IT cos opt for lateral hiring on margin squeeze

Written by Diksha Dutta | Diksha Dutta | Kirtika Suneja | New Delhi | Updated: Jan 29 2011, 06:15am hrs
Even as fresh engineering graduates wait for their offer letters, top IT companies have simultaneously increased lateral hiring for the next fiscal. Dwindling margins, demand for software specialists and the need to increase productivity are driving the trend.

As IT majors focus on just-in-time hiring and utilisation increase, FY 2011-12 is expected to see more of experienced IT employees being recruited along with freshers.

E Balaji, CEO of MaFoi Consulting, a leading HR consulting firm said, Lateral hiring in the IT industry is expected to go up by 16-18% in FY 2011-12. After the first wave of hiring freshers in the previous quarters, companies are now looking at specialists and experienced talent to supervise them. The software industry is expected to hire 400,000 people this year, of which 150,000 will be lateral shifts.

During the third quarter of the current fiscal, the countrys largest software and services firm Tata Consultancy Services (TCS) hired 7,737 laterals in India against 7,598 trainees. The utilisation rate was 83.8% excluding trainees and 77.1% including trainees.

Overall, we would have liked to have more of trainees. But as the demand picked up and there was strong growth, we had to fulfill the requirements and go for lateral hiring. This is because the entire project cannot be staffed with the trainees, said Ajoy Mukherjee, vice-president, head, global human resources, TCS.

At TCS, the ratio has been about 54:46 in favour of laterals and there has been no change in the campuses.

Most of the people are at the lower levels and companies need mid-level managers to manage them. In such cases, utilisation has also increased. However, these lateral hires will be offered higher variable component in their salaries as they come with a bigger price tag, said Alok Shende, principal analyst and founder director, Ascentius Consulting.

Infosys Technologies, the countrys second largest software exporter on the other hand, added 11,067 employees (gross) with a net addition of 5,311 employees. The company broke the industry record in employee referral where over 50% of hiring was through employee referrals.

Utilisation in the countrys second largest IT firm is about 81.9% in Q3 compared to 82.7% in the last quarter.

Amneet Singh, vice-president global sourcing, Everest Research group noted, Utilisation and just-in-time hiring leads to reduced cost pressure. This will help the top players to concentrate on margins and increase their operating profit, which is a challenging task for them right now.

HCL Technologies vice-chairman and CEO Vineet Nayar agrees, We hired 38,000 this calender year. The next two quarters we will concentrate on utilisation rather than hiring. We will focus on lateral hiring and 70-80% of our hiring is of the same nature. We follow just-in-time hiring, which many of our competitors have also started now". He added that the company is planning to maintain the number of freshers at 20% of its work force, which is why it would not go for aggressive campus hiring.

Siddharth Pai, a partner at TPI, a sourcing data and advisory firm concluded, At present, there is a war of market share in the IT industry. Thus, Indian heritage firms are concentrating at hiring laterals, which quickly increases their share. This was the same strategy adopted by multinational firms to tap the overall market when they entered India.