Tag: attrition

EPAM Defies the Odds in Global Services Market | Sherpas in Blue Shirts

EPAM, a midsize, $800+ million service provider, is growing faster than the market. And it’s achieving this notable status in a mature application space where others have struggled and also in a services world that favors scale and size. What is its secret for beating the odds and seemingly defying gravity?

At first glance, EPAM shouldn’t be able to succeed. Its customer base is large enterprises with mature sourcing models. And although it has an arbitrage value proposition, it uses Eastern European resources, which are more expensive arbitrage than available in India. Yet it achieves attractive margins and is quickly growing.

EPAM succeeds because it has a highly differentiated value proposition around its talent model, client intimacy and capabilities. It’s a compelling story.

It delivers against the traditional pyramid offshore factory model with its incumbent churn. EPAM provides, instead, talent from Eastern Europe who have deep engineering skills and are more technically savvy. Once it puts a team in place, it keeps that team in place; so there is low turnover in staff. This positions EPAM as better understanding its clients and bringing a more stable, higher-productive, knowledgeable team than its competitors, with deep customer and technical knowledge. They don’t take over all the operations; they focus on highly technical applications that tend to be mission critical.

EPAM succeeds because it hits the market with the right differentiated story and a set of capabilities, messaging and business practices that align well for large, mature companies. In today’s mature market, EPAM presents a nice counterpoint to the big Indian firms. And they are taking share.

What is “Good” Attrition in Global Services? | Sherpas in Blue Shirts

Managing attrition has always been a priority for business leaders in global services, and its importance continues to increase over time. Given rising competitive intensity for talent, especially in mature markets, attrition continues to consume significant mindshare of senior executives and HR managers. The key challenge has always been to quantify the actual impact of attrition on their companies’ operations.

Everest Group has developed a quantitative framework to identify the financial impact of attrition, by evaluating both costs and benefits (see Exhibit 1). Attrition impacts two key parameters of business – direct attrition-related costs (e.g., expenses on recruitment, employee onboarding/training, and employee pay-outs) and productivity loss/revenue leakage. Although the benefits associated with attrition are often not fully understood, mature firms have been able to achieve lower employee costs per FTE by adopting strategic and policy-level levers.

Financial Impact of Attrition

Based on this framework, we define “good” attrition as the average annual employee turnover rate at which an organization has a net financial gain for its operations. Everest Group’s analysis indicates a good attrition rate in an India-based English language contact center is 25-30 percent annually (see Exhibit 2). Firms with a lower or higher turnover rate incur net costs.

Good attrition rates are influenced by both market- and company-specific factors, and vary by function and location. For instance, the Philippines has an attrition rate range similar to India’s for contact center services, but a much lower one for IT services. Operations in Eastern Europe and Latin America usually have a much lower rate of good attrition compared to Asia across all functions.

Direct cost and benefit of attrition

It is noteworthy that firms usually experience attrition-related benefits for work in which efficiency and standardization are key considerations. In complex and judgment-intensive work, it is often desirable to have a very limited attrition. Furthermore, the benefits of attrition are relatively easier to achieve in moderate- to large-scale and growing operations. Small-scale and low growth operations need to consciously develop employee career paths to mitigate the challenges of higher people costs associated with a stagnant workforce.

Business leaders and HR managers can benefit by adopting this quantitative approach to assess the impact of attrition on their operations. To gain maximum value, they should institutionalize metrics to fully estimate – ideally capture – both the costs and benefits of attrition. Business managers should also identify the level of attrition that is good for their operations, and plan for it in their annual budgeting and forecasting cycle.

For more details on this topic, please refer to our recently released report, How Much Attrition is “Good” Attrition?

 

Vicious Cycle: Attrition Cost Per Lost CSR Rises as Overall Attrition Increases | Market Insights™

Business Impacts of CC attrition 2

The total cost impact of attrition varies based on the actual level of overall attrition: costs increase by about 1.3% for every 10% increase in annual attrition rate. The higher per-Customer Service Representative (CSR) cost of attrition, which holds true for contact centers located in both onshore and offshore locations, is driven by the need to maintain a larger infrastructure to support higher attrition rates.

Visit the report page

Wipro’s New HR Policy Changes Highlight Major Issues Indian Providers Better Tackle…Fast | Sherpas in Blue Shirts

This past weekend Wipro announced it was adding employee attrition and customer satisfaction to the criteria upon which its senior management will be evaluated, and the metrics will be linked to quarterly compensation. This move clearly exposes that the employee satisfaction (and hence retention) and client satisfaction issues arising from Indian IT providers’ tremendous growth and their offshore-based business model are increasing and becoming more visible. (See a related blog by my colleague Jimit Arora) And with so much at stake, they must address the problems, and they must do it now.

Why the urgency? Several reasons, given the inextricable connection between client and customer satisfaction. First, the Indian IT providers’ model of hiring low cost resources and continuing to expand the bottom of their resource pyramid has its own challenges. While they have developed sufficient standardized processes and have very solid training programs to keep churning out “good enough” people to perform client work requiring technology competence, they cannot satisfactorily add critical business value through IT if they stick with hiring associates freshly graduated from college.

Second, constant hiring takes a toll on the system in terms of cost, process flows, and efficient collaboration. Third, because many providers cannot create a career growth path for such a large volume of experienced resources, they actually cause attrition in order to hire the requisite “fresh hands” staff.

Obviously, Wipro’s addition of employee satisfaction (attrition) and client satisfaction being linked to senior management compensation comes with its share of challenges. An employee’s experience in an organization depends on a wide range of parameters including compensation (industry driven), work quality (varies based on the client engagement), feelings toward team members (reasonably independent of the quality of the boss), growth opportunities, work environment, etc. Additionally, how will client satisfaction be measured, e.g., through surveys, general interaction, volume growth, pricing improvement, etc.? Moreover, how much impact does a senior executive have on the kind of people assigned to a given project, and what if an employee is assigned to a project that he/she simply does not want to work on?

Despite these challenges, there is a silver lining in that although these providers have disrupted the IT service market, they now realize their limitations and the need to retool their model and perform more “business value” work. Clearly this change will not happen overnight and will take consistent effort and strategic execution. But it can and must happen. However, we should not expect offshore providers to mimic the resourcing pyramid of MNCs even (and when) they provide business driven higher IT value. They have changed the game of IT service and they will surely attempt to do it again in higher business value services. As the low hanging client fruit is more or less taken, the next phase of growth in the cut-throat IT services market will be led by innovation and client satisfaction. And happy provider employees are the best path for these outcomes.


See related article on IT Business Edge, Outsourcing’s Shift from Arbitrage to Innovation.

Have a question?

Please let us know how we can help you.

Contact us

Email us

How can we engage?

Please let us know how we can help you on your journey.