Thursday, December 27, 2007

Story of a spoilt IT industry

The Indian IT industry is one spoilt industry. An experienced and successful entrepreneur once commented to me that for an industry to grow at a healthy pace, an unemployment rate of higher than 7-8% is needed. I think it makes a lot of sense. In the IT industry today, with manpower being scarce, the focus is merely on retention, hiring policies and compensation. While that does not mean that the industry is not growing at a scorching pace, it does mean that as a group, we are focused on the wrong issues.

Being a service focused industry, the dependence on manpower is inevitable. As such, I think it is a good thing because it generates employment, improves lifestyle and overall helps in GDP growth. But I absolutely despise the fact that the biggest "challenge" that the industry faces is a employee retention. So much time, effort, energy and money is spent on just one aspect of business that we are losing focus of the bigger picture. This trend is especially harmful for the fresh and young graduates who have just joined the industry or have been here for only a few years. Constantly pampered and hailed as the country's saviors, these young IT professionals live with a false sense of security. They start at salaries at which people in other industries retire, switch jobs every few months and in general lead the good life.

While this appears to be a win-win situation for both the workforce and the organization, it unfortunately prepares neither for the long haul. With organizations constantly focused on retaining and hiring employees "at all costs", our price competitiveness in the services industry is bound to suffer. Average salary hikes in the IT industry are in the range of 12-15%. If profit margins have been traditionally pegged at around 30% and billing rates are only going down, its easy to see how this current model is unsustainable in the long run. The answer of course is to move up the value chain, provide higher quality services and innovate. But with most organizations spending all their energy in maintaining headcount, where is the time to strategize and move up the value chain?

The IT workforce is actually getting an even worse deal. Switching jobs usually means a 20%+ rise in salary. Hence, on an average, an IT worker spends less than 2 years at one organization. Consequently, we have a large pool of inexperienced yet expensive workforce. This in turn ill equips IT organizations in India to move up the value chain since the workforce isn't stable and doesn't have enough expertise to add more value in a cost effective way.

The situation doesn't appear grim today because the world economy has been largely on an upswing for the past few years. So there has been enough business for IT companies to grow and thrive in spite of mounting costs and increasing difficulties in retaining employees. The media also paints a rosy picture and loves to glorify the Indian IT story. However, the big question is how well prepared are we for a downturn in economy? Are Indian IT companies prepared to handle an economic slowdown? More importantly, is our IT workforce equipped to face tough times? Are our young Turks taking their profession seriously enough? Are they spending more time on honing their skills and learning the ropes or are they only fretting over pay packages and job interviews? Do they have the maturity to prepare for future market correction?

Only time will tell but till then sorry, we don't have time to innovate!

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