Despite sustained pricing pressure throughout financial year 2010-11, the top four Indian IT services exporters have managed to boost their revenue per employee, a gauge of personnel productivity, over the previous year. Infosys, with a revenue per employee of $46,178 in FY11, tops the charts with a 9% growth, followed by Cognizant (6% growth), Wipro (5%) and TCS (4%).
Revenue per employee is an operating metric that is increasingly being monitored as India?s outsourcing industry matures. The rise of FY11 suggests that Indian IT services firms have made advances in their efforts to squeeze more revenue out of each of its employees. It also indicates that Indian firms are automating their systems and processes, re-using technology already created and possibly have started monetising intellectual property (IP). Besides, higher revenue productivity indicates a more efficient bench management strategy.
Revenue per employee had dipped for all the four firms in FY10 as compared to FY09, as the operating environment deteriorated with deep recession cutting across major markets such as the US. While it has improved considerably in FY11, firms such as TCS, Wipro and Cognizant are yet to match up to the revenue productivity levels of FY09. TCS had a revenue per employee of $41,220 in FY11, down from $41,845 in FY09; Wipro has a revenue per employee of $42,660 in FY11 compared to $44,198 in FY09.
The companies, however, clarified that the downtrend has more to do with the offshore mix of business ? as customers wanted rate cuts during the recession, Indian firms aggressively bargained for more offshoring where billing rates were lesser but profitability much higher. ?If offshore leverage goes up on a year-on-year basis, as it steeply did in FY10 (from 44% in FY09 to 51%), then revenue goes down reflecting in the lowered revenue productivity. On the other hand, higher offshore leverage actually increases profitability,? a spokesperson from TCS said. The EBIT per employee of TCS?some consider this to be a superior measure since it also takes into account the cost?have been growing through these three years.
Manish Dugar, CFO of Wipro Technologies, said the firm?s overall billing rates have not changed over the past three years. ?From FY09 to FY11, our onsite rates have increased by 0.9%, while offshore rates dropped by 0.7%. So on a like-on-like basis, our pricing has not dropped. The drop in revenue per person has been driven by the offshore mix, which has increased from 46.9% in FY09 to 48.3% in FY11. We continue to drive offshore mix as we provide value to customers and this does have an impact on revenue per person, while it is a positive on the profitability,? he noted.
Wipro has had a change in business mix over the past three years as well, with the India and the Middle East business growing twice as much as the global business. ?The BPO business has also grown faster than the global IT business. These two businesses operate at inherently lower revenue per person and this has caused an impact at overall level,? Dugar clarified. The fast growing Cognizant consistently beats the other three players when revenue per person is calculated on an average employee basis. Industry watchers said this was probably because Cognizant has a much lesser mix of BPO than the other firms. Infosys, for instance, has 20,000 people in BPO.
All top tier firms now have programmes to help improve productivity by making processes, systems and methodologies more efficient. Cognizant has roled out Cognizant 2.0 that uses groupware technology to enable employees to share project experiences with the objective of improving productivity.