Kevin Barnes had been interviewing job applicants for two weeks, and it wasn't going well. As director of engineering for StorePerform Technologies, a maker of retail software, he couldn't seem to find qualified programmers.
But Barnes wasn't conducting his search at StorePerform's headquarters in Denver or at its offices in London. Instead, he was attempting to staff the company's newly opened facility in Bangalore, India.
India is perceived as a cornucopia of IT talent. But like StorePerform, some organizations are discovering that certain IT skills are increasingly scarce. "There's no short supply of new graduates moving into the IT and BPO space. But there is a shortage of people with two-to-five years of experience," says Bill Martorelli, Principal Analyst for Forrester Research. "And these people are key to making IT work."
This has implications for any organization that outsources IT activities to the subcontinent. A tight labor market can mean rising salaries -- costs that can show up in outsourcing contracts. It can also mean quality problems or project delays.
But by taking the right steps, say experts, you can avoid potential problems and ensure that your supplier delivers IT services at the quality and price that meet your requirements.
Feeling the Squeeze
Like many growing companies, StorePerform has limited resources. To develop the best software at the lowest cost, it is taking advantage of the Indian labor market. It searches for talent through familiar means: placement agencies, employment databases, help-wanted ads. But increasingly, it has struggled to find qualified programmers.
"Opportunities in IT have attracted workers who lack the aptitude to be software developers, and no amount of training will give them that aptitude," Barnes explains. "India today is comparable to the United States during the dotcom boom, only India is much worse."
The numbers bear him India's offshoring sector -- dominated by IT services -- is the fastest-growing in the world, according to McKinsey & Co. From 2004 to 2005, the Indian IT and BPO industry was expected to employ 695,000 people -- a number that could reach 1.6 million by 2008. Likewise, the National Association of Software and Service Companies (NASSCOM), India's leading IT trade association, estimates that by 2009 there will be 885,000 people working in IT -- short of expected demand for 1.1 million.
That demand is fueling a brisk increase in pay scales. Salaries in India's IT sector jumped by 14.5 percent in 2004, according to consulting firm Hewitt Associates, a rate expected to be matched in 2005. "If you hire a programmer right out of college, you can get them at a low rate for the first year," Barnes reports. "But within three years, their salary may triple."
The lure of higher wages is also driving a rapid rate of attrition. Average turnover rate last year was 15.4 percent for all sectors, Hewitt reports, while some Indian IT suppliers say the rate can be as high as 35 percent. But some observers disagree with Barnes that programming is the skill in shortest supply. "Most programming language, application development, and integration skills are in abundance. The shortage is more in the area of functional experts, business analysts, and technical architects," says Vinayak Kamath, Vice President of HR for Genpact IT Services, a large Indian outsourcer.
For its part, Indian outsourcing giant Wipro Technologies claims it hasn't seen any shortage of IT workers. "We do face a challenge when it comes to niche skills," concedes Achutan Nair, General Manager of HR for Wipro. "At any given moment of time, some hot skills always hit a supply-demand gap."
In any case, Indian outsourcers appear to be taking proactive steps to avoid a labor crunch, starting with the nation's engineering schools. "We work closely with universities to help them identify the best candidates, develop the right programs, and offer mentoring," says Mukund Menon, Assistant Vice President of HR for Satyam, an Indian IT services firm. "We hired 1,900 people in the last quarter, many of them from universities."
New hires often continue their education through corporate training. "All the major Indian outsourcers have training programs," Martorelli says. "They also try to provide some kind of career path for employees to combat attrition."
Additional training comes on the job. Genpact has recent hires "buddy with experienced and skilled employees, to handle simulated and actual situations" before they are "put into live projects or service delivery situations," Kamath says. At Wipro, Nair says, "We populate existing projects with extra resources, just to let employees gain these hot skills from the experience of working on a project."
Site-rotation programs expose workers to new experiences. Outsourcers from ThoughtWorks Technologies to TCS Ltd. allow employees to work in company locations around the world, promoting knowledge sharing and best practices. "Satyam allows employees to move among different kinds of projects and roles," Menon says. "We also allow them to travel to overseas locations to work directly with clients so that they can upgrade their interpersonal skills and business acumen."
Advice to Buyers: Use Checks and Balances
But don't blindly trust your outsourcer when it comes to IT skills. "A lot of organizations just take whoever the outsourcer assigns. They've negotiated the cost and service levels, so they think it doesn't matter," Barnes says. "But it does matter, because projects can still end up getting done poorly."
Barnes recommends that you insist on interviewing the people who will work on your project. "You need a window into the hiring process," Martorelli agrees. While it may not be practical to review every worker in the call center, where staffs are large and attrition rates high, "it's certainly reasonable to evaluate every team member on a technical help desk or software development team," he says.
Genpact's Kamath recommends that you work with organizations that have a presence in multiple cities and countries. One reason is that labor shortages can be local. A July 2005 study by MeritTrac, India's leading recruitment firm, found that while Southern India churns out the most engineering graduates, northern India produces more qualified graduates.
Genpact has set up storefronts in various cities to recruit workers for entry-level jobs. Satyam is also considering talent in less competitive markets -- even outside India. "We're looking to move to Tier 2 cities where the cost of living is lower," Menon says. "We're also looking at opening facilities in lower-cost countries." The company expects to double its work force to 50,000 over the next couple of years.
For larger contracts, you may want to bring in a third party to act as a project manager. "A company like Infosys might handle the bulk of the project, but a separate company can review the work or handle second-level quality assurance," Barnes notes.
You can even try to determine if there's a specific team member who is underperforming. "If a staff member doesn't appear to be working out, you should request that they be transferred off the project," Martorelli recommends.
Likewise, you can try to identify the overachievers. Some companies demand that a particular manager will oversee the project on a long-term basis.
"Ultimately, you're buying a service. So if there's a problem with performance or quality or deliverables, you need to drill into the reasons," Menon advises. "If the reason is underqualified team members, then you should ask for changes."
Striking that balance between relinquishing the project but retaining some of its management is one of the biggest challenges of outsourcing. "But you need to have good oversight of your outsourcer, and that includes staffing issues," Martorelli says.
Concludes Barnes: "You might turn over IT to an outsourcer, but you're still responsible for it. Don't forget about it."
Lessons from the Outsourcing Journal:
- Indian IT suppliers are experiencing labor shortages in certain positions. Salaries are rising. Buyers who offshore must factor these conditions into their decisions.
- Advice to buyers in the current market include:
- Interview the people who will be working on your project or evaluate the team doing the work. Don't just accept the workers the outsourcer suggests.
- Select an outsourcer with multiple locations because personnel shortages can be local.
- Identify the over and under-achievers on your project.
- Manage the project carefully.