The countrys second largest software exporter Infosys reported an attrition of 15.8% in the June quarter, a historical high. So was the case with Wipro where such high attrition rates were last seen when the company emerged out of the dot-com bubble. Most companies are now raising their hiring targets for the year. Indias biggest IT firm TCS plans to hire 40,000 in FY11, 10,000 more than what it had guided earlier. All this is quite an about-turn from a year ago when nobody wanted to jump jobs. As the recession took hold and business volumes dried up, the LIFO (last in, first out) fear gripped the industry; bottom performers were weeded out and many more took pay cuts. IT majors had shrunk their recruitment engine.
But letting many HR folks leave appears counter-productive now, with almost a hockey stick-like curve in the demand environment. The pace of recovery, particularly in Indian ITs biggest revenue geographythe UShas clearly taken firms by surprise. Volume growth at TCS (8.1%), Infosys (6.9%) and Wipro (4.7%) beat all expectations in Q1. Discretionary spending, capped over the last several quarters, is opening up. Many of the discretionary projects demand skills that are in short supply, leading to the now clichd war for talent.
What is the way out of the attrition mess IT firms dont have an answer in the short-term and would rather allow the storm to pass. It could take two quarters, even three. They have already tried most tricks in the bookpromotions, salary hikes, restricted stock units. The IT services industry had long realised that wage inflation, which could erode Indias advantage as an offshoring destination in the future, is not sustainable. Non-linearity is the answerde-link people growth from revenue growth. We have seen early traction in traditional services firms developing IP and solutions they can licence. A decade from now, they could closely resemble software product firms.