Why more sales will not mean more hiring in IT. Hint: It’s not because of a non-linear business model
In 2001, after the dotcom bubble burst, the Indian IT industry faced one of its biggest crises. Clients turned tight-fisted. Orders were hard to come by. Sales suffered. Rumours of layoffs hung heavy above the heads of techies. And hiring came to a halt. Soon, growth returned. The impact of the hiring freeze showed up as shortage of talent and companies were soon scrambling for good hands. The episode taught managers a big lesson: When you are riding a wave as big as outsourcing, have faith, don’t stop hiring.
That’s a lesson they are trying hard to unlearn.
For long, in the Indian IT services sector, business growth and hiring followed each other like night follows day. In fact, its business model rested on this fact: More business meant more code, and India offered not only cost advantage, but also ensured there will be a constant stream of people to cater to the demand. It went by the term linear business model, and it seemed to have worked well for the industry so far.
In the coming year, that synchronised play of supply and demand is likely to break down. In other words, while the industry is expected to grow 12 to 14 percent, IT companies will not increase their headcount by as much. It’s not because the Indian IT industry found a way to get more revenue with less. They are all working on it, and there are even early hints that they are finding some success in such growth. But the reason for the lack of appetite for headcount is a metric called utilisation: The percentage of employees who are assigned to a project and are billed.
(This story appears in the 22 March, 2013 issue of Forbes India. To visit our Archives, click here.)