Tech Mahindra to focus on internal fulfillment over external hires

Large-cap information technology (IT) services firm Tech Mahindra is increasingly focusing on internal fulfillment of roles, instead of hiring external candidates. In an interview, Harshvendra Soin, global chief people officer, Tech Mahindra, said the company has hit an internal fulfillment rate of around 66% in its efforts to control average resource cost and employee expenses, “in line with the best across the industry” .

“In terms of the reduction in headcount, we’ve come down primarily in business process service, which is a natural cyclical process. We also managed to reduce our workforce in IT. We’ve succeeded in doing this thanks to a lot of automation in IT, alongside improving internal fulfillment significantly, by up to 66%,” Soin said.

The internal fulfillment rate is the percentage of vacancies filled by employees within the company instead of hiring new resources from outside. Doing so can help companies moderate employee expenses, which, for India’s IT services sector, is one of the biggest costs.

On 16 January, Mint had 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 remained higher than the year-ago levels.

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

Attrition for the period fell to 17%, which is one of the lowest among large-cap IT services firms, while utilization—which refers to the percentage of employees engaged in active projects, rose 100 basis points to 86% in the quarter. IT sector’s high employee costs were prevalent throughout all of last year, due to higher attrition levels across all major firms in India.

Soin said internal fulfillment of job roles, coupled with falling attrition levels to a quarterly annualized rate of 14.3%, and a liberalized moonlighting policy, has helped the company rein in employee costs. “We’ve had some fluctuations in employee costs even in the previous few quarters. Our average resource cost (ARC) is fairly flat, and is slightly higher offshore, because external hiring is far more expensive overseas. That is why there is a huge push on internal fulfillment. We want to ensure that our ARC remains the same, first with internal fulfillment, and second, with our employees at the bottom of the pyramid. We will upskill and train them to take on higher roles.”

“The company is likely to try and improve fulfillment rates by a further few basis points going forward,” said Akshara Bassi, senior research analyst, global cloud and server markets at Counterpoint.

“Inflated employee cost is what the firm will regulate but it remains to be seen if it can maintain the internal fulfillment rates.”

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 like 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.