INFOSYS: CULTURAL AND ORGANIZATIONAL OBSERVATIONS

A company was slowing down. The iconic founder returns. His return boost the troops in the short term, but several contenders for the top slot don’t take kindly and start leaving in hordes. Meanwhile the business is stuck in first gear. Employees are leaving in high numbers too! Where is this headed?

Anyone who has been reading the newspapers would echo this. How much of this is true? Is the issue as simplistic? Based on my past experience and some guessing, I am sharing my views as an outsider. I am trying to take a long term view as against headline view.

Let me first of all; get the attrition bogey out of the way. IT companies operate with bench strength of 20% to 25%. As long as you are able to backfill positions preferably at a lower cost, attrition per se does not hurt business. As the company spokesmen have been rightly saying, increasing revenues is the only challenge. This will fix attrition as well. What observers miss is also that while attrition has gone up by 4% points, the utilization is also up 4%.

Infosys had a vision being a “globally respected” company; by 2007, it had become true. The size was not big by Fortune 500 standards, but people like Tom Peters were gushing about the company. So what slowed the company down? Within the same operating framework, how did Infosys BPO do so well?

1.WEALTH GENERATION BY 1994 ESOP

No other company in India has generated as much wealth for the rank and file as Infosys did. However the asymmetric rewards benefitted a group of people, who had either moved out or continued to slug it out. At the same time, people who had joined from outside and were holding significant roles had not benefited from it. This created subterranean stress on leadership. To address this, the salaries of senior executives underwent a quantum increase. Infosys created a structure that would pay upward of 60-70 lakhs per annum to person in senior management.

2.VERTICALIZATION WITH  DUPLICATION OF STRUCTURES

Fundamentally, IT services are a simple business. You either consult or program and get billed. In this, verticalization is a go to market strategy. However Infosys took it deeper and embedded vertical knowledge and certifications all the way to software engineers. Unfortunately in parallel several headcount based leadership roles got created. Each vertical had its own sales head, delivery head, consulting head, HR head and so on. Then they duplicated a management structure for themselves.  The core problems were all horizontal; it is not as if there is great difference between delivery in Insurance and in Consumer for instance. However the management spread got created and the cost of management increased.

3.DECEPTIVE COMPENSATION STRUCTURES

The compensation structures got created in good times baking in a lot of variability. However, from 2008-11 times were indifferent. People who had a 1 crore compensation ended up taking home 50%-60% of that.  Leadership levels started getting disengaged and felt cheated. So, a compensation program with a good intent, ended up putting off a lot of people as it was not aligned with a structure that was bloated. It would have been easier to reward transformational roles well than transactional roles badly and impact the high performers as well. The company should have corrected this as it came out of the slowdown. Unfortunately it ended up taking actions elsewhere that cut to the bone. What did the company do to protect margins?

4.OVERDO MINING AND UNDERPLAY  CORPORATE FUNCTIONS

Infosys reputation was built on having the best sales function and being the best employer.  Aggressive sales people and engaged employees delivered best in class margins. However, the company started looking at margins, without considering the other two; Sales as a function was allowed to drift. Focus shifted to easier dollars from mining. In addition while functions like business HR became bigger, corporate functions like immigration etc. were understaffed with disastrous results. In the meanwhile the company lost its sales people in waves, to HCL and then to Wipro. Fresh insights even in corporate functions was blocked with delivery leaders playing all corporate roles.

5.CEO CHANGE AS A SPECTATOR SPORT

Infosys was the fastest growing IT services company in 2007. It has had just 2 CEOs in the last 26 years. Could anyone have guessed that an industry bellwether would go through 4 CEOs in the next 8 years?  To put in perspective, IBM has been through 3 CEOs in 20 years and GE in 55 years!  A CEO should be able to summarize the external world to the organization and the organization to clients. Nandan was great at it. Moreover, this also showed the first signal of giving more weight to internal issues than to the market.

6.MISALIGNED STRATEGY

Infy+ strategy of the early part of last decade was to become another Accenture. Investments were made in consulting and were paying some results. However the company was content with incremental investments into consulting and did not go whole hog at it; In the meanwhile the window of consulting led transformation suddenly became small with the 2008 slowdown. By 2012, the strategy had become one of using tools and platforms to magnify impact. Again some good wins, but was the investment deep enough to put a barrier between competitors and Infosys? Or was it always like trying to run a fine continental restaurant with Sagar hotel controls?

7.UNDERLEVERAGED INVESTMENTS

SET Labs was created in 2000 to focus on engineering advancement. Leadership institute was created in 2001. One is not sure how much the leadership in these places felt valued. But nevertheless the former would have cost at least 50 million $ totally and the latter at least $10 million. What were the returns? Compare with E&R, who would have produced an incredible RoI by converting  lakh+ fresh engineers to billable ones. How could the company not have differentiated on cloud or social with such a big investment? Some of these are being unraveled now, but for far too long the RoI was being questioned at the line item level forgetting the bigger picture. 

8.MISMANAGING THE AFTERMATH OF THE 2010 RECOVERY

Going into 2008, captives were shaky. In the recession, companies realized not only the economic value of India, but also the fact that for a price, you can get a desired level of capability. Hungry companies were willing to operate in multiple revenue sharing models and were open to staffing opportunities. If any consulting and project ownership lost their sheen and like 90s, an enlightened customer was demanding resources and low cost. Infosys, neither experimented with revenue models, nor going after business aggressively. Even as Wipro brought in a CEO to become like a “Shark in a fish tank”, Infosys did nothing to simplify its structure or costs; there were no structural rationalizations to cut overheads; to add insult to injury, ordinary engineers were denied wage increases when inflation was galloping. Somehow, there was a systemic inability to act on the big picture and it became captive to disgruntled middle and senior management.

9.NO ENTRY FOR FRESH BLOOD

Infosys had 3 waves of talent. The first wave contained freshers from top colleges and capable executives from other companies. Leadership team was a melting pot of internal and external experiences. The second wave happened in the late 90s, with influx of sharp MBAs from consulting, financial services and ERP. Again the pot was stirred. However, almost no one in the leadership team has less than a decade’s tenure in the company. AVP and above became promotion roles and an inward looking company slid deeper. Consulting people and foreigners who joined in the third wave got overwhelmed by the sheer number and power of insiders. This also made the tenured leaders more tired.

10.A PREMATURE HORSE RACE

In Infosys scheme of things, Mohan Pai would have succeeded Shibulal in 2015 and would have been there till 2018 or so.  The company has had a clear line of succession all through. However, the company prematurely put in place an EC comprising of 4-5 people from the existing leadership group and started grooming them for higher positions. They were seen as CEO material in a 5-7 year timeframe. But the exit of Mohan Pai put them in limelight and the expectations went up thinking one of them would become CEO. It is an unusual company where the company is underperforming and an insider becomes CEO; however, the company did little to calibrate expectations. Worse it led to groups and cliques being formed around these folks to the detriment of corporate. It has been pointed out that the freedom to decide was not with them. But a position on the board is a big responsibility.  Was the company giving them that respect, without hearing them out on deals?

11.MISTAKE PROCESS FOR FRAMEWORK

Infosys was visionary enough to adapt Malcolm Baldrige when the company was barely 400 crores. Leveraging of CMM, MBQA etc. was essential to proactively setting up systems. But later the processes took a life of their own, independent of their relevance and processes like planning, scorecards etc. were given too much time without RoI calculations. Lots of busy people, getting salaries but not happy, managing inward focused systems?  Sadly people who were interested in making an impact through outcomes were lost to this output orientation. The company became yet another place.

12. HIGH IQ LOW EQ

Leadership is not measured by how many people report into you, but how many follow you. Otherwise the UP CM should be India PM!  For that to happen, leaders should get through enough crises, experiment with takeovers and stuff that develops their EQ. No doubt the Infosys leadership is strong in IQ. But the softer side had always been underdeveloped when compared to the analytical side.  It takes EQ to ask tough questions and have tough conversations. The company seems to have not really had too many of them in the recent past.

There may be more, but this is in my reckoning. At its heart is an incredible internal focus which has led to the company being captive to the needs and moods of its large corps of senior management who are disengaged/ tired or both. An organization that has slowly got into this position, will take time to get out of it.There are enough good people still in the system. Process of simplification has started. If they can acknowledge ground facts on billing and get aligned with client needs and sell aggressively in two years, the company can turnaround. It would be a much longer haul for “global respect” but QoQ revenue growth is the first step.

2007-2014 AN OUTSOURCING TALE OF 3 CITIES

2007-2014 A TALE OF 3 CITIES

2007 JANUARY

Karen Pearson, CIO Boston

Just completed my trip to India. The last two years have been fascinating. We have gone from nothing to almost 500 people working for us. The cost advantages were remarkable then; At the cost of one programmer in the US, we can get 3 in India. At the same time, the costs are increasing and we are down to 1:2.5 now. We have given three salary hikes in 18 months and still can’t do much about the attrition, hovering around 20%. And the outsourcing partners seem to just shove anyone at us and hope us to put up with them I hope they don’t kill the goose that laid golden eggs!

Rajat Sharma, Engineer NOIDA

Life is good. I have changed twice in the last 3 years and also got a promotion in between. My salary has doubled in two years and looks like it will keep going on like this. Need to choose the apartment tomorrow after taking delivery of the car. When credit is cheap, make most of it.

Suresh Rajan, CFO Bangalore

Billing rates are holding good. Business is flowing. Of course, it is a pain to keep listening to HR and their bucket of woes. Money, money and more money! Are they not focusing enough on training? Where is innovation? Also, the Rupee is now nearly 40 to a $. Who knows what happens to our market cap, if it touches 35?

Sushmita Ganguly, HR head Bangalore

We need to win the war for talent. We need to become one of the best employers, if we have to stay competitive. Even though inflation is only 6%, we need to give increases that are at least twice that.

2010 JANUARY

Suresh Rajan: What a slide in 3 years! We were fortunately able to identify and put in place cost control measures to stay viable. Imagine, we had made offers for a 30% growth and we stayed put at the same place! Somehow we introduced variability in employee pay, cut jobs and deferred offers. As and when the turnaround comes through, we are well placed. However, we will need to compromise on the billing it looks like.

Rajat Sharma: What a painful company to work for! I understand they could not increase salaries in the middle of a hiring freeze. But why the cut in gym timings and random deployment of people, independent of not just their choices but also their competence! Let things turn around and I am out of here.

Sushmita Ganguly : We need to focus on quality of life and diversity programs right now. Employees are unhappy, but we should at least provide them counselling support. Fortunately, inflation stays the same.

Karen Pearson: That slowdown in some sense was like a blast of cold air. We have rationalized our IT spend. Now that people are available in India, I would expect people to come with competitive pricing. Don’t keep throwing attrition at us!

2012 October

Karen Pearson: Life is good! There are more competitors out there and you would be surprised at the quality of people available at almost the same price as last year. Gone are the days when the outsourcing companies would argue on what rate of increase we should pay them! I am able to push through annual rate reductions these days! Yes, the exchange rate is in the 50s now, but why should I become liberal all of a sudden?

Rajat Sharma 2: I sometimes wonder whether the party is over. I have been getting 10% increases. However, the inflation itself has risen to 10% now; EMIs are costly, goods are costly and job opportunities are limited. Hope I at least keep getting some phantom promotions like senior team lead, junior manager and so on!

Suresh Rajan: How will we manage a business, where input costs are growing by 10% every year and output rates are coming down by 2% to 4% every year? Seems like little space for me to manage either! Our sales guys are also making all kinds of compromises on pricing. Thankfully, the exchange rate is offering some cushion. Otherwise, we should compromise significantly on our margins! At least entry level costs have been stable.

Sushmita Ganguly: 12% attrition and 10% salary increases seem to be fixed. So, why worry about it? Let me start focusing on becoming more performance and potential oriented. Let me spend more on potential assessment, training as well as efficiencies through span of control management.

2014 January

Rajat Sharma 2: Let us face it. Now I understand why my father worked in the same firm for 25 years! Every company is the same, there is a 20% jump for a job change, but you can’t do it every second year. Inflation has taken away any gains and my net salary is actually less than what it was 2 years back! The demand and supply has reached equilibrium across the entire spectrum. Let me see if I can volunteer for this election campaign!

Suresh Rajan: Ok. Things come in cycles. Between exchange rates, billing rates and employee salary increase percentages I need to just keep playing the balancing game. Salary increases have ranged from 0% to 15%, exchange rates have gone from 39 to a $ to 68 a $ and billing rates have headed south consistently. Just keep dancing till the music goes on!

Karen Pearson: The customer is the king!

 

 

 

 

19th CENTURY MINDSET, 20th CENTURY SYSTEMS AND 21st CENTURY POSSIBILITIES!

World over, enterprise IT systems are undergoing a change. Typically, HR or purchasing or supply chain, the systems were systems of record. Enable workflows, compliance and coverage. Think your usual appraisal system.  Open the system, set goals, track appraisal completion rate. It does not allow users to share best practices or assess the quality of goal setting for instance. Most of them were developed in the 20^th century.

 However, encouraged by cloud based systems and social networks, enterprise IT is moving to systems of engagement. Social tools allow a sales team to post status and updates on proposals with the entire team. Recognitions can be shared socially with appropriate teams real-time. This shift is happening in the HR environment, with more and more systems going away from being systems of record. Good blog from Bersin on this subject http://www.forbes.com/sites/joshbersin/2012/08/16/the-move-from-systems-of-record-to-systems-of-engagement/. This is 21^st century.

However, unless we shift our thinking to being engagement and management centered and measure the same, we will still be doing the same things, differently. A CEO in one of the companies I had worked with asked me, “Who are our top 20% managers?”

The question needed at least two parameters to be aligned. A straightforward response is to look up at the appraisal ratings. But what about the HR question on whether they are task masters or evolved leader of men and women? So, you need to integrate the performance ratings and engagement scores/ turnover rates? Hold on. Most of us track turnover for org.units, but do we map them against managers? Do we do attrition analysis at a manager level? BTW, is the high performance, high engagement manager follow the processes by the book or a maverick? How is she on values? Does she encourage compliance or not?

Google has achieved good progress and branding with their project Oxygen. (http://www.nytimes.com/2011/03/13/business/13hire.html?pagewanted=all&_r=0)

However more companies even today, are likely to go for a “neutral” tool like Assessment Center, disregarding most information available on hand. This happens, also because the HR systems are built to help a CoE/process owner to execute his/her process; They do provide information on managers, which is not looked at/ correlated/datafied. Using some of the analytical tools, it is possible to correlate

• Appraisal satisfaction with the length of review comments.
• Team performance, with average person days training in the team.
• Team performance and team structure.
• Manager rating with team engagement

These analyses can be performed on existing systems of record.  We wait for an annual or bi-annual employee survey to take actions; instead, we can use in-process measures to track ongoing engagement and do mini surveys to take stock.

Almost all HR managers agree that engagement is the job of the manager. HR is a facilitator. To use a product management paradigm, HR business partners are like account managers, who sell into line managers, products developed by CoEs. In that case, should one not do as much or more analyses of the user habits, than the performance or account managers? Is this mindset not characteristic of a 19^th century, royal command, with its ministers?

Summarizing, social systems will continue moving in strongly into enterprises. However, they can be leveraged strongly, only when we begin to think of managers and design/use analytics around their habits.

As Stephen Covey said long back “ If the ladder is not leaning against the right wall, every step we take just gets us to the wrong place faster!” .

(If you need any more insights on the topic, do drop me a note on Ramesh_sound@yahoo.com)

 

 

WHAT JK HAS TO SAY ON HR’s IMPACT ON EMPLOYEE ENGAGEMENT

Often, I come across young HR professionals and headhunters use the term “ Engagement activities”.

As in “ So, what consumes your time as HR business partner?”

“ I follow up on appraisals, complete skip level meetings and other engagement activities”.

“ What are these engagement activities?”

“ Oh, we do a lot. There are ethnic dress events, birthday celebrations, cultural programs and monthly team picnics”

However, the number of engagement programs have limited marginal utility. Often, I meet people who have worked in manufacturing. We talk about how with lower compensation, tougher work conditions employees in manufacturing seem to be more loyal to their organization. Of course, there are not many engagement activities as well.

There were recent articles that spoke about the futility of focusing on engagement at the expense of focusing on deliverables. So, what impact can any HR program have on engagement?

Let us look at the events, gifts, picnics. These have become mindless best practices. I have seen families of employees complain on social media on how boring the annual family day ritual is! At every level, it becomes a hygiene issue. Having a picnic is better than not having one. But once you have, the budget becomes important. Once the budget is cleared, the frequency becomes a point. Soon, one will end up thinking the best option is to have a picnic once a month, in a different 5 star resort each time. Doing it, does not uniquely contribute to the engagement; The engagement coming in from picnic is not strong enough to build loyalty. However, beware when you do as much as make it once a quarter than once a month or go for a 3 star resort. People immediately start wondering why these cost cuts are there and things are not as great as they used to be. There is limited upside and near unlimited downside.

Salary increases are thought of as the most trustworthy way of increasing engagement. Yet, the same rules apply. Several employees approach a review conditionally; “ Let me wait for the raise and if I don’t get 20% increase, let me float my resume”.

Half an hour after the increase, employees start discussing among themselves. Invariably most of them find something to be unhappy about. While the HR head and the leadership team are eagerly focusing on the outcome of the review, the ground realities do not change much. I have known of people getting phenomenal hikes, but still leaving. The increase clearly has not covered all bases.

One wonders whether every engagement program has a shelf life. A picnic might boost the morale for a day, a recognition might do for a week and a raise might do for a month. A challenging role and a good manager of course, can make it last longer.

For example, people learn their best when they are stretched. In a product environment, this could be working for 14 hours a day for a month or two, forgetting weekends. Often, HR looks at it sympathetically and tries to either insert itself through picnics or work to reduce the workload. But in moderation, these are experiences that make careers; HR should stay in touch, but also understand that no one attained greatness by working 9 to 5 all through their career.

In a manner of speaking, HR function has created several levers each of which has a passing impact on engagement and tenure. Devising new incentives and newer rewards in good times is set off  by their withdrawal in bad times. Is this a zero sum game then?

Two other factors have a significant impact on the engagement.

First is the company’s business positioning and pride of association. Everyone thinks twice before moving away from a market leader, even if its pay and benefits are below par. We confuse it with internal branding, talent brand and start doing posters; Employees know the market value of association.

Second has to do with the personal status of the employee. Employees get past their restlessness once they move into management roles; Having a personal life, also creates the perspective of work/life in the employee, who was always worried about only work and self all along.

Over the years, we have focused a lot on researching the secret sauce of engaging with employees. It would do good to step back and focus on doing the essentials better; Clearer goals, better dialoguing and fair treatment. We should also think more dispassionately on whether we are doing enough to help the organization grow profitably. When this is in place, number of picnics don’t matter.

But doing these is a lot tougher, than doing picnics!

There are a lot of hoardings in Bangalore with philosopher J. Krishnamurthy’s sayings. The most relevant one to this post goes “Happiness is not a thing to be pursued. It comes. But if you seek it, it will evade you”. Similarly, HR’s objective should be in maximizing situations that lead to greater engagement for longer durations; Direct pursuit of here and now engagement, can be shallow.

HR TO EMPLOYEE RATIO? HERE’S THE PINCH OF SALT

This measure has all the allure of a home remedy. Take the number of employees; Divide by HR FTE and use the ratio. If it is 1:250, you are stretched and you need more headcount. If it is 1:50, time to pack some people off home. 1:100 or thereabouts, you are doing OK. Most companies, definitely have these numbers and so it can be quickly generated.

This is no doubt, handy. But what about the following points?

1. VARIATIONS IN OPERATING MODEL:

Organizations have embraced outsourcing wholeheartedly. Temporary and outsourced workforce is used for several repetitive, administrative activities. Outsourced headcount does not show up in this ratio and makes it appear healthy. Temp staffing companies business model is based on this. I have often seen what starts as temporary, ends up as “ perma-temp”. Once you add up the staffing agency’s margins, the cost advantage is miniscule, if any. Unless one gets an idea of total cost of HR headcount, it will be difficult to do an accurate benchmark. That cost is around 2% -3% of payroll typically.

2. NON-LINEARITY OF HR SUB-FUNCTIONS

Let us consider HR as Business Partner, Recruiting and CoEs like Operations, Compensation, L&D.

All recruiting headcount is aligned to “ Headcount growth rate” rather than existing headcount. It won’t be accurate to include that in estimating quality of services provided to workforce.

Compensation CoE, is more about complexity. If you operate in more than say, 5 countries you would like to add a specialist for International compensation. If you have a large recognition program, then you might need someone to run that and variable compensation programs effectively. Compensation is a function of business and total rewards complexity; A company of 3000 people in 10 countries with 3 pay programs may have as many people in compensation as a company of 10,000 people on a single pay program in a single country.

L&D headcount depends on the operating model. If the model is more insourced, then number of days delivered per person decides the headcount; So, to that extent it is driven by existing headcount. But more companies do a blended model with e-learning thrown in for good measure. Headcount is one of the factors influencing the L&D headcount, but not always the only factor.

3. IT IS THE MANAGER SILLY!

Someone said that “ The ability of a great mind is to hold two diametrically opposite thoughts in their head at the same time” ; Were they talking about HR staffing ratios? On the one hand, the Business partner HR function is sized almost exclusively on ratio to headcount.

( Countries and locations matter a lot too) At the same time, HR also swears by saying “ We facilitate people management; It is the job of the managers”.

If the managers handle people, why Business Partner HR is aligned to total headcount? In my experience, business HR can either partner with CoEs and managers for program implementation. They can manage stuff like skip level meetings etc. but these are a small proportion of the work they do.

Since they are budgeted based on headcount, Business HR thinks that they need to do programs for the workforce to justify their presence. This leads to lots of events, fun at work programs and so on. Nice to have, but limited impact. Since these are events, companies blood youngsters in these roles.

The real value comes in, when a business partner HR is able to partner with the managers in effective implementation of HR processes. They need to make sure the implementation is in spirit and even coach the younger managers in doing people management right. They can also use some fun around building teams systematically. Sometimes, business HR is busy going on outings every week, but not a lot of them use team building tools consciously.

So, I would think even for a business partner HR function, the right ratio would be to number of leaders/managers supported as well as number of teams/ locations. The footprint coverage is a good reference, but I won’t take the argument that managing 1000 people is a bigger job than saying managing 500 people;

So there you go; Don’t throw out HR/ number of employees, but don’t put all your eggs in that basket either! This site gives some good numbers. http://www.xperthr.co.uk/blogs/employment-intelligence/2013/07/hr-data-round-up-july-2013-benchmarking-ratio-hr/

LOOKING THROUGH THE “GLASSDOOR”. HOW DOES AN INDIAN EMPLOYER GO FROM WORLD SCALE TO WORLD CLASS?

For long, benchmarking used to be a confidential process, midwifed by consultants. With emergence of technology, there are several portals, that help employees key in their perspectives.

There is a market for employee surveys, where for a premium a benchmarking can be done with other competitors. One can circumvent this to some extent, by participating in best employer surveys, that also share the best in class numbers. I just wanted to explore, a portal like glassdoor, that aggregates information from employees.

I just took the glassdoor reviews for companies and extracted the scores. For each of these companies, there were at least 2000 or more responses; ( Only 700 for HCL). It was a mini-survey by itself, with overall engagement, scores on 5 parameters as well as an advocacy score. The highlights for big 5 of Indian IT are as below

 

COMPANY	TCS	COGNIZANT	INFOSYS	WIPRO	HCL
Score( on 5)	3.2	3.5	3.2	3.1	3.2
Culture& Values	78%	70%	72%	70%	65%
Work Life Balance	67%	64%	62%	60%	64%
Senior Management	60%	62%	58%	58%	58%
Compensation and benefits	58%	60%	50%	50%	50%
Career prospects	65%	70%	62%	62%	61%
Recommend company	73%	78%	60%	59%	65%
LTM attrition	10.1%	12%	17.3%	13%	16.1

What are the takeaways?

1. The overall satisfaction scores are similar, except for Cognizant, who actually have a 6% advantage.

2. TCS leads in culture and values and Infosys is second. The high number for TCS is appreciable.

3. All employees rate their senior executives just about Ok. The stark difference, is the extremely high approval rating, for the CEO of Cognizant ( 93%) and TCS ( 89%).

4. All companies offer just about the same work-life balance.

5. In both career prospects and recommend company, Cognizant leads TCS by 5%. I would think this is a noticeable advantage.

6. Finally, when it comes to the attrition in last 12 months, TCS is the lowest at 10.1%. and Cognizant has 12%. One could say that Cognizant needs to be doing better, just to neutralize the Tata culture! Both these firms have been growing fast; At the same time, HCL which is also growing fast, does not seem to have still established a strong culture and that could account for numbers here that are below the market leaders.

As things stand, Infosys is just 2% below in TCS in total satisfaction; However, their attrition rate is 7% more in real terms. Even in comparison with Wipro, where all numbers are equal, the attrition is higher.

Of course, the feedback on glassdoor is cumulative; It could be that the entries in the last few months for Infosys could be higher; However, it is food for thought that the driver for higher engagement and retention, is Great Culture+ Optimism generated from faster growth.

 

	TCS	ACCENTURE
Score( on 5)	3.2	3.5
Culture& Values	78%	78%
Work Life Balance	67%	62%
Senior Management	60%	62%
Compensation and benefits	58%	62%
Career prospects	65%	70%
Recommend company	73%	80%
LTM attrition	10.1%	12.1%

Accenture, does not seem to be having any distinct advantage, when compared to TCS:. The marginally higher attrition is offset by a proportionately higher number of employees willing to recommend the company. People in ACN are also more satisfied with career prospects.

Let me just do one summary table, to compare with top product companies, Wall Street and d a small company, that is a template for the future of IT services.

	TCS	Microsoft	Google	McKinsey	Thoughtworks	Goldman Sachs
Score( on 5)	3.2	3.6	4.1	4.1	3.8	3.7
Culture& Values	78%	70%	82%	82%	82%	72%
Work Life Balance	67%	70%	78%	68%	72%	75%
Senior Management	60%	60%	78%	78%	62%	62%
Compensation and benefits	58%	78%	82%	80%	62%	75%
Career prospects	65%	70%	70%	82%	75%	75%
Recommend company	73%	77%	90%	91%	83%	81%
LTM attrition	10.1%	8%	3%	NA	NA	NA

So, far the business TCS are in, they are doing very well. However, if they want to be a world-class employer, they need to improve their scores by at least 10% in each parameter. Except, that they are already close to 300,000 employees!

And all leading employers are characterized by a strong culture, competitive pay and market leadership.

( Please note: The percentages have been approximated from the bar graphs on glassdoor)

Nadal 2: What is your ROM? ( Return On Management)

 The US Open, pays its winner top $$ and acknowledges that value is delivered by the players. If they were more corporate like, there would be program managers, high performance coaches and of course, Directors and Vice Presidents of Tennis.

Of course, management is needed. Sadly organizations spawn management. An average employee would be spending anywhere between 10 to 20 years doing pure management in the course of her career. Unless you are in client facing functions, a lot of management time is spent on communicating ( meetings, presentations, emails), managing people ( again meetings and discussions) and tracking progress against goals that are usually incremental.

In other words, if you ask someone to design a job where they don’t have to display deep skills, spend time in low energy activities or talking and have goals that are easier to hit than fail, management would pop out!

I used to be a manager too; However, the classic HR systems of job evaluation and compensation have taken the organization focus far away from the client. The three pillars of Hay system are know how, problem solving and accountability. http://www.haygroup.com/downloads/ww/wp-Job_Evaluation.pdf .  It is structured in a way, that the larger your scope of job and less shared the responsibility is, higher up on the points chart your position is. In theory, a salesman solves day to day problems for an account, while the Head of Sales solves the problem of increasing sales. But, in reality, for any given account the sales manager knows more about the account than the head of sales. The head takes the information, makes suggestions and supports the salesman to solve the problem. In addition of course, he writes an update mail to his boss and peer group. While a Hay manager needs to solve the problem, management 101 also talks of empowerment and delegation. One can go on, but the distance between the manager and managed is far less than Hay points in an empowered organization.

The conceptual difference is magnified by pay systems, that band across similar job descriptions and give an increase for each level. Nadal would be senior tennis player, but his pay will be dwarfed by the director and VP of tennis. ( A large firm, may have VP forehand, VP backhand as well!)

On the one hand, we have the vulgarities of CEO pay; But to be fair to the person, his neck is at least on the block. ( Not everyone can be so lucky as Stephen Elop of Microsoft-Nokia-Microsoft, who basically rejoined his job in Microsoft and took a 25 million $ payout as well) . What about the layers of management?

Turns out that there is the hand of McKinsey behind this. As this fascinating article says a consultant named Arch Patton was behind the excesses of management pay. Most credible consulting is telling the client he is underpaid! http://observer.com/2013/08/the-godfather-of-ceo-megapay-mckinsey-consultant-arch-patton-didnt-invent-wealth-inequality/

  A lot of us complain about income tax and the 20% and 30% rates that are lopped off. Most organizations typically spend 25% to 35% of their payroll on management salaries. With average spans of 1:8, 12.5% of the workforce is in management. So, a company pays 12.5% of its workforce, 25% of the payroll. Clearly, management should have 2x the impact of individual contributors?

This happens in exceptional cases. Companies are usually distributed around a mean. Every services company for example, talks of big data, cloud and mobility; Strategies are not too different. Every service company offers technology, consulting and outsourcing. They want to offer all services.

Then the difference is execution. It has been stated that management can impact the corporate performance by upto 10%. Not much more. Execution is everybody’s job.

So, it is possible that we can pay star ICs much more and make them our Nadals. But for us to get a budget, we need to look at money spent on management with a fine comb and decide whether the incrementalism is worth the cost. Organizations are looking at span of control and trying to increase it to 1:10 or more. Ratios that worked before internet era, can be dramatically improved for the social era with its accent on agile methodologies.

WHY YOUR HIGH PERFORMER DOES NOT MAKE AS MUCH AS RAFAEL NADAL?

 

Last week, the US open Tennis Championship, one of the 4 tennis grand slams, crowned Rafael Nadal and Serena as champions. Their prize money was 2.6 million $. This is seriously good money, for a fortnight’s work.

Then I dug up some numbers. The US open, total prize money was around 35 million $. While this looks humongous, it pales in comparison with US open revenues of 215 million $; In other words, the players get only around 16%. The tournament makes more than 50% profits and the players want a bigger cut. Who does not?

This is the interesting part. The tournament main draw has 128 players and another 128 play to qualify.It is a 64 team draw in doubles. Putting it all together, approximately 600 players make up the draw. For the moment, I am setting aside the cost of management.

When 600 players deliver a revenue of 215 million $, the contribution per person is 3,58,000. In reality accounting for overlaps, ( singles and doubles) it could be between 400,000 and 500,000. When it comes to prize money though, just the quarterfinalists in singles and finalists in doubles get more than that.

Let me focus on singles; A management expert, would look at it and say There are 256 people playing singles for men. All of them use similar equipment, and face the same challenge. Win a match in a best of 5 sets format. Each match is no different from other. A person who wins all his matches, is the winner of the tournament. The job evaluation expert, would classify all singles players as performing one job. And the compensation expert would look at the median salary ( What most players make) as what the first round losers get. And the first round loser, gets $ 32,000. Then he could say that the first round winner gets  $50,000  and so, the tournament winner should get 7* 50,000= $ 350,000.  He /She also gets a nice trophy.

However, that is not what happens in professional tennis. The price money almost doubles for every higher match. The difference is the most, in the finals; Novak Djokovic took home $1.3 million dollars less, having lost just a single match.

More importantly, the winner took home 15% of the prize money for his/her gender. The first round loser, took home $4000. The winner earned 650 times more than the early loser. You might have reservations, but this is what high performance culture looks like. Of course, people who have been losing in the early rounds are asking for better pay. However, no one grudges the winners cheque, given to the best player. Because, the player who loses in the early round, still has a dream of being the best in the world. And he/she knows that they just need to win more matches to go up the ladder.

Let us look at an organization carefully. Take a services/ software product company. The value is really generated by the engineers, salespeople and product managers. We do normalize their performance. So, why can’t we recognize top talent, not with a payout of

650x, but 50x? 10x?

1. First of all, our measurement systems are not objective enough, to rank people purely on the basis of performance. Professional sport has evolved much better in aligning measurement and rewards. With rare exceptions, we still cannot rationalize across technology, domain, geography, experience etc. So, we blend in subjectivity and the cost of that is an unwillingness to go the whole hog.

2.Professional sportspersons are much bigger risk-takers than those in corporate. Employees would want everything, but as an add on to base pay. You can of course, experiment by taking 10% off base pay to create a huge bonus pool, but outside of sales this has not happened. Paying everyone a healthy base-pay and a large incentive, does not beget an economic case; However, it is possible in high margin industries.

3.The organizations with similar policies can be seen on Wall Street. However, people in general look at Silicon Valley as a role model and not Wall Street. We are worried of the cultural fall-out, may be even more than needed. Gladwell’s essay on the talent myth offers a fascinating view. http://www.newyorker.com/archive/2002/07/22/020722fa_fact.

Campus hiring in India is probably the closest; While a Facebook may hire someone paying $30,000, Wipro might just pay $6000.

While the measurement challenge can be managed, the change management is a larger challenge in my view; Hence most organizations carry on, targeting incremental growth, giving incremental achievement for performance. The risk-taker starts up!

It would also be interesting to know, whether companies like Samsung, with a 90 day product shelf-life, do things differently.

There is another learning from here, that I would cover next week.

TIME TO BID ADIEU TO ” TRAINING DAYS PER PERSON” ?

 

Traditionally, training ( or L& D as it is aptly called) allowed itself to be measured. It covered all employees and there were multiple programs. Later, the emergence of role and competency based systems allowed us to fine-tune strategies.

However, the predominant measure still  is “ training days per person”. This is a very good effort measure.  A companion is “ average feedback rating per program” . This probably assures that the quality of training is good. But what about the impact?

There is the  Kirkpatrick model with its 4 levels of increasing abstractness; Leading all the way to behavioral change. Large training organizations started using the HR equivalent of paracetamol; A survey; Survey the employee, the manager before the program and after the program and see if there are improvements.

The improvements if any, tends to be 5% or below; Well within the range of statistical errors. I remember a “ Before” and “ After” competency assessment cut that we had created for training programs; In several cases, the after scores were less than before scores and degree of improvement in people who have not attended the training was more than those that had!

In almost all fields of education, outside corporate learning a rigorous process is used to ensure people have learnt some; People attend classes daily and are tested at regular intervals. For the first twenty years of lives we only learn full-time; Then we cross the threshold and think just 2 days of classroom is enough to make us talk like the CEO. Has anyone scored 100% in maths by just attending classes?

People also have learning styles; A majority of people learn by doing; That’s why high school  onwards, there are labs. When people learn by doing, the focus on learning is by practising, have someone observe the practice and share feedback to improve the skill.

Three basic paradigms have changed; First is the appreciation that  learning is what happens when doing the job. Second is that individual learning styles are different. Third of course is the availability of world class training material on the internet.

L&D ecosystem, as it is traditionally organized around training managers getting training needs and delivering programs through trainers will not last this decade. Along with it, goes the person days paradigm;

We are already seeing the move to modular training that embeds some great content from youtube. Knowledge is almost free with an internet connection. Skills need practice. The focus of learning then, is in follow-throughs, communities of practice around skill improvement and managers becoming better coaches.

This learning will focus more on business outcomes that are skill dependent; Sales per salesman, defect rate per 1000 lines of code, proposal acceptance rate, span of control per manager, Customer satisfaction etc.

Yes, one needs to estimate the contribution of employee competence on each of this and set baselines. But the effort,  would  lead to better alignment and practice of skills rather than training volume measurement.

On the input side, the competencies need to be well detailed and priorities chosen on an 18 to 24 month timeframe. By using business outcomes and input prioritization, we will have a far more effective learning effort.

SO, WHAT IS YOUR HYPOTHESIS?

The 2004 parliamentary elections produced unexpected outcomes. The NDA had run on a platform of India shining, while the UPA ran for the common man. The UPA won more seats and formed the Government; Respectable publications, from Economist to India Today hypothesised, that the common man had hit back, as the reforms were not helping him as much.

I read a brilliant analytical piece in The Hindu. They said that the biggest shift happened in the state of Andhra Pradesh. If the backlash is true, then the NDA should have lost in key rural areas and won in the capital of Hyderabad, which had undergone visible changes? In reality, the NDA and allies lost most seats in Hyderabad. Even people who had benefited, did not vote for them. On the other hand, they won seats in deep rural areas where they had no reason to win. The article went onto expand larger environmental factors, including how the Kargil war of 1999 helped NDA win more seats than their normal constituency.

The brain wants a story, as it finds it easy to remember. However, the hypothesis then should have two components; One, it should be based on existing logic. Two, it should allow for a backtest.

Till recently, for Indian IT services companies, a requirement was to delink revenue growth from headcount growth. Different companies have adapted strategies; Just for the sake of convenience I took Infosys.( All back of the envelope; You can get the idea)

In 2002/03, Infosys earned Rupees 2.7 million per person and generated cash of 0.6 million per person. In the same period, Microsoft, a product company benchmark earned nearly 16 times as much per person.

The hypothesis is by investing in several pilot programs, the revenues should delink from headcount. So, what is the scenario in 2012/13, a full ten years later? The company earns Rupees 2.9 million per person and cash is 0.7 million per person. In the meanwhile, Microsoft earned 18 times as much per person.

The hypothesis, then is not validated. One could say that Infosys investments have not been enough to create the delink. At the same time, while Microsoft has grown the topline 1.4x in 10 years, Infosys has grown the topline 12x. So, the challenge to Infosys is not on just per person revenue acceleration, but also grow the business at a relatively faster pace. When you can grow rapidly, to change rapidly as well can be quite tough.

While I have not run any numbers, the story of companies like Accenture and their profits per person would be an interesting study. So what does it all mean for Human Resources?

First of all, we need to appreciate the existence of hypothesis. Taking the same Infosys example, everyone says that the quality of people is just not what it used to be. However, if you look at pure financials, the revenue per person has not declined at all. So, what is the quality of people issue?

The prevailing view is that companies used to hire from more known campuses a decade ago and had people from a better academic background. However, in reality, the companies have shown resilience to work with available talent and deliver.

We may have hypothesis on pay, performance, benefits etc. Sometimes these are superficial. Does having company day outings, bond the family to the organization? Or is it just a custom, that may be felt more in absence ? Long back, we found that a high satisfaction with events, does not translate into high engagement as their regression to employee engagement is much less than factors like career, fairness etc.

It is not enough to know the hypothesis, but we need to validate them at regular intervals. If pay is an issue, then do we see “ higher the pay quartile, lesser the attrition” ? If not, then what is the issue?

In a normal situation, people like working on the latest technologies. Their job satisfaction tends to be higher. At the same time, the attrition tends to be higher, as the market demand is more. It would be a fallacy to think that job satisfaction does not matter for retention.

Good or bad, be aware of your hypothesis and seek validation whenever time and data permits. You could be in for surprises!