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FEATURES/Real Issue | Apr 19, 2013 | 23114 views

HCL Tech's Problems With New Recruits

HCL Technologies bucked the slump with its upbeat financial performance. Then why has it been reluctant about onboarding freshers?
HCL Tech's Problems With New Recruits
Image: Courtesy: www.aiitea.org
HCL recruits, who haven’t been given a joining date even after a year, had gathered at Bangalore’s Freedom Park to protest against the company

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Anand Kumar is an angry young man. In November 2011, the 23-year-old was offered a job by HCL Technologies during campus placements, even before he earned his engineering degree. That was then. Over a year later, he is still in the dark about his joining date. The endless wait is frustrating for Anand Kumar as well as several others who passed out of engineering colleges across the country in 2012. (Around 5,000 offers were made, a number that HCL wouldn’t confirm or deny.)

Over the last few weeks, their frustration found vent on Facebook and eventually erupted as protests, both online and in evocative locations. Recently, in Bangalore, around 50 of them went on a hunger strike at Freedom Park, the same venue where hundreds gathered to show support for Anna Hazare in 2011.

Interestingly, HCL Technology is not the only company that’s struggling to bring new recruits on board. Even Infosys has staggered onboarding by several months. “Since the 2008 meltdown, the business cycles around the world have been volatile and IT companies are still unable to get a clear visibility into the future trend,” says E Balaji, CEO of Randstad India. Yet, only HCL seems to have provoked this response. It’s all the more surprising if one takes a look at the company’s performance.

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While almost every player in the country was giving a cautious outlook, HCL Tech not only sounded positive, it also followed up with its performance. Compared to 2009, its revenues have risen by close to 80 percent (bettered only by TCS and Cognizant, among the top five) and its net profit has more than doubled (net profit margins for the calendar year rose by 4 percentage points). On the stock market, its share price has grown faster than its peers (by a big margin, in the last one year, and a smaller margin in the last four). Bhavin Shah, CEO of Equirus, says its financial performance in the last few quarters had allayed the concerns investors had about the company even a year ago.

There are two more reasons why the reluctance to onboard employees surprised many. Top IT companies have gone slow on hiring because for every three employees who were deployed in a project, they had one who wasn’t. For HCL, this ratio is 4:1, considered to be optimal. In the last few years, it has been propounding an ‘employees first’ philosophy that purportedly places employees even ahead of customers. Surely, it could treat its new hires with more respect?

Its reluctance to onboard freshers—when its numbers seem healthy, and when its management philosophy seems clear-cut—has raised questions about both the assumptions. How do they all add up? For answers, we need to look at its performance in a more granular fashion.

First, its financial performance. Despite the hype around the big wins, HCL’s real achievement in the last couple of years has not been so much about revenue growth as it is about the margins. In 2012, despite its smaller size, it grew slower than both TCS and Cognizant. Besides, its growth rate also dropped from 26 percent during both 2010 and 2011 to 12 percent in 2012. But, more importantly, even this growth came predominantly from remote infrastructure management projects. Last quarter, this segment saw a year-on-year growth of 37 percent. (In contrast its other three big service lines—enterprise applications, engineering and R&D, custom applications—grew at 5 percent.) Over the last two years, nearly half its growth came from infrastructure services. From 15 percent of its total business in 2009, infrastructure management now accounts for close to 30 percent.

 

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All figures in $ million and refers to calendar year

So, jobs are likely to be generated in infrastructure, rather than in software services. (Campus hires were made by individual service lines and software services, which looked promising in 2011, ended up otherwise.)

Krishnan Chatterjee, vice president and head, strategic marketing, HCL, says the company has opened infrastructure management positions for campus hires, and over 1,200 have applied. (It has a good momentum. The current CEO, Anant Gupta, started his career there, he says.)

However, for campus hires, that would mean taking a cut in the salary. (While starting salary for software services is Rs 3.25 lakh a year, it’s Rs 2.75 lakh a year for infrastructure. But, even this doesn’t mean you join the company straight away. You only get the date of joining, says Anand.  “Further, they told us we cannot shift from infrastructure to software.”)

Why doesn’t the company avoid all the bad press—and the bad blood—by taking them on board? (In the worst case scenario, a campus hire waits till the end of the calendar year in which he graduated.) A few years ago, questions would have been raised about the company’s cash flow. But today, it’s mostly seen as the management’s desire not to dent the margins. “It’s about financial discipline,” says Shah of Equiris. Chatterjee insists it’s not about margins, but it’s about the concern for the campus hires. “Would you rather we hire them and place them on bench? Now they have an option to look for other jobs,” he says.

The big concern about HCL Tech is that a good part of even those inside might be doing that. For a company that goes by the tag line ‘employees first’, its attrition rates are high. It’s not immediately evident from the numbers the company gives out every quarter. According to HCL Tech’, its attrition rates for the December quarter is 13 percent, which is much better than even TCS and Infosys. But, the devil is in the way the numbers are calculated. If one applies a common formula, in the last four quarters, HCL’s annualised attrition rate has been around 24-25 percent, (compared to TCS’ 13 percent, Infosys’ & Wipro’s around 17 percent—see table on pg 30). Chatterjee says it’s not a bad thing. HCL Tech has been a hunting ground for other companies because of the training it gives to its employees, he says.

This, and the company’s reluctance to bring the campus hires on board, has highlighted a point that’s often missed amidst its employees-first slogan. It’s not so much about employee satisfaction as it is about enabling them to bring in more revenues. (HCL’s revenue per employee has grown in the last three years, while it came down for its peers.) Chatterjee says the philosophy came out of the recognition that value is created in the zone where an employee engages with the customer. The idea behind employees-first management is to enable him to create that value. “If there is no customer, there is no value,” he said.

It’s when the tide turns, that we get a truer view of management ideas.

This article appeared in the Forbes India magazine issue of 03 May, 2013
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Comments (14)
H Aug 27, 2013
"Employee First" - I am one of them whom HCL asked to move out without a proper reason. We were hired for a project, kept on idle for 9 months and asked us to move without a notice. Then i realized what they meant of "Employee First".
Prashanth Ravindran Apr 20, 2013
As a recent ex-HCLite, HCL Tech (Software services division for clarity) appears to have a scaling problem, Internally HCL is organized as a federation of multiple business units. Some are extremely profitable, some are so-so and some are losing money hand over fist, and all fight for turf.

Sometimes, I feels the infy/CTS model of massive horizontally skilled workforce, which can be plugged in as desired, will do more to prevent the siloization and turf wars.
Response to Prashanth Ravindran:
V Ram May 7, 2013
There has been a lot of strategic changes at the top level. HCL is now one of the least employee friendly companies out there. The so called attrition is not because of superior training mentioned in the article. thats just rubbish. Its mainly due to FORCED resignations demanded by HR for people who are showing reluctance to relocate. You are not even allowed a single month to search out a different project in some cases.
Even the best, most skilled and higle rated resources are nowadays humiliated once they go to the bench and forced out. Its becoming more of a norm.
These numbers might make the shareholder happy but that is going to be short lived. If the company continues in its current path sure shot there is going to be massive willing attrition once the market scenario improves.
Anthony Apr 20, 2013
A very insightful article, many times newspapers just create hype on the numbers it you people who give us the insight. Beware anyone who says employees first its an oxymoron in a capitalist world, as can be seen here.
Sachi Mohanty Apr 19, 2013
HCL Tech is a "great" company in the same way that Shah Rukh Khan is a great actor.

Let's admit if, face it, say it like it's — employees pays less salary than its peers.

Let's hope they are "inspired" to be completely honest about the numbers and don't start fudging to keep the markets happy.

I don't think their numbers might be as fictitious as those of Satyam but one never knows ...

When companies make outlandish claims such as that they put "employees first" or calling the CEO by some other weird name like that Subroto Roy Sahara ... yes, adding the company's name to one's name as well, or promising, say, 40% interest on your "investment" per annum, .... I tend to get suspicious.

At least Infosys doesn't try to hide the bad news. It is a different thing that the markets don't like the "truth" and would rather go for puffed up and dressed up figures.

But really, India has got bigger issues ...
Nanda Apr 19, 2013
Since early 2000 many senior exces from the software division left, its reported in livemint dot com. That explains the slow down of software business.
Nearly a decade back Oracle and other product companies got into trouble for the numbers, where they were using booking value instead of signed value for reporting. If HCL has not increased its head count inspite of its large deal volumes, one has to look at how the nos are being booked. It could be the asset value of the deal taken up initially. Normal investors dont know these things,if you are a seasoned investor with experience across international companies you will spot many things as these were tried elsewhere. Its worth looking into, it mayor may not be the case.
Response to Nanda:
Nanda Apr 19, 2013
Typo, i meant 2012 not 2000. Also Oracle problem was 2 decades back in 1990, its under larry Ellison, wiki page
Response to Nanda:
Dev Jun 6, 2013
Totally agree with you...Increase in margins seem to be more from internal cost cutting by reducing employee benefits. This is an ongoing exercise with the latest being that for the next appraisal cycle only the top 20% would receive updated salary arrears whereas the rest would only receive revised salary after their appraisal results are announced. Duration for announcing appraisal results could take anywhere between 3 to 4 months and employees are totally at the mercy of the management. Employee first stuff is only lip service..
Chetan Gokhale Apr 19, 2013
It is wise to gain knowledge and try elsewhere instead of wasting time waiting for the date of joining from one company. HCL's software services business outlook does not look promising for next few years which is obvious from the fact they have not been able to onboard even 10% of employees offered in 2011 and 2012. Put your energies in sharpening skills.
Dr.a.jagadeesh Apr 19, 2013
It is sad that Young Engineering Graduates with full of enthusiasm to start their career in IT Field are disillusioned by the delay in getting appointment orders. First of all without proper planning why IT Companies recruit through campus selections Engineering Graduates? It may be to show foreign clients that they have huge manpower so that they can get projects. There are about 13 lakh Engineering graduates coming out every year. Hitherto the only major source for employment has been IT Companies. With delay in getting orders for joining ,where they will go. I wonder is this situation prevailing only in India?
Dr.A.Jagadeesh Nellore(AP),India
Rog Apr 19, 2013
I don't want to defend HCL or anything, but one point I would want to elaborate is that HCL never claimed employees first was about taking care of the employees, it was always about putting the employee himself in front of the customer to generate value. This thought process never changed.
Response to Rog:
Adarsh Apr 19, 2013
Yes, the offer is sort of a commitment not confirmation bt atlest they should clear the picture well in time so that the recruit paces up the search for other employment options or masters instead of keeping them hanging...is the management so dumb that they don't even see the changing trends atlest 3 months in advance...market is not that volatile that in the matter of days it changes...their mismanagement costs ppl their carrer...
Response to Rog:
Amit Sharma Apr 24, 2013
What you are saying is company in question never claimed taking care of the employees through this policy! Sounds wierd as it deviates too much from the literal meaning of "employees first"
Response to Rog:
Dev Jun 6, 2013
The very fact that the Employees First concept has to explained over and over again even within the company shows that no one really was serious about it. More of a marketing slogan that has now been flogged to death...
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