Adding colour to attrition rate reports in IT Services

For close to two decades, IT Services companies have been reporting employee turnover as part of the quarterly results. This is HR and so no one formula is commonly used for arriving at the figure, while on the business side everyone uses same definitions. However, turnover reporting has not changed in all this time. It is either Last twelve months or quarterly annualized.

Recently I came across some reports in the textile industry. A factory can manufacture many counts; A 30 count or a 40 count or a 80 count. Higher the count, finer the yarn quality and lighter it is. A factory may manufacture several counts. So how do you consolidate all that? They have a simple measure called 40s count normalized. Essentially each count consumes a certain amount of material; Convert all that into equivalent of 40s count and share.

This kind of thinking is possible in HR too. Often the HR heads say that our attrition is 14% but our high performer attrition is far less. Or, we are losing people in the 3-5 year category. How do we quantify it ?

1. Use performance premium

Assign a certain weightage to performance distribution. Idea is that the turnover should be far less when the performance is much better. Let us say, we have a 1000 headcount company, which has a distribution of 20%/75% and 5%. Then, let us assign 10 points to the top performers, 5 points to the middle performers and 2 points to the bottom performers. For this company, the weighted distribution will be (200*10+750*5+50*2)=5850. Per person score is 5.8. If a company is doing normal, then the weighted per person score should be equal to this. If they are doing much better, then the score should be low. Suppose the company has a turnover of 10% and lost 100 people. However, this 100, has 10 top performers, 85 middle and 5 bottom performers. Then the performance score of the exiting people = (10*10+85*5+5*2)= 535/100= 5.35.

The turnover quality ratio = 5.35/5.8= 92%. So, the company is losing less high performers and it can be quantitatively shared.

2. Use billing rates and utilization

Are we losing people on bench? Are we losing in premium skills? This can also be quantified.

Let us start with the utilization. The companies have utilization in the 80s. So, we can compare the utilization levels of exiting employees with that of the retained ones. Let us say that our company mentioned above, has a utilization of 83%. And say that of the 100 people who quit, 67 were active. Then, their utilization is 67%. Utilization quality ratio = 67/83 = 80%. This indicates that more people who left were on the bench.

Billing rate can be an even more effective way of calculating the quality of turnover. Suppose $32 is the offshore billing rate of the existing software engineers. We calculate the average billing rate of the employees who are leaving and then arrive at a similar measure. Are we losing people from a higher billing rate or a lower billing rate?

Tenure of attrition

Companies do calculate the average tenure of existing employees. We can do a similar thing for leaving employees and create a ratio. This will say whether we are losing experience at a faster rate or not.

These are some thoughts. If companies can take their existing measures of workforce and create ratios, then it would be good to draw insights in the long run. Or as analysts say, ” Add color” 🙂

BANGALORE A MORE DANGEROUS PLACE TO WORK THAN DHANBAD?

Recently I happened to see a post that had imagined what the Bollywood stars would look like, if they were working in the IT industry. The post essentially showed them as overweight, slouching, unfit people. And the contrast was remarkable.
The problem is real. Consider someone working in an area like Whitefield or Outer Ring Road. 90% of workers
1. COMMUTE AT LEAST 2 HOURS A DAY

Studies show that the longer the commute distances from work, poorer the health. While a lot of Western studies measure commute in terms of distance, in a city like Bangalore commute is in terms of time. People drive/ driven for an hour just to cover a distance of 7-8 kilometers. In a typical week, an employee spends at least 10 hours on the road. Here is one study.

At the same time, it is not unusual to see 8 seater SUVs being driven by a single person without a passenger. Driving increases stress when compared to being driven with risk of road rage!

2. SIT 12 HOURS A DAY

Sitting starts once the transport arrives. 8.30 am. After the commute, breakfast. Then maybe a stand-up meeting, then sit down and code. Take the lift from 3rd floor to 5th floor and back from a sit-down lunch. Sit till 6 pm before the return commute. Then sit in front of the TV to watch The Newshour. So, what is the risk of sitting 12 hours a day? Just refer to this infographic

http://mashable.com/2011/05/09/sitting-down-infographic/

Essentially, it says that people, who sit for more hours, tend to die earlier.

3. LIKE FREE FOOD AND PREFER COMFORT FOOD
I have gone to several companies in the US that are typically operated by a 3rd party. In almost all of them one had healthier eating options like salads, low calorie sandwiches, wraps and so on. In a sense, the food is directed towards the middle age demographic.
On the other hand, the food catered in Bangalore tends to satisfy the 20 somethings. It is not unusual to see an oily subzi, papad and a sweet. That is just 4 days a week. On Fridays, everyone adjourns to the nearest restaurant for a buffet; with heavy emphasis on the desserts! Company get-togethers always have pastries and samosas.
Even more dangerous is the need for “ Comfort food”. People develop the habit of eating evening snacks and other stuff to counter the stress. By nature high sugar, high fat food provides that comfort. More the stress, higher need for high calorie junk, including fruit juices with added sugar.
Given the commute times, the bachelors and newly married couples often have no other dinner option, but to heat up processed foods. Food service companies in turn help to order the best in class tasty dishes. When you can have paneer for dinner, why would you settle for karela?
4. PAY CURSORY ATTENTION TO FITNESS

In my neighborhood, there are 150 restaurants, but just 5 gyms! The ratio between those who eat out and those who work out is probably a 1000 to one. In the companies I had worked, people used the gym. At the same time, not even 10% of the employees have the time to spare for working out.

Given the insane traffic everywhere, nearest anyone can do is to take a walk around their residential complex. More than 90% of the people have never raised their metabolism rate. This in turn weakens their core strength. When the core is weak, the posture is timid.

5.  WORK IN MANUFACTURED COLDNESS AND FLUOROSCENT LIGHTING

Upto the late 90s, companies in Bengaluru followed the classic local architecture. The stone used by Infosys for their first office was the same that was used to build the Vidhan Soudha. Once you have such an office, you would have windows to provide light and ventilation. Air conditioning may be occasionally needed in the peak of summer. Tower fans and the like could help employees get past it.
In the late 90s, companies discovered that buildings can be quickly made by using metal and glass. Glass can provide light to some extent. But necessarily, the buildings needed to be air conditioned. So most employees spend their days in air conditioned offices and live in houses which do not need any AC through the year! Air conditioning again creates an uncomfortable work environment.

Around 15 years back, the Government came out with the SEZ scheme, whereby companies started leasing space instead of building it. Given the financials, builders squeezed in more into floors, never mind daylight. To compensate, companies resorted to bright lighting.

Research shows that people who were exposed to bright light for a long time tended to be far less alert than those who were exposed to ambient light. And every company I visit happily uses blinds to maximize the energy spent on electricity!

https://blog.bufferapp.com/the-science-of-how-room-temperature-and-lighting-affects-our-productivity

Interestingly, even studies focus more on the mental aspects like work pressure. http://www.dnaindia.com/money/report-world-health-day-42-indian-private-sector-employees-face-depression-2075377

Employees in IT in Bangalore face health risks every moment they are awake; commuting, eating, celebrating. Stress is magnified by late night calls, tight schedules and peer pressure.

Amazon is headquartered in Seattle. Amazon India in Bangalore. IBM is headquartered in NY state. IBM India in Bangalore. Accenture has a hub in Chicago. Has a large presence in Bangalore. Goldman Sachs operates out of New York; their captive is in Bangalore. Indian giants like Infosys, Wipro, Flipkart as well as Mindtree, Igate etc. have their bases here. And it is only growing!

Dhanbad has coal mines and violence. Bengaluru on the other hand has a work environment that delivers high blood pressure, diabetes, carpal tunnel syndrome and obesity by the millions. Which is a more dangerous place to work?

RESOURCE ALLOCATION IS NOT GIVING YOU PEOPLE? TRY TALENT DEPLOYMENT!

Was recently chatting with a friend of mine, who works as a program manager in one of India’s giga IT services companies. He was saying that he needs to keep scrambling for people. He also mentioned that the HR functions in his company have great sounding names; Talent Acquisition, Talent Management, Talent Deployment (no Talent Layoff yet, thankfully!) But the work does not get done and the people he gets after all the scrambling cannot be called “Talent” by any stretch of imagination.

When I had started working, “Personnel” was the operating word; Industrial Relations was factory, HRD was OD/ Training and everything else was Personnel. I was pleasantly surprised to be called an Assistant Manager HRD, when joining the IT industry in recruiting. It appeared as if the HRD label was being applied a little more liberally, but why should I complain!

Personnel vanished as it meant “Administration” and HRD took sway; you can do payroll administration and still be called HRD. HR gurus as usual were unhappy with this. Unless you bring in a new framework and model, how to consult? And HR is a fertile field for nomenclatures at least.

McKinsey walked bang into this with their “War for talent”; Talent is a basic English word to which McKinsey gave a new lease of life. Suddenly the messy activity of recruitment became the battlefront of this war. Pudgy mid 40 executives suddenly started thinking of themselves as generals on the battle field. Suddenly Human Resource looked passé’. “People are talent! How can they be called as Resource as if they are oil and gas?”

So Talent became the operating word. Now, we use talent very differently in sports. A talented player is someone who has shown positive signs, but is yet to perform to that level. Take cricket. There are the average players, average players who with hard work perform ( Anil Kumble), talented players ( Rohit Sharma) and talented players who perform. ( Sachin Tendulkar)In sports, talent means a higher potential. ( For a brilliant take-down of the talent paradigm by Malcolm Gladwell go here: http://gladwell.com/the-talent-myth/)

McKinsey also used talent as a marker of high potential and performance. Such people are few and have to be fought for. In parallel, the GE concept of normalization sprung up. Terms like Top talent, Top Vital Talent, Middle Vital talent gained currency.

Recruitment became talent acquisition, resource allocation became talent deployment and employee relations became talent engagement. HR executives were as happy as when I was to be called HRD doing recruitment.

Such name changes seem to happen every 5 years in HR and the conceptual frameworks are supported by product vendors. Today, ERP vendors have done more to popularize talent management terminology than anyone else.

However, mindless adaption creates its own problems. For a long time, Training and Development was sufficient. Then someone figured out, training is what we do; learning is the outcome. So, T&D became L&D. Brilliant. But you go to a review of L&D and the first chart you see will be of person days of training delivered. L&D and all that is fine, but we cannot still figure out the increase in learning; So I will measure training but call myself learning.

Some of this is done in good faith, but sounds like chicanery. Think about this; Sales, continues to be called Sales. They have not gone and renamed themselves as Client Acquisition; There is business development, but it is not Sales. Sales professionals do not feel ashamed of their titles as they know where the power lies. Accounting is accounting and a balance sheet is a balance sheet. It is important without being called Asset deployment sheet or such fancy stuff.

Some of the nomenclature change is driven by a bit of insecurity unlike Sales or Accounting. Some, based on solid principles that are not easily scalable. It is wonderful to look at people as talent or people as human capital. The reorientation of systems and processes is a lot of work; So, we put names and try what we can.

Reminds me of a time I used to go to a restaurant in my younger days. For lunch, we had Gobi Manchurian for a week. Then the waiter offered Gobi 65. Sounded catchy and so I ordered it immediately. To my disappointment, it was the same Gobi Manchurian, rebranded!

Resource Allocation is important. Reengineer the process, identify improvement opportunities and deliver against goals. You will be more of a success and the customer won’t really care if you call yourselves anything. Google calls it “ People Operations” but are still successful.

Keep the same old process and rename glamorously; Customer senses chicanery as the case above.

( I had shared the same article on LinkedIn blogs as well)

THE THREATS FACING BUSINESS PARTNER HR IN INDIAN IT

Long back, Ulrich created this 3 stooled model of operations, centers of excellence and business partner. Consider Hindustan Unilever. They have a foods business, cosmetics business, personal hygiene business and so on. Each has different set up for manufacturing, marketing and often customer profile. There is something different between each business, as would be in a company like L&T.

For a long time, the business partner roles were limited in Indian IT. Anyway, HR was mostly recruitment and compensation. A few sincere people would co-ordinate staffing, and the seasonal appraisals and all was well. However, once the industry moved to a period of incremental growth on a larger base, efficiency measures like goal-setting, normalization, lay-offs became more important needing more senior HR pros. But are they business partners or even HR generalists?

Let us take the Unilever example forward. IT services business can be broadly classified into the following boundaries

• Consulting, technology and business services. Each of this calls for a different workforce.
• India and International; especially the local compliance requirements of each country is somewhat different.
• Centers within India, each with a slightly different, local flavour.

The company may be organized for client facing reasons into BFSI, Retail, Energy and Utilities and so on and workforce allocated accordingly. However, to put it very simply it is about a person creating a presentation, taking a call or coding in front of a machine. The content might vary a little bit based on the domain, but the workforce nature does not change from a vertical to another.

However, most companies had gone with a business partner structure aligned to BU s. This has in turn entrenched a HR to Headcount ratio based organization structure; 1 HR Partner for every 300 employees and so on.  This exposes two lacunae.

• A HRG has limited impact on either an employee’s performance or on engagement. So, the focus is on creating events, one on ones, skip level meetings and so on to find the pulse of employees. HRG can flow information up and down, but can’t decide on anything.
• There is no study which has established a correlation between business partner HR and business performance. I am yet to hear a CEO say “Our retention went up due to our extensive HR partner coverage and competence.”

There used to be a time for the business partner to act as “Eyes and Ears” to the big people telling them about engagement trends. But these days, you have social networks and instant polling facilities that help track this more actively. So, the business partner’s intelligence is limited to

• Employees are not happy/ not unhappy with pay raise except in a few pockets.
• Many employees are going for interviews with this competitor.
• This manager sucks in people management.

In parallel, the IT services companies created “Delivery Management” roles, that essentially added limited value and were more like hubs through which information passed through. Leaders in at least two companies have been making readjustments that seek to eliminate this layer. They could not see a RoI on this investment.

Same logic applies to HRGs who are definitely as sincere and busy as the aforementioned Delivery Managers, but are not in a position to have an impact.

Using a football analogy, the HR BP is like mid-fielders in football; they act as the link between the defenders and the shooters. However, when required, the mid-fielders go back to win the ball or go forward to score a goal. They need more skill-sets than just passing the ball around.

So, what should the BP HR really do?

1. Companies should stop doing this 1:200 ratio and creating work. MNCs are managing to much higher ratios, as they pay well and the work is good; If you don’t do either well, increasing the number of HRGs does not help.
2. There is some scope at the entry level, where a stint as a business partner helps to get an appreciation of business.
3. All businesses have challenges of coaching leaders, bonding teams and improving engagement. The shift needed is

PROBLEM	CURRENT SOLUTION	IDEAL SOLUTION
Manager is bad	Inform leadership	Coach the manager
Team is not working well	Inform L&D	Build the team
Team is not working well	Outing to a resort	Build the team
Appraisals are delayed	Chase like mad to complete	Align process to business needs
Unhappiness with salary	Escalate to management	Understand the business drivers and plot solutions

As you see here, the business partnering needs to be simple, lean and trusted. Business partnering is not passing the ball around, but developing capabilities so that challenges are handled at the local level. Leave event management, follow up to corporate roles and have an impact.

Often the BP HR acts as the trusted confidante to the Delivery leadership, reflecting their thoughts and ingesting their cynicism. A solution oriented approach will prevent the function from sharing the fate of the “Delivery Management”!

Do you follow the Abraham Lincoln rule for HR analytics?

More than a decade back, we had made a presentation to the COO of the company. We had analysed the competency evaluation of employees and created a measure for the competency level for each role. The COO liked it and wanted us to share an example with the CEO the next day. I took with me an example of the competency baseline of ” Customer orientation” for all software engineers. The CEO looked at it and asked a question. ” What is the benefit from doing a baseline on customer orientation of engineers? We should do it for our account managers. For engineers, we should assess programming. It seemed so obvious. Even though we had the data, that particular opportunity was lost to implant a concept at the very top of the organization.

This is where a quote attributed to Abraham Lincoln is very relevant. He is supposed to have said ” When I am getting ready to reason with a man, I spend one third of my time thinking about myself and what I am going to say and two thirds of the time on him and what he is going to say”. After having all the data ready, I should still have put myself in the shoes of the CEO and thought what would make sense for him.

There is data staring at us, wherever we look in HR. Demographics, training, recruitment, appraisals all deliver data streams year on year.Where there are gaps, surveys fill the data. We get so absorbed with consolidating and presenting this data accurately, that we lose track of the Lincoln rule.

Let us consider you are making a presentation to the HR head on attrition. She would definitely be interested in knowing all the details in terms of locations, businesses, gen X, gen y etc. Now assume that you are going to be presenting the same to the CEO.

The CEO expects you to have done due diligence on the data. However, he is not really interested in only knowing the trends, percentages and so on. What he would like to know is whether the measure is on target, how it compares with the industry and the competitors, how existing retention tools are working and whether he needs to do anything else.

While the HR head presentation would have taken an hour, you may not get more than 15 minutes with the CEO. The latter would arguably a more important presentation.

This is where Lincoln’s words ring true. While you may have a wealth of information, that can be attractively presented, you need to put yourself in the shoes of the CEO and see what he wants. Often,companies also know the personality of the leaders and can fine tune the communication to what they are looking for.

Let us take another example. You are presenting to the CFO on a salary revision. CFOs process compensation information very differently. HR would like to know market median, comparatios, attrition due to compensation, % increase etc. CFOs get bored with all that detail.

They would rather like it if you can mention present cost, additional cost added, how much of that additional cost will be in a variable/ performance linked and what results would come out, after incurring the cost. It is even better if you get a sense of your company’s cost of employee benefits in comparison with competitors.

These days, datafication seeks to convert even more information into HR data. HR technology and visualization helps to consolidate and present information attractively.We also talk about strategic mindset etc. Mid level HR executives already spend way too much time collecting, organizing and presenting data.

All that needs to be supported by this simple rule. Know your audience and their drivers and ensure your data aligns your recommendations to what they will be looking for. Rest is detail!

Chutzpah? How Bansals beat out Tata, Birla, Ambani and Bharti in retail

Tata, Birla, Reliance, Bharti. Each a titan in Indian business. Last year, their cumulative turnover was around 235 billion $. They were massive 5 years back as well. Now consider Flipkart, Snapdeal; To name two. They were unknown/ did not exist then. Retailing is what connects them. The conglomerates were into organized retail much earlier before action hotted up in e-commerce.

Each of Tata, Reliance, Birla and Bharti has a retail business. Reliance started with great fanfare a decade back, with the classic HR path. They started 5 companies and poached all their CEOs from retail and FMCG. Tata had a more sober launch with Westside and Croma. Birla had their More stores and Bharti did a high profile tie-up with the granddaddy of all, WalMart.

The businesses did not take off as expected. The rental costs were seen as the first big dampener. Sales per store were not too great and labor productivity is among the lowest. The neighbourhood grocer was proving to be far more resilient than expected. While he/she had a living to make from retail, for all others listed above, retailing was an investment as their core businesses are different.

Today, Reliance is around 2.5 billion $ turnover, Tata (after counting high value Tanishq and Titan) is around the same number.

On the other hand, look at Indian ecommerce.  In a short span of 5 years, a bunch of 30 somethings have built businesses that are half the size of what century old companies have done. Flipkart, Snapdeal etc. are more than 1 billion $. Now the irony.

1. How come 4 of the largest Indian groups, did not even consider ecommerce as a parallel growth initiative? In 2009, Flipkart was 2 young entrepreneurs, while Tata was more than 80 billion $.
2. Indian ecommerce is built on the reach of mobile and broadband. Ecommerce is enabled by a surge in broadband connections that are accessed by computers and phones by the youngest demographic in the world.
3. Who are the leading telecom companies in India?
   1. Bharti Airtel
   2. Vodafone ( who are a pure telecom play)
   3. Idea of Birla
   4. Reliance
   5. Among others Tata Docomo.

Think through this. Bharti makes all its money from telecom, but when it is time to invest in retail, does not even think about ecommerce. Birla and Reliance are conglomerates, who look at telecom and retail as different businesses with different set of problems.

Tata’s story is even more ironic. They not only have a telecom play, but also own TCS, India’s largest IT services company. TCS does nearly $ 1.5 billion business with retail companies. So,

• You have at least 25,000 engineers working with all leading retailers of the world.
• You have your own internet and broadband company.

Still, you don’t make more than a dent in Indian organized retail and ecommerce. It does not take too many smart engineers to start up an ecommerce platform and at least earn from the telecom investments?

It is not even the Silicon Valley paradigm of original product development. By the time Flipkart et al started, Amazon.com had been in operations for more than a decade. Alibaba.com, the marketplace had also been in place for more than a decade. Indian ecommerce is just trying to reproduce those ideas here. Since both are green field ventures, Clayton Christensen’s Innovators Dilemma does not hold good either. Bharti Airtel just needs to believe its own broadband growth to leverage ecommerce. Why would you try unsuccessfully to be Walmart, when you can write your own cheque by becoming the Alibaba of India? An option that is not open to AT&T or Verizon..

What do you do, when a bunch of kids+ VC funding+ imported business model do so much better than India’s revered business houses with their access to McKinsey’s of the world? This reminds me of an exchange between the Ferrari mechanic and Niki Lauda in the movie Rush, based on F1 racing

Niki Lauda: [Testing his Ferrari at Fiorano] It’s terrible. Drives like a pig.

Lauda’s Mechanic: [Offended] Oh, you can’t say that.

Niki Lauda: Why not?

Lauda’s Mechanic: It’s a Ferrari!

Niki Lauda: It’s a ****box! It under-steers like crazy and the weight distribution is a disaster. It’s amazing – all these facilities, and you make a piece of **** like this.

Just how much chutzpah our business houses have?  Or they acquired a halo when cash flow was abundant and will always find it a challenge to really differentiate and compete?

 

 

LTM,YTD and all that; Basic employee turnover calculation

SHRM defines employee turnover, as the “Rate at which employees enter and leave a company in a given fiscal year”. We had discussed headcount and headcount growth. Now, let us focus on headcount turnover or as it is increasingly being called, Attrition.

MEASURING ATTRITION

Unlike the headcount, attrition is always a percentage rate. It is measured in annual, quarterly and monthly intervals, though sometimes companies in high turnover industries track manpower leakage almost on a daily basis.

A simple formula for deriving attrition is:

Attrition rate = Number of employees who quit during an year

Average Headcount for that year

When multiplied by 100, this gives attrition percentage.

It is easy to find the number of employees who quit during any given 12 month period. How do you arrive at the average headcount?

It depends on the degree of accuracy you are looking for. A basic formula would be

Average Headcount = Headcount on 1^st April + Headcount on 31^st March

2

If you need greater resolution,

Average headcount = (Headcount Month 1) + (Headcount Month 2) +… (Headcount Month 12)

12

Headcount of a month is usually calculated by averaging the headcount on the first day of the month and last day of the month.

Month	April	May	June	July	August	Sept	October	Nov	Dec	Jan	Feb	March
Headcount	1200	1250	1270	1450	1475	1550	1625	1660	1650	1700	1725	1750
Exits	15	18	25	45	30	20	10	10	15	18	20	15

What will be the attrition rate by the first method?

Attrition = (241/ 1475) = 16.3%

Now, if we average out the headcount across the year, then the denominator becomes 1525. The attrition rate then is

(241/1525) = 15.8%

We are able to see a 0.5% difference in attrition on the basis of how the averages are arrived at. While there is no right or wrong, any average that considers more sampling is likely to be more accurate.

LTM or YTD?

There are not arcane terms. As far as attrition is concerned, there are two different ways of arriving at an annualized number.

In most companies in India, the fiscal year runs from April to March. On April 1^st of the next year, you will be able to identify the attrition rate for the previous year.

However, business is more dynamic to wait for a year to find out attrition rate. Often, updates are required on a quarterly or monthly basis. Then what do you do?

LTM

LTM stands for Last Twelve Months. In some places, TTM is also used (Trailing twelve months). This works on a rolling rate principle. Suppose we want to know the attrition rate in August. We have only seen 5 months in the fiscal. So, we use the attrition formula for preceding twelve months.

LTM attrition for August 2014 = Number of quits from September 13 to August 14

Average headcount from September 13 to August 14

This is similar to how businesses calculate their revenue run rate. While the company may have done $500 million last fiscal, on the basis of their last twelve months revenue, they say our run rate is 575 million $.

Advantage of going with LTM basis for attrition calculation is that you are always basing it on information available. There are no assumptions being made here.

However, suppose a company wants to set attrition goals for its managers. The going rate is 18% and it wants to bring it down to 15%. So, it sets that all managers should keep attrition at 14%. Appraisals have arrived. How to calibrate the performance of managers?

One way could be to just consider the LTM attrition as of appraisal time. This would include performance over the past 6 months. However, what if you want to only give importance to performance in this fiscal?

Here YTD comes into play.

YTD

Year To Date. One calculates the going attrition rate and extrapolates it for rest of the year.

Let us start with a simple example. Assume that the attrition rate for a company at the end of April is 2%. Then using YTD method, we assume that the attrition for rest of the year also would be 2% per month. Total attrition on an YTD basis, becomes 24%. (Not good for our managers!)

Let us take forward for a quarter

MONTH	INITIAL HEADCOUNT	FINAL HEADCOUNT	ATTRITION
April	800	820	12
May	820	845	10
June	846	866	9

What is the attrition for this quarter?

We see that the average headcount for April, May and June are 810,833 and 856 respectively. Average headcount for the quarter then is, 833. Company lost 31 employees.

Attrition rate for the quarter is (31/833) = 3.7%

On an YTD basis, we extrapolate it for 4 quarters by multiplying by 4. The YTD attrition rate is 14.8%.

This estimation happens to be more conservative way of forecasting attrition. In effect, the company is growing by 22 employees a month, while it is losing at the rate of 10.33 a month. Extrapolating for the year, attrition could be

Annualized attrition = (12*10.33 / 932) = 13.3%

While rate extrapolation is a very quick way of forecasting, we can project headcount growth and attrition and arrive at a more accurate estimate as shown above.

YTD calculation is estimation. However, it is completely based on current environment and does away with any impact from the past or business actions from the previous year.

A usual mistake done by people is to take the rate for a period and state that as the attrition rate. Just taking the rate for a period as that for the year will set us up for shocks in the future. It is always better to estimate the annual rate and then share it accordingly.

Both YTD and LTM have their backers and their uses. It makes sense to be aware of both and use appropriately. YTD is a better measure of short term spikes, while LTM levels out such spikes and presents a more realistic picture.

LIKED THIS? FOR THIS AND MORE INSIGHTS ON THE SUBJECT, YOU CAN BUY THIS BOOK IN INDIA ” Winning on HR Analytics- Leveraging Data For Competitive Advantage” Co-authored by S.Ramesh and Dr.Kuldeep Singh.

 

Is there a better perk than free food? ( Of high quality!)

I had written this a while back and had not posted this. Now I have momentum.

Last week Fast Company devoted time and space to food as a benefit. http://www.fastcompany.com/3035005/the-future-of-work/does-incentivizing-employees-with-free-food-actually-work. Then a friend of mine on Infosys alumni network scanned and posted a copy of the canteen coupon. It got the most likes that I have seen in the recent past. So here it goes!

A lot of companies say that they pay market median salaries. Then, both HR and managers spend a lot of time thinking about what unique benefits other companies are offering and what they can do; There again, there will be a lot of common features and one does not have a real advantage.

Imagine going to a friend’s place for dinner. After all the fine food and conversation, you are about to leave. The friend asks you for a minute and after family discussions, submits a bill to you for the food; what would you think?

In olden days, most companies used to say that they are like a family; while the Public Sector companies had self-contained colonies that brought people together, even in other companies, peers used to hang out together; and the companies invariably had a cafeteria offering subsidized food.

New economy companies started off the same way; However, on the way, the accountants came with an argument;” You pay employees well; You give them annual salary increases; So, why should we pamper such well-paid people, with free food and stuff like that? They can as well incur the expense”

This no doubt is a rational argument; as much as your friend giving a bill to you!

So, when employees come into work, are they

1. Members of an extended family, who are connecting for an important deliverable on a daily basis?
2. Guests to the company’s facility?
3. Paid workers, who are given a salary for doing work, but not anything more?

 

Consider the economics of food; If in IT services, typically it takes 2000 employees to clock revenues of $100 million. The payroll cost typically will be between $55 million to $65 million. And the net profits should be around $15 million.

On an average, it will be a safe bet to assume that it would cost rupees 100 per person to take care of all eating requirements per day. There are 22 working days in a month; Factoring in for holidays, it would approximately cost INR 2000 per month per person. Annual costs would be around rupees 25,000; probably, equivalent to 15 days salary, per person or around 5% of payroll costs. For the company mentioned here, it would be equal to probably 2% of overall costs; Difference between 15% and 17% net profits!

This no doubt is a moderate sized investment; Spend nearly 2% of revenues on an expense, which the employees can very well afford; What does it get in return?

At the same time, companies are not entirely moving to a cost model either; Coffee and tea are still on the house and MNCs also have their well stacked pantries; Annual days, picnics, quarterly outings all contribute towards feel good; Food coupons also try to create additional feel good. But can there be a better feel good than being treated like a guest at your own office?

In reality, the expenses could be less due to absenteeism and other reasons; Execution is an issue; Employees might be working in locations other than the office and ask for cash equivalent; What about employees outside the country? What about employees who work from home? J

A lot of these questions can be answered by just ensuring that meals are location dependent and wherever there are offices, food arrangements will be made; there is another argument; “What business are we in? Software or catering? “ In reality, administration teams still have to ensure catering and parking arrangements across all offices, anyway.

Someone had done an analysis of the cost of Google’s free food program, and estimated in 2008, that it probably costs $20 per employee and around $72 million per annum; Of course, the company earned more than $6 billion that year, and so the program cost just 1.2% of net profits and 0. 3% of revenues. How much goodwill has it earned? Is there a value?

Any company, that makes more than 20% net profits should use food as a strategic benefit; It does become a challenge, when things turn bad; Free food becomes an easy cost to do away with.

But at the same time compare the costs! Any services company, runs at an utilization of 75% on an average; Any given point in time, 25% of the workforce is treated as a business cost; In other words, around 25% of the payroll costs is ploughed into keeping people on the bench; Is 5%, too much for taking care of all employees?

As Larry Page says

How important to you are Google’s wonderful lifestyle perks, from the free food to the massages, for the employee experience you’re trying to design?

I don’t think it’s any of those individual things. It’s important that the company be a family, that people feel that they’re part of the company, and that the company is like a family to them. When you treat people that way, you get better productivity. Rather than really caring what hours you worked, you care about output. We should continue to innovate in our relationship with our employees and figure out the best things we can do for them. We’ve been looking a lot at the health of our people, and making sure we’re helping them stay healthy and quit smoking. Our health care costs have grown a lot less fast than other companies as a result of that. But our people have also been a lot happier and more productive, which is much more important.

Food is old fashioned, paternalistic and could be a susceptible to cost cutting; But in these cynical times, is there anything else that creates a better sense of community? Just make sure of variety and quality 🙂

I WANT TO REDUCE ATTRITION. CAN SOMEBODY POINT ME TO THE SWITCH?

When the revenue is plateauing, see how specific CEOs are. They talk about market conditions, customer decision making, and regulatory constraints. They offer an improvement time horizon, usually 12-18 months.

However, when it comes to attrition, the same CEOs say, “Yes, it is increasing. We are rolling out measures to curtail it”. Typically they refer to some salary increases, promotions and feel good events. If the crisis is acute, a communication blitz is also planned. Unlike business, there is no time horizon shared.

What if a CEO says “Our sales will improve, as we are hiring 100 more salespeople”? That is because he/she knows that is just an approach, not a solution. Why should it be any different for people?

First of all, attrition does increase, when the industry rate of growth increases. Market demand is more and so more people leave. Typically the spike adjusts itself in a couple of quarters.

One big change in entry level workforce is the shift from large campus numbers to a balance across entry level hires with experience and campus. More need for people with some experience, higher the attrition.

Running very large services organizations has its own challenges. Often the programmer ends up feeling like a victim of forces larger than himself/herself. To an outsider, some of the constraints look comical, but they do exist. Check out this video (in Hindi) to get a feel of an average engineer. Life of an average engineer

Market has become more competitive. So, companies end up taking tougher assignments at lower prices, assuming that they will somehow find a way to execute. Often, the execution is at the cost of quality of life. With Agile methodology catching on, the pulls and pressures on individual contributors is higher than ever.

At the same time, the work content itself has become routine. Tools and frameworks, sometime allow engineers to download chunks of code directly from the internet. Challenge is not from content, but from timelines, quality of build and lack of control on domain, technology and location.

Imagine going to a restaurant with friends. Also imagine that the host, instead of appreciating the food and conversation, pulls out a checklist and starts tracking the time taken to serve soup, appetizer, main course and the time taken to finish it! Sadly, we have groomed a generation of project managers who are very good in tracking progress but do not relate to the joy of leading/ managing to an outcome. HR relies heavily on them to engage with people, delivery wants them to deliver on time and finance expects them to meet their numbers. What gives?

In a large, depersonalized environment, employees are more and more keeping trust in their peer group. Outstanding leaders are able to get followers, but average ones are unable to cut through the strength of peer group networks.

We follow a normal distribution for appraisals and benchmark against market median. Automatically, pockets of attrition are created in companies. When demand is high, every employee who has been placed at Q25 seeks and gets an opportunity at another company at P50, that gives a 20% premium on his/her current salary. So, A hires from B, B hires from C and C hires from A. All of them are bringing up the salary of people at P25 of their competitor.

I do not want to paint a pessimistic picture. It is possible to engage with employees through all this. However, each activity creates a limited bounce in engagement and nothing more.

• Big event, communication dos: Feel good for 2-3 days.
• Salary increases: Feel good created by the increase is offset by adverse impact of normalization.
• Promotions: Promoted people feel good; others?

In the short term, attrition can be moderated only by growing the headcount. Any action taken based on a performance rating has a limited impact, as that puts off people with lower rating. If you have money to throw at the problem, will be good to learn from Google’s experiment.

Another major POPS finding concerned how to give an employee more money. In 2010, buffeted by the recession and increasing competition from other companies (especially Facebook), then-CEO Eric Schmidt decided to give all Googlers a raise. It was the job of POPS to determine the best way to offer that increase. The group ran a “conjoint survey” in which it asked employees to choose the best among many competing pay options. For instance, would you rather have $1,000 more in salary or $2,000 as a bonus?

“What we found was that they valued base pay above all,” Setty says. “When we offered a bonus of X, they valued that at what it costs us. But if you give someone a dollar in base pay, they value it at more than a dollar because of the long-term certainty.” In the fall of 2010, Schmidt announced that all Google employees would get a 10 percent salary increase. Setty says Googlers were overjoyed—many people cite that announcement as their single happiest moment at the firm, and Googlegeist numbers that year went through the roof. Attrition to competing companies also declined.

(Full article here.google_people_operations_the_secrets_of_the_world_s_most_scientific_human.html).

But not every company has Google’s cash. An across the board increase might result in a number that satisfies no one! So, one need to indulge in some short term activities and be busy.

However, companies also need to create their own analytical capability so that their CEOs sound convincing when talking about attrition and take a point of view. Appreciation of increase in jobs in the market, locational distribution of headcount, cohorts’ analysis, appraisal stability ratios and compensation inefficiencies will all help.

EMPLOYEE ENGAGEMENT NEEDS CLARITY; NOT COMPLEXITY

In the 80s and early 90s, one used to see a lot of advertisements from Tata Consultancy Services. The company went after engineers who jumped bond and joined an employer in the US. Advertisement in papers, court cases and summons sent to parents were all part of a strategy to threaten potential quitters as well as recoup as much cost as possible from the absconders. This incidentally was very different from the paternalistic, employee welfare orientation that was characteristic of Tata in general. TCS strengths as an employer became more visible, when they aligned their culture with the larger Tata group philosophy.

There is excellent literature on becoming a best employer, but traditional HR approach has focused heavily on the trees. Sadly, the reliance on best practices has also created the confusion. Everyone provides quality of life, freebies, celebrations and increases. However, that keeps everyone clustered around a median. To engage then, requires us to look at the problem from a higher level.

In my view, there are a few models of engagement. Let us take a typical Indian manufacturing firm. It is usually managed by a family/ founder. By choice, the founder uses a welfare based approach. Provide amenities, take care in a crisis, and engage with the family. As long as this is done well, the employee is willing to forego a bit of operational freedom and the founder does not push individual excellence too far. There is job security as long as one does not rock the boat. Employees get canteen food, company transport, and Diwali gift and so on. A company like TVS, when starting a project first fixes the accommodation for engineers and medical facilities  before launching work. Even today, the expectation of employees across the country across all demographics assume paternalistic welfare at its heart.

Such founder led models are common worldwide. Look at any Great Place to work, from Microsoft to Google and you will find the personal touch of a founding group and their philosophies. (Larry Page wants food available at 10 feet from any employee?). Two other elements evolved from this.

First, the impact of the personal values of the founder. On the bizarre side, it might result in Disney employees being clean shaven, but on the other side the HP way was a shining example of an organization practicing a culture of approachability and egalitarianism. Then, Microsoft added a strong flavor of wealth creation for its employees.

This became the second model. A set of eccentric people start up something and offer an informal culture and perks for you to give your best. In return, they could make you a millionaire by 35! The better start-ups were like a premier club, where membership is by invitation only. A start-up over a period of time becomes a founder led welfare oriented company, a little less exciting but still very good to work in. Intel, Cisco, Microsoft all fall into this category.

The third model has its roots in Wall Street. Not for sissies. Very clearly, a culture that has winner takes all and dog eat dog aggression at its heart. Does not bother too much about longevity, engagement and all nice stuff. Make money, earn exceedingly well and enjoy. This aligns well with American individualism and has its backers. In India of course, it has been difficult to transplant the cash compensation oriented culture. One would rather align and comply for incremental benefits, than take a bet on oneself and make it big.

Professionally managed companies form the fourth model.  These are companies with a long history and where the approach is not set by founders. Often, they have long serving CEOs who set the norms and it is dependent on his/her approach to employees that determines whether it is welfare oriented company or not. GE for example went from a paternalistic approach to a diluted Wall Street approach with normalization and other efficiency measures. However, the company is now focusing more on innovation and putting up a gentler face. This is the operating model for a lot of companies; GE, IBM, HP, L&T, Unilever, ITC and so on. There is always an efficiency/ engagement trade-off.

A variant of the professional model is the “Golden Cage” model. You just pay so well, that it becomes difficult for anyone to think of leaving. Employee experience may not be consistent, but given the pay even a dissenter only becomes passive-aggressive. Product company captives use this model in India.

The biggest successes are companies that blend more than one paradigm.

Microsoft: Take the HP paradigm of egalitarianism and add wealth generation to it. Throw in college like campuses for variety.

Google: Take Microsoft approach, but orient it around doing no evil. Refine on benefits like campus food but at the same time, put more emphasis on research, like academia.

Infosys of yore: Take the Indian welfare model and blend it to the egalitarian wealth generation of the US.

Of late, there is a lot of literature on engagement and attempts to solve it at the level of individual employee or the manager. That has in turn led to a proliferation of practices. One on ones with manager? tick; Annual Day? tick. 360 feedback? Tick. Small group interaction with CEO? Tick.

But all these do not add to any noticeable impact on engagement. At least in Indian IT services, the ethos are still paternalistic. We will have normal curve, but everyone will get 100% payout; we will do Job evaluation, but have phantom grades. This duality has been strengthened by the fact that the companies, who really tried to become efficiency plays or dilute Wall Street clones, have not been successful.

Summary? Be clear about what is the chronological evolution and business situation of the company. Then align your engagement programs accordingly. Philosophical clarity is more important than operational correlation. Do you want to go all out and create loyalty for today? Or you want to be an adequate provider so that you may never have to pull back popular benefits?

Unless you have that clarity, what is the point of being unbelievably busy rolling out and tracking programs? Please see the topical article here. While everyone runs their heads off, the best actually walk and figure out their moves! http://www.slate.com/articles/sports/sports_nut/2014/07/lionel_messi_2014_world_cup_the_world_s_best_player_has_figured_out_how.html