Big Opportunites,

Clouded Possibilities

for

IT Services Sector

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Economic Overview

Potential of IT Services Sector in India

Key Business Challenges faced by IT Services Sector

Evolving Role of HR in IT Services Sector

A Comprehensive Cloud based Talent Management Solution – PeopleWorks

References

Contents3

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Economic Overview

Currently, India’s Services sector is the 12th largest in the world by nominal GDP, with growing contribution coming from Information Technology and Business Process Outsourcing. Its contribution to India's GDP has grown from 1.2% in 1998 to 7.5% in 2012. Increased traction in Services sector with influx of new policies, the share of IT Services sector in the services pie is expected to increase from 57.3% in FY10 to 62% in FY20. This can be attributed to the availability of a large pool of highly skilled, low cost, and educated talent, coupled with increase in IT Services exports.

Source: : Ministry of Labour, SEZ India, RBI and Nasscom

Traditionally, India’s GDP has been influenced by three sectors – Agriculture, Industry and Services. Till the early 1990s the main drivers for the Indian economy have been Agriculture and Industry. With economic reforms introduced in 1991, India’s service sector took wings and continued to surpass the other key sectors with regard to its contributions to the Indian economy. Though the other two sectors continue to share their (albeit declining) economic contribution, Services Sector comprising of construction, telecom, software and information technologies, infrastructure, tourism, education, health care, travel, trade, banking etc. has expanded its share in the GDP to 59% in 2013, up from meager 15% in 1950.

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Diverse supplier landscape: >15, 000 firms % share of total revenues

Start-ups : New breed of firms creating new markets

No. of firms

11 Large players~1,000 - 1,200 Emerging players

>40%

~35-40% 120 - 150 Mid-sized players

~9-10% ~15,000 Small sized players

~9-10% MPE, professionalservices, retail, travel &

hospitality

250+

Telecom, real estate, manufacturing,

animation & gaming,transportation

120-150100+

Agriculture, BFSI,energy, government

Education, Internet

~400+

eCommerce

~500

4

18.6%

23.5%57.9%

IT Services BPM Software products and engg. services

Potential of IT Services Sector in India

Source: : IBeF 2014

Information Technology has created a level playing field for India, fuelling its economy and positively impacting the lives of its people by actively contributing to various socio-economic factors including employment, diversity and standard of living. The sector has transformed India’s image from a rural and agro based economy to a knowledge driven economy, extending world class technology solutions and business services to the rest of the world.

Currently, though the BPO industry is economically more vibrant, India’s IT Services has become one of the fastest-growing sector due to cost competitiveness in providing services to the global sourcing market.

Major cities that account for about nearly 90% of the sector's services exports are Bangalore, Hyderabad, Kolkata, Chennai , Trivandrum, Noida, Mumbai and Pune.

Exports dominates the industry and constitute about 77% of the total industry revenue. However, the domestic market has also become significant with a robust revenue growth. The industry’s share of total Indian exports (merchandise plus services) increased from less than 4% in FY1998 to about 25% in FY2012.

According to a survey by Gartner, the IT services sector witnessed a surge in IT spending in 2013 by large Indian enterprises, with an average IT budget of $ 12.2 mn.

India continues to maintain a leadership position in global sourcing, accounting for above 55% of the total global sourcing market (excluding engineering services and R&D) in 2013 as compared to 52 per cent in 2012. The National Policy on Information Technology (NPIT) envisages revenues of the IT and ITeS industry expanding from $ 100 bn in 2011-12 to $ 300 bn by 2020 and

Sector - wise breakup of exports revenueExport of IT services has been the major contributor, accounting for 57.9 percent of total IT exports (excluding hardware)

exports from $ 69 bn in 2011-12 to $ 200 bn by 2020.1

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CreatingInnovation

Platfrom

Driving BalancedRegional

Development

Contributing toIndia’s economy

Sociallyresponsible

Putting Indiaon the Global map

IT - BPO Sectorin India

Empoweringthe deverse

human assets

Improved access and delivery of services, bridging technological divide,e-governance solutions, CSR activites

6.4% of India’s GDP

14% of total exports

10% of India’s service sector revenues

Contributing to state GDP

Enhancing education system

Employment generation

Infrastructure creation

Presence in 52 countries, with over 500global delivery centres

60,000 + foreign nationals employed

200 + cross border acquisitions

750 + captives

30 x increase in patents �ledin last 5 years

Growing R&D spend

58 per cent of workforce fromTier II/III cities

31% women,74% below 30 years,5% from economicallybackward classes

The flat entry-level salaries, flattening employee pyramid, and fast career growth are helping India stay cost competitive compared to other servicing locations, continuing to be almost 30% cheaper than the next nearest low-cost country.

Leadership Storyboard

Cost Competitive

Human Capital

Customer First

Scalability, Security

Strong Ecosystem

Maturity

3-4x cheaper than US

43Tier II/III cities

$ 118 bnIndustry

100% coverage of outsourcing engagements

~75 countries~600 ODCs

BENEFITS IMPACT ON CUSTOMERS

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1

3

4

5

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> Optimum Cost> Operational flexibilities, efficiencies

> Largest employable pool> Diverse background

> Global delivery network> Best-in-class governance frameworks

> Competitive infrastructure > Emerging potential locations

> Customer centric business outcomes> End-to-End services> Niche, domain capabilities

> Scale >15,000> Depth of services : across IT - BPM> Vertical - wide presence

> 5 mn graduates> 3 mn workforce

Source: Nasscom 2011-12

Source: Nasscom 2012-13

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IT Services: $52 bn, 60% Share in Exports

S/w Testing

ISOutsourcing

Others

37.1%

19.1%

7.3%17.7%

18.8%

High end Services

Y-o-Y growth of over 14%

IS outsourcing : Fastest growth of 18.5%

Software testing : 18% growth

CAD/M and IT consulting : Driven by SMAC, vertical - speci�c solutions

> High - end services include IT consulting, system integration and offshore software product development

> Others includes network consulting & integration, IT education/training, SOA, web services, eBusiness/e-Commerce & other horizontal services

The resilient $270 bn plus Indian IT industry returned to a higher growth trajectory in 2013 and is hoping to gain momentum in the ensuing year for greater share of the global multi-billion dollar outsourcing market.

IT Services Exports

Project oriented OutsourcingSupport & Training

13.3

2

11.3$27bn

FY2009

22.3

3.2

19.9$45.4 bn

FY2013

25.5

3.6

22.9$52bn

FY2014E

Revival in demand both from US and Europe driving growth

Project oriented : To grow 14%, driven by increase in discretionary spend which is expected to reach $52 bn in 2014

Outsourcing : 15% growth - clients’ need to focus oncore business is the key driver

Support & training : Focussed around emerging technologies

Source : Nasscom 2013-14

Source : Nasscom 2012-13

CAD/M

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According to NASSCOM, the industry is expected to clock export revenues of $84-87 bn in FY 2014 as against $76 bn FY2013. In the Indian market, the industry is expected to grow marginally year-on-year at 4% to post Rs1.2 trillion ($185 bn) in 2014 from Rs1.05 trillion ($160 bn last fiscal).

Export of IT services has been the major contributor, accounting for 57.9 per cent of total IT exports (excluding hardware). Total exports from the IT-BPM sector (excluding hardware) were estimated to have been $ 76 bn during FY13, with exports growing at a CAGR of 13. 1 per cent during FY08-13E.

With traditional verticals, i.e. BFSI, telecommunication and manufacturing, continuing to adopt IT for furthering their growth, the IT Services sector is expected to grow at an average of 15%. With Cloud technology, Mobility, Retail and Big Data creating noise, the IT Services sector will be able to increase its share in the domestic market segment too.

IT Services to hold Numero Uno Position

Exploring Verticals

> The field of healthcare, media , utilities and public sector that spend over $587 bn, are new additions to the family of IT services and are steadily increasing their spend.

> The dependence of technology is here to stay; almost all the sectors would require the services of the IT sector to reduce their own inherent service costs and resource dependencies.

Smart City

> India is all set to welcome the Smart City movement, it will bank on IT services to support its varying infrastructure needs and bring in much needed transparency. That is possible only through technology, Leading to expanding domestic market contribution to overall revenue.

New Customers and Segments

> SMBs have continued to spend upward of $185 bn IT Services, contributing 15% to India’s IT revenue.

> In addition, new service offerings are on the anvil that are steadily making inroads to tap both domestic and international markets, thereby attracting new sectors.

Changing Geography

> New geogrpahies, in specific Japan, continental Europe and BRIC nations whose IT spend is estimated at $183 bn, will add to India’s IT revenue.

> Acceptance of technology by other Asian nations will also benefit on Indian IT firms.

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Struggle with Economy

Rising inflation driven by infrastructure bottlenecs and burgeoning utility costs has unfortunately plagued the Indian IT services sector. Issues such as lack of office space, high real estate costs in first tier cities, connectivity issues are curbing growth of this sector. Adding to the burden is increased competition from other countries, including Philippines, China, Singapore, Vietnam and Middle East. Though not yet alarming, the adaptability shown by these countries can shake up India’s position as the foremost IT services destination.

The 2008 global economic meltdown, coupled with anti-offshoring sentiments from developed economies,

Growing People Worries

India is being threatened with paucity of skilled employable talent pool.

Government

High Inflation/RisingInfrastructure and

Utility Costs

Bureaucracy andCorruption

IncreasingCompetition from Eastern

Europe, Russia, Philippines.and Middle East

Anti - offshoringSentiment/Protectionism from

Developed Economies

Increased CapitiveOffshoring by Many Product Companies

Economy

People

Talent Quality/Shortage of Skilled People

High Attrition/LowLoyalty

Key Business Challenges faced by IT Services Sector

According to NASSCOM, engineering colleges in India have 1.5 million students, nearly four times the 390,000 available in 2000. Yet, alarmingly only about 25% of the technical graduates and 15% of general graduates can be brought into the fold of IT sector. This highlights the necessity to improve the employability of our graduating talent to fill in the shortage deficit.

Adding to the IT services woes is growing Attrition that is riding on double digit. Attrition rate unfortunately range anywhere between 20-40% for most of the firms, with top ones averaging around 15%. Considerable time therefore is spent on efforts to attract the right talent and retain them. If not addressed timely, the issues will affect planning, delivery timelines and quality of services in the long run.

India’s IT services sector has become an international interface for the global market. Though India continues to bask in the glory of being one of the early entrants in the IT and ITeS segment, key challenges are emerging that if not promptly managed can cause distress in the long run. Currency instability, lack of readily employable talent, data security, other evolving servicing nations and recovering global economy have emerged as challenges to the current Indian IT scene.

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Evolving Role of HR in IT Services Sector

also affected India’s IT services firms, with many struggling to sustain the cost of running operations. New challenge is captive centres that are being set up by foreign companies. This is not only resulting in revenue loss but is also leading to high competition in the talent market.

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Improved global economic market, growing domestic market and rise in technology spend, brought with it a wave of optimism for Indian IT services sector in 2014. Mushrooming start-ups and expansion in services verticals offering wider continuum of solutions has assisted the sector to attract new customer segments, fuelling business growth. As per a NASSCOM circular, to support this growth aspiration, in 2014 Indian IT-BPM sector added over 160,000 employees.

According to NASSCOM, FY 2015 will continue to ring in good fortune for this sector, adding $ 13-14 bn to current industry revenues of $ 118 bn. Export revenues is projected to grow by 13-15% to reach $97-99 bn, whereas domestic revenues will grow at a rate of 9-12% and is expected to reach Rs. 1250 - 1280 bn in 2015.

Growing market acceptance has made the IT sector, in particular IT Services sector an extremely to be alluring industry to be associated with. Being knowledge based, the industry attracts high intellectual human capital. Never the less the industry is reeling under shortage of skilled resource and double digit attrition rate. These issues are rippling into other related People Management issues varying from recruitment, retention, compensation, career management, skill development and curtailing burgeoning employee turnover.

HR role is therefore undergoing a transition to arrest growing Human Capital issues and yet support in

achieving companies their business goals. During our interactions with various leading business units, we could gather key challenges faced by the sector with focus on Talent Management and Goal alignment.

Governmental Road Blocks

Unclear policy framework, bureaucratic corruption and political inefficiency act as impediment for doing business with India. As per Transparency International’s Corruption Perception Index 2014, India fares poorly with an integrity score of 38 out of 100, with many describing India’s bureaucracy suffocating and a slow painful process. However, optimism is high with new government in power, which has assured foreign investors of providing a clean India to do hassle free business with. Yet, many investors are watching from the sidelines, limiting the interaction to few business transactions.

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Planning and Implementing Policies

Success of business plan/goals is partially dependent on an organization’s Human Capital. Therefore HR policies pertaining to recruitment, rewards, compensation and retention need to reflect and evolve as per changing needs. This may inplanning team strength better and matching resource requirements for future. Therefore critical employee data and swifter policy implementation is the need of hour.

Arresting Attrition

Shortage of IT professionals is a global phenomenon and not limited to the Indian services industry alone. A crying demand- supply gap is clearly noticeable and unfortunately resulting in high attrition and poaching of experienced resources. The challenge is to keep the attrition low and retain performers. Managing expectations both current and latent of an employee therefore needs to be evaluated not just during recruitment, but during performance management and monitored closely.

Value Addition Training for Skill Enhancement

Staying abreast with rapidly changing technology to ensure quality of services and achieve customer delight is compelling businesses to recruit highly competent professionals. Yet, over time employers are expected to impart relevant training to allow employees not just to perform current projects but be able to execute subsequent projects that may make an entrance during the course of their tenure. Skill gap analysis, performance evaluation and goal alignment with business goals is therefore extremely critical.

Attracting the Right Talent

New opportunities, changing operation dynamics and simultaneous demands for same skills by other players (competitors or new services verticals) has made the task of getting right talent a uphill task. So, apart from sourcing the right fit, HR needs to understand and evolve its policies pertaining to career planning and reward factors that contribute to attracting talent and building brand image for the organization. HR is expected to understand the needs of a role, align it with business growth and lend support to management to improve existing policies to not just attract but retain experienced talent.

Workforce Planning and Critical Data Availability

High-performing organizations need to integrate workforce planning with business planning processes. It supports budgeting processes but also allows efficient team management. Data or Reports, pertaining to availability of a resource (especially critical ones relevant to a project), skill gaps, attendance and leave information of workforce can act as feeders to plan operations and project executions efficiently. It is therefore important for companies to proactively plan ahead to avoid talent surpluses or shortages.

Bottlenecked Workflows

It is often cited that HR intervention for basic planning hampers the efficiency of the process/project. This may include leave management, attendance, employee movement, performance reviews, goal review etc. These processes are not just extensively manual, but act as a roadblock for HR to elevate their role from a basic administrator to strategic business partner.

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Getting the Compensation Right

The IT sector is a very competitive industry and is considered as one of the high paying sectors. To attract and retain talent, many companies are extending perks including ESOP to high performing individuals, fast track promotion and recognition platforms. Apart from the perks, HR is expected to watch the market for salary changes, cost of talent acquisition and weave it into the Compensation and Recruitment policies.

Increasing Loyalty

“The Best Place to Work” is a concept fast catching up with IT Services sector. The project environment culture and global nature of the industry is fast reflecting on various business strategies. Companies are extending flat structure, flexi timings, employee engagement programs and open work culture to its professionals to create a more conducive work environment with the hope of increasing loyalty.

A Comprehensive Cloud based Talent Management Solution – PeopleWorks

The PeopleWorks Advantage

There has been a paradigm shift in business models, with the intent to offer best services to clients, yet curtail operational cost. From Onsite-offshore model to cloud based-off premise solutions, companies are ushering in “Technology driven Services Transformation” bringing in business innovations in its wake. To sustain growth in the coming years the IT services sector will need to address its Human Capital and reinvent its Talent Management techniques. Cloud based Talent Management solution therefore can be banked on to provide much needed respite to Management and HR alike and yet not burden operational cost.

The hyper frenetic climate of business and rapidly evolving nature of IT services sector makes it difficult for CXO’s and HR to fish out time to indulge in employee ‘wellness’ quotient and implement strategies for furthering the organization’s growth ambitions. A focused approach is needed to develop talent through multiple ways, identifying unique ways which go beyond regular training and on the jobs exposure to utilize true potential of talent.

Every organization has its own set of talent challenges and people management issues, which can be purged if appropriate action is taken on time. With changing business environment and evolving needs of clients, IT services firms need to acknowledge the necessity to rely on technology to manage its Talent. PeopleWorks solution has been evolved to address various talent management needs in specifically in the IT services sector. Certain key functionalities imbibe best practices reflecting PeopleWorks knowledge of the sector, giving your firm the much needed kick start.

As a comprehensive, one stop solution that automates Talent management processes, PeopleWorks makes it easy to focus and enhance an organizations productivity quotient by being an ultimate guide to plan and take better decisions.

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PeopleWorks confers an easy one stop solution that provides organizations a ready insight to pertinent queries/issues in the IT sector. Following is a quick overview of its unique, user-friendly modules relevant for IT Services Sector :

Employee Data Management

With PeopleWorks, Employee data can be tracked at one place. Having access to basic employee details, organization details and so on is available for easy data management. With the Employee master information report, generating relevant reports is easy as blinking an eye. This brings efficiency into the whole procedure and ensures data sanctity. Linked to recruitment, headcount management becomes stress-free. Loop in verification trigger to ensure that every new hire is verified.

Performance Management

To seamlessly track the performance level of a particular employee, and assess their shortcomings, the Performance Management solution of PeopleWorks is the key. Through competency assessment employers can identify skill gaps and make necessary course corrections to ensure employee aspirations are in tune with organization’s goals. The Performance Management feature can be linked to your calendar or project specific to ensure you don’t have to change your review policies.

Learning and Development

The competition in the IT services sector is omnipresent. To have an edge over others, it is imperative to incline the focus on learning and development of an employee. The training needs and opportunities need to be identified by the organization to foster a learning and knowledge inductive climate. Reiterating the importance of effective training, PeopleWorks Training feature strategically streamlines the training and development needs of a competent faculty basis identified skill gaps.

Broadcast, Connect and Query Management

Employee engagement and its impact on organizational and team performance is a no brainer. An engaged employee exudes positivity and is usually a top performer. A key ingredient of employee engagement is communication. PeopleWorks effectively induces communication and ushers in better connected workforce, with Broadcast and Connect features. Broadcast and Connect helps to establish a steady momentum of rapport within the organization. Timely query resolution furthers the sense of commitment from organizations point of view. Any query raised by an employee can be managed and tracked through the PeopleWorks Query Management feature. It cascades the issue in the blink of an eye and helps to track TAT of a resolved query for future reference.

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Transfer Management

Transfer procedure can be easily managed with PeopleWorks. Time is saved at the employee’s and approver’s end as any employee or even team transfer can be easily executed through PeopleWorks Transfer Management feature.

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Idea ManagementProcess Innovation is extremely critical for organizations if they aspire to grow and withstand any adverse market condition by executing projects qualitatively to achieve client appreciation. Innovation should be included as part of the organization’s DNA and emerge as a new culture where every single employee is involved in realizing ideas. With the PeopleWorks Idea Management feature Idea journey gets automated, starting from idea submission, approval/rejection and implementation.

Attendance Management

Attendance data is tracked for everyone at just one location, where the reviewer can track attendance data for an employee with ease. Add to that the option to track time spent on each task. The subsequent team report allows managers to plan and find the replacement for a particular employee when he/she takes unplanned leaves. As payroll process is dependent on attendance data, it is important that the data thus collected is accurate and error free. With PeopleWorks HR can generate relevant reports and utilize the same for payroll process. The HR department can track overtime and assert minimum work hour policy to bestow maximum utilization of man-hours.

Exit Management

With the Exit Management feature, an employee under notice can track the status of the separation process easily. The application reduces the manual approach with employee in concern receiving relieving letters directly via-Email, saving tedium and unproductive man-hours! The HR department can also generate separation reports to get prompt status of the separation queue and work on the attrition and back fill positions efficiently.

Reports

Access to reports that gives you valuable insight about your organization can be easily addressed by automating key relevant data points. With over 80 plus readily accessible reports, empowering the HR department becomes easy. The reports generated act as a feeder in taking decisions such as headcount planning, attrition management, etc. thereby aiding the organization to add up to the growth quotient in tandem with changing business requirements.

Travel and Expense Management

It is important to track various operational costs (including high expense international travel). With PeopleWorks, organization’s can track any travel request and take necessary action basis requirements. Other sundry expenses can be seperately tracked and managed to ensure relevancy of a claim. Eligibility rules can be enforced to ensure that all request are monitored and managed optimally.

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Leave Management

Every project relies heavily on resource availability. Leave data is therefore extremely important for Project Managers to anticipate any delay or variation in project timelines. With PeopleWorks Leave Management feature, employees can apply for a leave which in turn allows manager to track any resource absence and plan better to execute a project milestone. Moreover it gives managers as well as employees access to their leaves at the click of a button. Leave balance detail also acts as a feeder for HR to process error free payroll.

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References

2 http://www.nasscom.in/upbeat-and-growing-itbpm-industry-enters-digital-ecosystem-era

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References

2

1

3 http://indiainbusiness.nic.in/newdesign/index.php?param=industryservices_landing/395/3

http://indiabudget.nic.in/es2013-14/echap-0.pdf

Key TakeawaysWith global IT spending projected to grow by 3.9 per cent, IT services segment is all set to surpass its contribution to Industry revenue that is expected to reach $ 130 bn. According to NASSCOM, disruptive technologies, digitization, new offerings and entrepreneurship will act as catalysts that will fuel growth. As India continues to be the most sought after destination for IT services, expansion of offerings are on the anvil. In addition to existing offerings, emerging technology will present an entire new gamut of opportunities for Indian IT firms. According to Investment and Technology Promotion Division, Govt. of India, Social, mobility, analytics and cloud (SMAC) collectively provide a $ 1 trillion opportunity. Cloud represents the largest opportunity under SMAC, increasing at a CAGR of approximately 30 per cent to around $ 650-700 billion by 2020.

Right Talent will be the ultimate source of comfort for Indian IT firms to support them in their growth aspirations. However, IT firms should realize the growing expectations of today’s high tech workforce and extend favorable work environment to them. Management needs to work closely with HR professionals to shape their talent management strategies now to step up for current and future opportunities and be able to alienate threat source, if any.

Creting a predictable environment for talent management was never this easy. Analyze future needs, churn your employee’s true potential and make your talent future ready with PeopleWorks.

Embrace talent technology today for an optimistic tech driven tomorrow.

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