India's Next IT Upgrade: To Better Align Employee Performance with RewardsPublished: July 15, 2010 in India Knowledge@Wharton
In early July, Indian information technology (IT) icon Infosys Technologies entered its 30th year. For its employees, this anniversary turned out to be a bonanza: The Infosys Employee Welfare Trust announced that each employee would get five equity shares of the company plus an extra share for every year that the employee had been with the firm. According to Infosys, this is in recognition of the contribution of its employees towards the company's success.
Last month, the company released newspaper advertisements wooing back former Infoscions through what it has called a "green channel" approach, promising a smooth and hassle-free re-entry. (Incidentally, earlier this year Mphasis, the HP-owned IT services company, launched a similar initiative called "Homecoming" to attract its ex-staffers.) "We believe that the Infosys experience lasts beyond one career step, and there is value to both the individual and organization through a second innings," says Nandita Gurjar, senior vice president and group head, human resources, at Infosys.
Once widely hailed for its employee-friendly policies, Infosys has in fact been facing criticism from within its ranks over the past few months. The target of employee ire is the company's Role and Career Enhancement (iRace), a career architecture program rolled out in October last year. Under iRace, there are three main criteria for role mapping: total years of relevant experience that an individual has, past performance and role maturity. Infosys defines "role maturity" as the duration of time spent by the individual in the current role. This is taken as an indicator of the competence of the role-holder since it would typically mean greater exposure, higher on-the-job skill and the necessary expertise required for playing the role successfully.
Infosys says that the objective of iRace is to align the career structure with the organization's business imperatives, its philosophy and employee aspirations, and has moved all of its 100,000 plus employees to this new framework. As a result, a section of the employees were adversely impacted by way of their positions in the organization. Infosys has put together a taskforce to look into employee disgruntlement with iRace and is willing to tweak it if necessary, but the company maintains the new framework is here to stay.
Gurjar, who has been at the eye of the iRace storm, points out that earlier, too, there were conversations around technical competence at Infosys, but it was not enforced strictly because of the high growth environment. "All the noise over iRace is because, in effect, we have told the employees that growth will be slower, promotions will be restricted, there will be lower salary hikes and fewer onsite assignments. But employees need to be aware that the days of 50%-plus growth rate for the industry are over and that this is the new reality," says Gurjar.
Vasanthi Srinivasan, associate professor, organizational behavior and human resources management at the Indian Institute of Management, Bangalore, points out that in a growth environment, activities, roles, jobs and positions all get mixed up and it is necessary that roles and jobs get calibrated every three to four years. "It is a very sensitive and volatile exercise, and the more the scale the more the volatility," she notes.
The New HR Buzzwords
Infosys' stand is reflective of the changing HR dynamics in the Indian IT industry. Earlier, it was all about hiring in large numbers -- during the heydays of the industry, the joke used to be 'trespassers will be recruited' -- and ensuring that employees had enough and more reasons to stay on. Promotions every couple of years and hefty salary increases (in some cases as high as 30%) were the norm. Making the office environment a fun place to work in, with festive celebrations and pizza parties, was also top on the list.
Now, the HR buzzwords are around building competencies, improving performance, increasing productivity and accountability and so on. Ajoyendra Mukherjee, vice president and head, global human resources at India's biggest IT firm, the US$6.3 billion Tata Consultancy Services, notes: "The role of HR has now become more that of a business partner."
According to some analysts, this shift is a result of two factors: one, the recent economic downturn and two, the maturing of the Indian IT industry. The economic downturn saw customers slashing their IT budgets and also becoming more demanding of their IT vendors. Cost optimization became the new mantra. This meant that IT vendors, in turn, have had to run their operations more tightly. With employee costs accounting for the biggest chunk (around 60%) of an IT company's total costs, much of the onus has naturally fallen on the HR teams. During the slowdown, one saw rationalization of teams, just in time hiring, leaner benches, conservative or even zero salary hikes, and trimming of many peripheral employee-related expenses.
While the recovery has gathered pace in the last few months, companies are becoming increasingly conscious that in the globally connected world, the "new normal" will be characterized by business volatility. The ups and downs are going to be more frequent and companies need to learn how best to manage this volatility.
IT organizations have also come to realize that controlling employee related costs can only be part of the solution. If they want to remain ahead in the game, they have to become more relevant to their customers. "The offerings are getting increasingly commoditized, and we can ensure stickiness with our customers only by having a deep understanding of their organization and impacting their bottom line," says Pratik Kumar, corporate vice president, human resources at Wipro Technologies. "In order to do this we need to have a domain and solutions led consulting approach. This requires a different level of skill-set and understanding."
According to some, this thinking is in sync with the maturing of the industry. Earlier, Indian IT firms primarily offered only low-end application development and maintenance services. For this, the organizations needed programmers who could write code fast and without too many errors. The employee pool was largely homogenous and revenue growth was linked directly to the increase in headcount. Over the years, however, IT firms have gradually broadened their service portfolios to include package implementation (enterprise wide resource planning, customer relationship management, etc.,), infrastructure management, business process outsourcing, consulting and other services. As a result, they now need significant numbers of domain experts and architects to solve customers' problems. "With companies offering end-to-end services, the employee profile has been changing radically," says TCS' Mukherjee. "The challenge for HR is to groom and build the organizational capability to take on more value-added engagements. This has only been more enforced during the recent slowdown."
Identifying Prime Talent
According to Wipro's Kumar, with the basic model for creating a large number of warriors and troops in place at most of the Indian IT companies, the differentiator for organizations now will be prime talent. "Prime talent does not mean senior talent. It means people who are relevant to the organization," he says. "There is a now a need and expectation from organizations that employees will invest in learning new competencies and skills." Eighteen months ago, Wipro made it mandatory for employees to take certification tests in order to be eligible for further promotions.
It's a similar story at other IT majors. At TCS, there are four levels of competencies: exposure, experience, expertise and excellence. While these have been in place for some years, Mukherjee says that they have come into sharp focus over the past 18 to 24 months. HCL Technologies continues to stand by its employee-centric "Employee First, Customer Second" philosophy, but the company warns that vanilla skills will no longer be enough. "In August 2008, we told our employees that we would not let go of any people during the slowdown but we made them promise that they would stretch themselves and learn new skills," says D. K. Srivastava, corporate vice president and global head, human resources, at HCL Technologies.
Even Mahindra Satyam, which has been busy coping with the aftermath of its corporate governance scandal of 2009, is now talking of reviving its "Full Lifecycle Leadership" framework. This framework bands the organization into four broad streams -- individual contributors, team leaders, business heads and integrators. This framework was introduced in 2007 but was put on the backburner over the past year and a half.
"Our priority until now has been more to communicate and bond with our associates and to deal with their sense of shock and betrayal. With things stabilizing, we are now working towards building the mindset of a startup. We will now also be refocusing on our Full Lifecycle Leadership framework. Under this employees have to stake their claim as to why they should be considered for the next level based on what they have accomplished in the past and what they can promise for the future," says Hari T, chief people officer and chief marketing officer at Mahindra Satyam.
So while earlier the difference in rewards for the high performers and the others was far less and also more subtle, Indian IT organizations are now making these differences both more stark and more open. Hema Ravichandar, HR advisor and formerly the global head of HR at Infosys, puts it succinctly, "Companies will now move away from being the best employer for all employees to being a better employer for better performers. You cannot have the same policy for everyone."
Ravichandar adds a note of caution: This is a huge mindset change for both the management and the employees, and how well it is executed, she says, will be critical to organizational harmony. "Various aspects like recruitment policies, career framework, competency certificates, key performance indicators, performance management systems, etc., must all be very well laid out. If it is done in a piecemeal manner and, most importantly, without empathy, organizations will run into huge problems."
Srinivasan of IIM-B sees another challenge. Pointing to the 2002 recession, she notes that IT organizations tend to treat employees as "assets" during the growth phase and as "cost" during a slowdown. Many of the internal measures taken during the downturn are quickly forgotten once the external environment improves. Indeed, in recent weeks, companies are again talking of hiring in large numbers and of significant salary hikes of 20% to 40%. "I don't think that this recession was either deep enough or long enough to create an enduring impact on organizations," says Srinivasan. "I don't see any in-depth sustainable learning. They are back to business as usual."
Srinivasan cautions that for long term sustainability, it is imperative that organizations strike a balance between treating employees as cost and as assets. "Indian IT organizations have initiated some very sound measures during the downturn. They must now aggressively implement these in the upturn." Ravichandar agrees: "How well companies embed the lessons learnt during the slowdown as an integral part of their functioning is what will differentiate them in the long run."