Tech Mahindra focuses on internal fulfillment over external hires

New Delhi: Large-cap information technology (IT) services firm Tech Mahindra is increasingly focusing on internal fulfillment of roles, rather than making fresh hires from outside the company. In an interview, Harshvendra Soin, global chief people officer (GCPO) at Tech Mahindra, said that the company has hit an internal fulfillment rate of around 66% in a bid to control average resource cost (ARC) and employee expenses — a rate that is “in line with the best across the industry.”

“In terms of the reduction in headcount, we’ve come down primarily in business process services (BPS), which is a natural cyclical process, and also managed to reduce our workforce in IT. We’ve succeeded in doing this thanks to a lot of automation in IT, alongside improving our internal fulfillment sizeably — up to around 66%. This is in line with the best across the industry,” Soin said.

Internal fulfillment rate refers to the percentage of jobs that are filled with employees within the company instead of hiring new resources from outside. Doing so can help companies moderate their employee expenses, which, for India’s IT services sector, is one of the biggest. On January 16, Mint reported that while the share of employee costs in IT services firms fell from 56.2% in the September quarter to 55.1% in the December quarter, the figure still remained higher than what it was, one year ago.

On Monday, Tech Mahindra reported a 1.8% sequential rise in its dollar revenue, which rose to $1.67 billion for the December quarter. However, net profit dropped 1% sequentially to $157 million, even as the company reported what industry analysts hailed as “robust” quarterly deal signings of $795 million for the period. Deal signings during the period rose by 11% sequentially, despite the ‘weak’ December quarter.

Attrition for the period dropped to 17%, one of the lowest among large-cap IT services firms, while utilization — which refers to the percentage of total employees that are engaged in active projects, improved by 100 basis points to 86% in the December quarter.

High employee costs in the IT sector were prevalent through all of last year, due to high attrition levels across all major firms in India.

Soin said that the company’s focus on internal fulfillment of job roles, coupled with reducing attrition levels to quarterly annualized rate of 14.3%, and a liberalized moonlighting policy, has helped the company moderate employee costs.

“We’ve had some fluctuations in the employee cost even in the previous few quarters. Our average resource cost (ARC) is fairly flattish, and is slightly higher offshore, and that is purely because external hiring is more expensive overseas. That is why there is a huge push on internal fulfillment. We want to make sure that our ARC remains the same — first, with the internal fulfillment, and second, with our employees at the bottom of the pyramid. We will upskill and train them to take on higher roles,” he said.

Industry analysts stated that this would make for a natural course of action to chart for Tech Mahindra. Akshara Bassi, senior research analyst, global cloud and server markets at Counterpoint, said that the company is likely to try and improve fulfillment rates “by a further few basis points going forward.”

“For Tech Mahindra, the inflated employee cost at the moment is what the company will try to regulate. In the future, the key will be to not try and drop the fulfillment rate, which is what will likely help them regulate costs and improve margins and profitability. What remains to be seen is if they can maintain the present internal fulfillment rates or not,” Bassi added.

Soin did not offer a projection of how Tech Mahindra’s focus on internal fulfillment may benefit its operating cash flow. “We’ll need to consistently improve internal fulfillment for it to have an impact on our operational cash flows. It’s still early days for us, and we’d want to keep this trend going. If it stays, we may see an impact in the long run, but it is too early to comment,” he added.

Shares of Tech Mahindra closed on Monday at ₹1,036.15 apiece, up 0.58%. The 30-share BSE IT index closed 1% up at ₹29,871.09.