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Our detailed study on ‘Operations Cost Benchmarking for Product Engineering Captives in India’ gives an assessment of the cost of running a product engineering captive in India based on a survey conducted amongst 25 R&D centres spread across locations such as Bangalore, Hyderabad and Pune, which happen to be the key locations for R&D Offshoring in India.

In the year 2008, the cost of running an R&D centre in India has come down by at least 6 percent when compared to 2007 in absolute dollar terms. The current manner in which these captives are taking proactive measures for optimizing their cost points, coupled with the declining trend of Rupee against dollar can be favourable and may help reduce costs by about 10-12 percent over the next 12 months. The total cost of running an R&D centre in India is estimated at about USD 39,000/ FTE for the year 2008. This ratio of cost/ FTE, which had seen an increase of more than 15 percent till 2006, witnessed a decrease in the same for the first time ever, in the last 5 years.

Owing to the global economic meltdown and strict budgetary constraints, R&D centers in India were mandated by their HQs to manage costs effectively over the last 12 months. In addition to this, currency depreciation against all major currencies (i.e. USD, EUR and JPY) favored reduction in cost across MNC R&D centers in India. On a yearly average basis, there has been depreciation in the Indian currency by about 9 percent against the US dollar from the year 2007 to 2008. Moreover, it also slipped by 25 percent against the USD from January 2008 to December 2008.

Providing specifics of the survey conducted with 25 R&D centres, the study revealed that the median of the cost for companies with headcount range of 500-1000 employees at the centre level incurred costs significantly lower when compared to small-sized centres (i.e. less than 500 employees). Infrastructure occupancy, along with people related investments in growth phase came up to be some of the key reasons for increased cost for smaller R&D centres. A similar analysis of the time of existence of the centre in India revealed that the centres with more than 7 years of existence in the country incurred lesser costs when compared to centres with less than 7 years of establishment.

People cost is the single largest contributor to the entire pie of operations cost and salary escalations will be in control in the foreseeable future and will only start picking up in the next 2-4 years. In fact, due to increased availability of skilled talent pool at the junior level, salaries are expected to fall below the current levels in the near times to come. The downturn has indeed helped these India R&D centers in multiple ways to come up with modes and methods to reduce costs significantly. Some measures like lower base-lining of infrastructure cost components such as rentals will further help reduce cost escalations. In addition to this, emphasis on high-end communication solutions such as Telepresence will help put travel cost in control which did account for about 5 percent of the total cost last year.

With India continuously moving up the R&D value chain, there would be increased requirement of experienced talent with enhanced domain/ technical expertise in the future, leading to a moderate increase in the cost. However, the overall outlook for operations cost for these product engineering captives looks promising in the near future. Increased focus on important aspects like productivity at the India center would also help companies leverage maximized value on every single dollar spent on R&D.

The study concluded that a majority of these R&D centers are now looking at every single cost component to optimize their investments. India’s unique positioning of a low cost destination has strengthened with the cost optimization focus by these centers. With the economy starting to show signs of ‘coming back to life’, this advantage will help build a strong case for increased offshoring to India. Zinnov had estimated the R&D Offshoring market to grow at about 23 percent last year and the study still sees the average being maintained by 2013.

Praveen Bhadada
Engagement Manager

Imagine a situation where world bank rolls out an RFP for adopting a custom solution for one of the new initiatives on ICT enabled education across 20 key geographies on their charter. Out of the many responses, world bank would get, imagine a response that comes jointly from Infosys, Satyam (not Tech Mahindra), Symphony services, Microsoft and Customer 24*7. Do you think it is possible? Do you think its sustainable? Do you think this is more required than desired? Do you think it is even desired?

Be it good times or bad, companies want to grab market share and hence money. But when the pie itself has been projected to grow at a rate faster than what the solution providers are growing at, companies would start to feel the need of increased collaboration, that too among competing companies. Appending each other’s capability and building a solid business case for themselves is the need of the hour. From a buyers stand point, it makes their lives easier by reducing time and complexities involved in hiring multiple vendors for multiple tasks.

This phenomenon is not new. For e.g. in China, Honda has a joint venture known as China Honda Automobile Company (CHAC) that uses the local production know-hows and procurement networks of its partners, namely Guangzhou Honda Automobiles Co. and Dongfeng Honda Engine Co. This collaboration not only helps Honda control costs through the economies of scale but has also helped them become the first passenger car maker in China to begin full scale exports to European region. The companies in the textile cluster in Tirupur, India are now jointly pitching to the customer and jointly bidding for contracts. Similar is the case with the Zhongguancun Software Park in Beijing, where all the top product engineering service providers (i.e. Neusoft, Beyondsoft, VanceInfo etc.) reside in the same park, in fact within a 100 mt. range. The furniture cluster in Razlog, Bulgaria is also a classic example of this phenomenon, where the companies split up the production and ship the final product under one brand. Flextronics in China is a similar story, where it acquires parts of its products from the local manufacturing cluster based companies.

Members of these kind of collaborations can effectively increase their capacity, capability and quality of the final output at an optimal, less than usual cost. The customers at the same time are happier and more comfortable. In times like as of today, this could be a “new” business model that can transform business in totality.

Praveen Bhadada
Engagement Manager

R&D offshoring to India started way back in 1980’s when Texas Instruments and Cadence led the way for the next 3 decades to follow. That was an era when India’s ecosystem for R&D offshoring was not at all ready, perhaps did not even exist. Bullock carts were reported to be the medium of transportation, Teledensity was a meagre 0.68 per cent, FDI in India used to be of the order of USD 100 million only. Over the period of last 3 decades, India has witnessed a massive and rapid change in the overall ecosystem, that was much required to take India to a position where it currently stands. HP partnered with HCL to deliver the first Pentium machine in 1994, the BPO industry was born with American Express setting up their operational center, salaries of software professionals grew at more than 30 per cent and Teledensity rose to about 2.66 at the end of year 2000. The story has continued till recent times. 780 MNC R&D centers, with more than 280 mega R&D spenders having operations, India has come a long way in terms of R&D offshoring.

With all good things, come challenges and the dynamics change, or at least start showing signs of change. The number of new centers being set up in India, for e.g. have come down drastically over the last 3 years. Where India witnessed about 180 centers being set up in 2005-06, this number is less than 80 for the year 2007-08. Bangalore’s attractiveness has gone down by 17 basis points as the first choice for opening a R&D center in India.

A number of risks are threatening the growth of R&D offshoring market in India. Below is the snapshot of some of the identified risks:

• Emergence of China: 920 MNCs have established 1,100 R&D centers in China, which is higher than the number of centers in India. China boasts of a huge talent pool (both installed as well as fresh) suitable for working in the R&D space. With Government’s increased support and program focussed towards promoting R&D, the market is growing at a rate faster than that of India. More and more R&D mega spenders are choosing China as their first choice for R&D activities

• Lack of Innovation: Though India centers have started focusing on innovation and generating new products for global market there is a huge scope of improvement. Even though most of the centers in India are carrying out about 15-20% of the global R&D work for the parent companies, the number of patents filed by India based centers are negligible as compared to the US headquarters. India featured much lower as compared to countries such as US, Japan, South Korea, Singapore, France, Hong Kong etc. in the Global Innovation Index ratings. India will soon need to lift its image as an innovation hub to be able to remain competitive in the global market

• Productivity: Low productivity of most of the offshore centers remains a key challenge for the headquarters. When asked about the perception of productivity at the India centers, about 35% of the country managers felt that the productivity is less than 50% of the HQ’s. Another 40% thought it was less than 70% of the HQ productivity.

• Business Continuity Risk: Increased business continuity risks might become a cause of concern for MNCs in the long terms. The Mumbai terror attacks, the Satyam debacle and the uncertainty around local and national governments have forced at least a few MNCs to relook at their strategy for India. Some have even opted to make an exit

• Cost Escalations: Owing to the economic meltdown and Indian currency depreciation, the costs of running a center in India have come down this year, but based on the historic trends of about 12-15% rise in cost, companies are still very cautious about costs. Indian centers might continue to witness increase in salaries as soon as the economy revives (by 2010??)

• Economic Meltdown: Like most of the other industries, Hi-Tech industry has also been adversely affected by the economic meltdown. The software/ Hi-Tech biggies such as Microsoft, Google, IBM, Intel, Texas Instruments have all witnessed a huge dip in the Market Cap over the last 6 months, the sales growth as well as the earnings growth are also in the red zone for most of the companies. The offshore centers in India, have witnessed the impact as well. Lay off’s, salary reductions, travel cuts, lack of reluctance on innovation spent are some of the themes quite prominent in most of the R&D centers in India. The HQs can also be heard of talking of terms such as product rationalization, R&D consolidation etc.

The year 2007-08 witnessed shift in key focus areas of companies doing R&D related work in India. R&D offshoring which started for cost savings and access to talent pool, witnessed a paradigm shift towards Innovation and local market focus. There has been an increased focus on competency creation, organizational alignment, product/ business ownership, and productivity initiatives. Despite challenges, we have now started to see innovations coming out of India with global, India and emerging market focus. Intel’s Dunnigton chip, TI’s Locosto, Google Finance, Advent Zoho, Yahoo Avatar are some of the key innovations that have been partially or completely done out of India.

A convergence of a number of factors has helped strengthen the ecosystem for COEs in India. Here are a few that I can think of right away:

• Number of centers: Presence of a large number of MNC R&D centers across locations has created a strong R&D landscape in India. Locations such as Bangalore, Hyderabad, Pune/ Mumbia, Delhi, Chennai along with emerging locations such as Jaipur, Ahmadabad, Indore, Kolkata, Coimbatore etc. are strengthening the ecosystem to a greater extent. MNC R&D activities span across all key verticals, with prime focus on the hi tech verticals such as software, storage, platforms, semiconductor/ EDA, Telecom, Networking, etc. which account for about 74% of the total market

• Talent Pool: India boasts of the highest talent pool availability across all key offshore destinations across the globe, with about 160,000 professionals working at the MNC R&D centers and another 120,000 associated with product engineering service providers such as Infosys, Wipro, GlobalLogic, Persistent Systems, Symphony etc.. The talent is split across key horizontals of software products, embedded systems (hardware/ software) and engineering services

• Start-up Ecosystem: Growth in software product start-up activity over the last three years has helped strengthen the R&D ecosystem in India. 254 start-ups were set up during the period 2005-07, taking the total to more than 500 at the end of 2008. As a result, venture capital funds investing in India are actively focusing on software product business funding. Of the USD 543 million invested in IT sector in India, about USD 156 million went into software products in particular. Application software took the hot spot with 48% of this investment during 2008.

• Partnership Ecosystem: A number of incubation centers have been established across India, that are helping technology start-ups with funds and mentorship. There are about 40 incubation centers spread across India. 28 software companies were incubated last year from some of these university supported incubators

• Domestic Market Opportunity: MNCs are increasingly setting up their operations in India to leverage the huge domestic market opportunity. India is a potential software consuming market with a population more than 1.2 billion and more than 35 million SMBs. Domestic software/ storage market has grown at an impressive rate of 44% for the last 3 years and is expected to reach USD 9.5 to 12 billion by FY2015. Total IT spend is increasing by about 18% YoY to reach USD 65 billion by 2015. Number of PCs are increasing by 37%, internet subscriber base is growing by 23% YoY. Average 9.3 million mobile subscribers being added per month, which is the highest in the world

Many companies have leveraged the convergence and have rebadged the India center as value centers and moved away from pure cost arbitrage. Emerging market focus, capability development, product/ business ownership, innovation focus, localization, business model innovation, investment and commitment, leveraging start-up ecosystem have been some of the dominant themes among the centers in India. Here are a few examples:

• Texas Instruments: TI India started OMAP™ competency centers in 2002 to provide application platform design support. Launched TI’s Locosto™ single chip solution enabling ultra low cost mobile phones made from New Delhi in 2005

• Adobe: India center has the responsibility for the Print and Classic publishing business unit, which is more than a USD 1 billion business worldwide. Initiated programs to develop technologies that will become part of Adobe products in the future

• Cisco: Wim Elfrink ,head of customer advocacy Business unit, a more than USD 7 billion dollar group, is based out of India. John Chambers unveiled the telepresence product for the global customers from Bangalore

• Yahoo: Hot Jobs, Yahoo Finance, Yahoo Autos, Yahoo Real Estate and Yahoo Weather are completely managed out of India center. Yahoo India center is responsible for 25% of the global development engineering

• Intuit: Intuit plans to invest more than USD 45 million and employ 400 resources locally by 2010. Focusing on BRIC countries, specifically India to tap the domestic market opportunity

• IBM: An IBM research fellow, C. Mohan was relocated to India for 2 years to develop Technical careers in India

• Honeywell: Initiated collaboration with startups along with HeadStart Foundation and the Association of Computing Machinery, Bangalore. Through this initiative, Honeywell expects to identify new growth opportunities and incubate them. Honeywell expects its sales in India to double in three years to reach USD 1 billion

In the wake of the current economic crisis and the other challenges that we discussed above, India centers would require to focus on creating synergies between India center leadership and business unit heads at the HQ.

• Competency Creation: India centers should strive to create location specific competencies and strive to be the primary location for the selected areas. Business units should be provided with a broad framework for them to choose the right projects and location

• Product Consolidation: Evaluate the complete project portfolio at the India center and move back the projects where there is not enough competencies within the India center or in the Indian talent market. This will help India centers in developing deep domain expertise in few areas rather than spreading thin across product areas

• Project Selection: Define processes to strategically select the right projects to be executed at the India center

• Create Synergies: Improve organization alignment by enabling a platform to enable joint decisions among BU heads as well as the associated global center heads. Balance the tension/synergies between the India center leadership and the business leadership

• Innovation for Local Market: Drive innovation for the local market by building a compelling business case to channelize investments. Fully fledged integrated efforts involving engineering, market development and sales teams should be under taken

• Education on R&D Globalization: Increase the knowledge level of engineers at various global centers to effectively work with India center. Holding knowledge workshops to explain the “Know-how’s” of working with India teams at middle management level

• Innovation Culture: Inculcate the culture of “Customer led innovation” across development teams. Innovation programs are sponsored by senior leaders in the organization. Both monetary & non monetary rewards and recognition programs can be introduced

Praveen Bhadada
Engagement Manager

The ‘Outsourcing’ phenomenon is a result of multiple business levers and tax breaks is just one of them. While the unprecedented growth of the outsourcing industry was catalyzed by many macro level factors such as tax breaks and H1B Visas, we have to understand that it’s just not these factors on which the industry stands tall today.

Today, outsourcing has become a part of nearly every organizations’ strategy, wherein it has helped companies become truly ‘global’ and expand their businesses (topline) beyond American boundaries. Besides, we should not forget that there are around 1.1 billion people in India alone today, which is huge consumer market for all products/services to come in next 2 – 3 decades. The current tax proposed revision in tax breaks is counter intuitive to most organizations who are looking at India very strategically for long term growth.

Also, if the Obama government thinks that outsourcing is a “Reversible phenomenon“ and cutting tax breaks will help create jobs in US, then the thought process is quite short-sighted and needs lot more clarity. World today is a global village and any such measures will not only restrict innovation but also hamper the progress of globalization. Additionally, the consequences of such a policy spanning across different countries and verticals can be unimaginable. It’s complexity and implications can be much larger than the current recessionary scenario that we are dealing with. It’s important for the law makers to build scenarios around these implications and also analyze the economic and political risk that we may run into.

Chandramouli CS
Director-Advisory Services

With much speculation on how would the flu have an impact on the outsourcing industry, we do not see any immediate impact of the same. Infact, all the Indian IT service providers are much equipped to handle cases of such natural calamity and aspects like these are already factored in the ‘Business Continuity Plans’ (BCP) that they have as a part of their contracts with clients. An important aspect that is included as a part of the BCP is that the vendor (in this case the service provider) should always keep at least 20% of the offshore staff with US Visa ready at any time to act as a business continuity measure in case of disruption of business at the vendor location. Therefore, while the global anxiety is spreading faster, we are confident that the industry stakeholders are well equipped and hence the impact on project deliverables, timelines, etc will be very minimal.

Also, the impact of travel restrictions on decision making of clients will not be significant, as clients will be cognizant of the fact that such cases are beyond human control. Additionally and based on our experience, Indian service providers will be extremely accommodative and flexible in addressing client requirements which could be beyond contractual agreements and cost. The very fundamentals of globalization will be put to test and Indian service providers will stand strong in showcasing resilience.

Chandramouli CS
Director-Advisory Services

Zinnov recently launched a study, highlighting that R&D Service Providers in the country have started emphasizing on ‘customer experience’ and ‘reinforcing greater value’ as a resultant of the current economic slowdown. The study said that all Indian R&D Service Providers (tier-I and tier-II) have indeed realized the inherent need for them to showcase value to their customers, to ensure business continuity and maximize ROI in tough times.

While it was always important for companies to stay abreast with customer business requirements, with the global dynamics changing every day, it’s become imperative for Indian services companies to keep themselves tuned to the market/customer dynamics. Understanding the customer pulse and aligning their service innovation to resonate value is the key theme for companies to emerge out of recession.

A Majority of the tier-I and tier-II vendors get more than 65 percent of their revenue from their Top 10 clients. Under the current economic conditions when it is becoming increasingly difficult to acquire new clients and with existing clients looking to rationalize the number of vendors, Indian firms need to proactively approach their top clients to showcase top-line and bottom-line impact of their partnership to the client. Additionally, China is emerging as an extremely cost competitive destination for offshoring with billing rates lower by 5 to 10 percent compared to India, specifically for QA/ Testing and localization related activities and under current circumstances service providers need to differentiate themselves from global peers by showcasing the additional value they give their clients like innovation, access to new markets etc., and not just labor arbitrage.

Customer retention is a direct co-efficient of customer satisfaction and experience. Hence, it is important for companies to attract repeat business from existing customers as the cost of sale can be significantly lower and has a direct cost implication. History has proved that companies who have been adding value to customers and continue to do so, have weathered out any economic slowdown and market fluctuations in the long run. Customer is the heart of any business and there is no way a company can survive by ignoring their voice.

The current services market is getting way too crowded and hence it’s of utmost importance for each one of these players, including the tier-II vendors to create a differentiator for themselves. While large vendors such as TCS, Infosys, Wipro and Cognizant have been able to separate themselves from the pack and establish their position at the top of the IT services market, the tier-II vendors from India and few others from different countries are emerging as strong competition to them, whose manageable size and focused offerings are rapidly becoming a point of positive differentiation.

The study says that they have witnessed a lot of tier-II firms facing high cost pressures due to the economic situation off-late and hence are coming up with innovative pricing models that enable clients to share risks and rewards. Vendors are internally making extensive investments to improve delivery, quality, governance and metrics.

Larger deals are hard to come by in the current market. Further, managing cash flow for continued operations will be crucial for the next few months given that clients are pushing for rate reductions as well as delayed payments. Therefore, repeat business from existing clients become utmost important.

Also, to sail through the current times, what’s proving to be a good strategy is to leverage their core competencies to focus on niche areas and build further capabilities in the same. However, at the end of the day, whether niche or broad-based, all service providers today are under pressure to demonstrate value for each outsourcing dollar spent on them by the client.

In lieu of this, Zinnov has developed a comprehensive, first-of-its-kind framework, titled “Partnership Impact Framework” to determine the impact these vendor partnerships have had for their respective customers. It is a tool to showcase the value that these partnerships have brought onto the table and helps articulate it better. This framework helps measure both tangible and intangible parameters. It has been designed keeping in mind the importance of attracting repeat business from existing customers in current times, as the cost of sale also becomes significantly lower. Specifics on how and why this framework can help translate value from service providers:

• Repeat Business: Cost of sale would be significantly low. Sales and marketing resources can be better utilized to tap new market
opportunities.

• Cross Selling: Satisfied customers are an organization’s internal champions and hence, showcasing value to a key customer, will allow
the internal champions in the client organization to articulate a case to offshore more work to the service provider.

• New Customer References: Increased customer satisfaction will lead to more referrals within their business network thus improving
the possibility of new business.

• Engage the client using new transformational business models: Since the service provider understands customer business
requirements very well there is a good opportunity to improve productivity and showcase increased value per dollar.

Karthik Ananth
Engagement Manager

Our annual ‘Compensation and Benefit Study 2009, spread over three key cities, Bangalore, Pune and Chennai covered the compensation and benefits analysis of Software Product Development companies.

Dwelling into details of some of the trends of compensation across these companies, the study highlighted that the year 2009 has seen a plateauing of salary with over 27 percent of the participating organizations announcing a salary freeze across the board. This percentage is further expected to increase in the coming months it said. The average increment for 2009 as announced by few of the participating organizations ranges from 5 to 12 percent.

Of all the participating companies in the survey, 15 percent have postponed their merit increase cycle and will take a call based on the economic scenario at a later stage. Similarly, 12 percent have announced salary cuts either to the senior management team or across all levels. The pay cuts range from 5 to 10 percent across organizations. It highlighted that companies are shifting focus to the variable pay component to reward and retain top performers as opposed to fixed pay and some of them have even restructured their compensation, linking employee rewards to individual and organizational results. More emphasis is being laid on short term incentive schemes directly linking individual performance to the organizational performance and most of them are expected to re-evaluate long-term incentives such as stock options.

The economic condition has undoubtedly had a very high impact on the compensation budgets of R&D organizations across. Organizations are also being proactive in managing people cost as it constitutes to about 62 percent of the total operating cost. Additionally, the concern over soaring salaries at these R&D centers and the current economic down turn has put undue pressure to level off compensation.

Highlighting some of the compensation trends across functions like engineering, QA testing and technical architects, it reported that senior positions such as Engineering Manager and Director Engineering continues to be on a rise with an average increase of 8 percent as companies continue to reward high quality talent.

Also, while the average salary of Technical Architects has dipped by 4 percent, the same for junior positions in the engineering function has stabilized and has had a marginal increment of about 1 percent. Additionally, the average salary increase for the Quality Analyst (QA) function has been approximately 6 percent.

Bangalore is the highest in pay scale followed by Pune and Chennai respectively. It is about 5 percent higher than Pune and about 8 percent higher than Chennai in its average salary for the engineering and quality positions. Average salaries of senior positions of Pune and Chennai are at par with Bangalore. Also, companies do not differentiate in compensation based on location as these are critical hires for the organization. However, average salaries of junior positions are 2 percent and 3 percent lower than that of Bangalore for Pune and Chennai respectively.

The report also highlighted that current uncertainties in due course of time might result in lower productivity at the India center and can potentially impact the growth and current operations. Employees are not clear if they will be laid off or if the projects they are working on will be de-prioritized. They are also concerned about the financial health of the parent company. Employees are frustrated with cost cuts that seem like inexpensive benefits (snacks, lunch, office parties etc). It is hence recommended that companies take a holistic approach to manage these uncertainties using a structured framework to focus on people using communication as the key tool.

Know more about Zinnov (www.zinnov.com)

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Sahana Shetty
Senior Consultant
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Our study on attrition levels in the MNC R&D industry in India for the year 2009 highlights that attrition as a trend is expected to be at an all time low during the year, much due to the current economic slowdown.

This declining trend in attrition started in the year 2008 and was the lowest ever then, when compared to the previous two years. While it was high in the second quarter (April to June period in case of Jan to Dec financial cycle) of the year as compared to the other quarters, it was much under control in most organizations by the last quarter of 2008 (October to December period) due to the economic condition.

This year, most organizations have frozen salary increase for 2009 and even delayed their appraisal processes in lieu of a better visibility on the economic situation. Most of them have even frozen hiring for the current year, while only a few of them are back-filling for attrition in critical positions.

The average attrition rate across product development organizations is at 5 to 8 percent and companies are expected to have a lower attrition in the coming months. When compared to 2007, product companies across India have witnessed low attrition for various levels in 2008 indicating a more positive trend. The junior level attrition that had gone up to 7 percent in 2007 dropped to 5 percent in 2008. Similarly, middle level attrition that was at 6 percent in 2007 also came down to 4 percent in 2008. Also 2008 witnessed the lowest levels of attrition when compared to the last 2 years.

Some key findings of the report:

• QA (testing) function was found to be the highest in attrition across various cities
• Attrition at the senior level was found to be relatively low
• Contributing factors for voluntary terminations – Career Opportunities, personal reasons, higher studies. Out of the three sited reasons,
attrition due to better career prospects was relatively higher when compared to the other two. Whereas, the reason which read higher
studies was relatively higher among junior and middle level employees with about 1 to 6 years of experience.
• Involuntary terminations – most organizations seemed to have taken a strong stand on the performance of employees and hence have
weed off the bottom 5 to 10 percent of low performers.
• Bangalore continues to reflect relatively high attrition when compared to Pune and Chennai

Companies might see attrition at the junior levels as engineers might choose to go for higher studies in 2010 if the downturn continues through to the next year. In addition to this, services companies might start competing for senior resources and domain experts as their revenue model/business model might switch to revenue share/fixed priced projects from the current Time and Material projects. There is bound to be an increased focus on internal capability development programs in various organizations to help breed productivity.

Know more about Zinnov (www.zinnov.com)

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Sahana Shetty
Senior Consultant
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The findings of our study on the next phase of growth for the Indian IT industry show that manufacturing, telecom and retail would be driving growth in the years to come. The report highlighted that the Indian IT industry has been growing at a healthy rate of 34 percent year-on-year and hence considering this precedence, a reasonable growth of about 16 to17 percent during the current tough times shouldn’t be a surprise.

Notwithstanding the slowdown, the Indian industry will continue to grow due to its strong fundamentals and as a derivative of the value it adds to its global customers. Businesses across the world will strive to reduce burn rate and manage cash flow effectively. Also cost of onsite contractors have been reduced drastically in the last 2-3 quarters, which helps offshoring in general. Deriving maximum value per dollar spend, is only possible by having an executable globalization strategy as part of the overall growth trajectory for global players. This aspect is what would drive the growth of IT offshoring and in-turn boost the economy. Steps like cost optimization, contract re-negotiation, productivity improvement and rapid transitioning of projects are already being adopted by clients in the wake of the current economic downturn.

Enterprises will continue to spend on technology (hardware and software) which are essential to scale and sustain the core business. In addition to this, technologies such as virtualization and low energy computing will be the spend areas. Also, software-as-a-service (SaaS) is expected to gain traction in the market and areas like virtualization, green technology, mobile computing, netbooks, cloud computing would be high growth areas in the next few years.

Times are indeed good for Indian service providers to move up the value chain and align themselves with goals of their global clients. This is the time for internal changes and service delivery innovations, which will enable Indian companies to replace the top league of IT services companies and become true value partners to clients.

The Indian domestic market is at the brink of a major explosion and it’s important for service providers today to get their act right. The vast SMB opportunity (over 35 million SMBs) in India is a mammoth market which cannot be ignored at any given point and time.

As such, the current Indian market is strategic to many companies and if Indian service providers are able to demonstrate quality at a lower price, it would truly set a trend to tap other emerging markets world over.

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Chandramouli C S
Director-Advisory Services
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As the face of the economy changes almost on a daily basis, HR leaders across the globe are facing a number of challenges in their quest to towards effective planning. Some of these include:

• Aligning the organization headcount with the constantly evolving financial plans
• Loss of key resources in critical skill areas
• Managing the headcount surplus and gaps at micro levels (skill group level, city level), in addition to business unit levels
• Identifying intervention strategies to effectively manage workforce surplus and gaps with a medium term view (3-5 years)
• Creating an internal skill development and migration ecosystem, to enable fulfillment of headcount requirement across various geographies through internal resources
• Aging demographics in key skill areas and increasing retirement pipeline

In the face of these challenges, effective workforce planning can help HR leaders in identifying the right strategy and prepare for the future. However, the key to success is to identify the right approach which offers the highest ROTI (Return on Time Invested). Various approaches to workforce planning include:

Workforce Snapshot

• Workforce Snapshot is a traditional method of planning, which enables organizations to assess the current snapshot of workforce demographics (age, tenure, diversity etc.) and view historical attrition, retirements etc.
• In addition, basic forecasting and simple analysis like supply forecasts are performed in workforce snapshot. In certain cases, BU-level workforce planning may be rolled up company-wide as well

Data sources: Headcount plans
Return on Time Invested: Low

Detailed Workforce Analysis

• Detailed workforce analysis enables organizations in generating preliminary insights regarding workforce dynamics and identification of critical factors. For e.g. various metrics applicable to the “workforce health”
• Typically, the forecasts in detailed analysis are only directionally accurate and used for preliminary planning of intervention strategies. However, the strategies may require fine tuning in a short span of time owing to high level nature of forecasts and insights

Data sources: Headcount plans, Financial Plans
Return on Time Invested: Medium

Human Capital Planning

• Human Capital Planning is the most advanced stage of workforce planning and takes into account the organizational strategy, business targets, headcount plans and financial plans in an holistic manner
• In addition to detailed reviews and forecasts of workforce demographics and headcount, Human Capital Planning enables organizations in identifying key positions which are critical for business growth and achieving the financial targets
• A hybrid approach of Top-down and Bottom-up planning is then leveraged to conduct Supply-Demand Surplus and Gap analysis for the key roles and skill groups. The analysis is conducted across the various geographies, at a micro level as well as macro level
• The insights provided by Human Capital Planning can then be leveraged to prepare intervention strategies like skill development and migration to internally fulfill talent requirements, headcount surplus management, leadership evolution planning and other strategies to address and resolve identified problems

Data sources: Strategy Plan, Headcount Plans, Financial Plans and Business Unit Level Targets
Return on Time Invested: High

Depending on the expertise level of the internal teams, HR leaders can engage internal or external experts to define and set up a scalable approach for workforce planning and assessment. Typical workforce planning pilots (for 1-2 workforce segments or business units) take 3 months, during which a detailed approach document and automation solution can be prepared for ongoing workforce planning.

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Vipul Gupta
Director
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