the original and less costly location.

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