IT/BPO industry is very much in the midst of a talent crisis due to higher attrition

Entering the final quarter of a difficult year, the global IT and business process services industry is very much in the midst of a talent crisis. In our interactions with IT and BPO (business process outsourcing) service providers and recently announced quarterly results, we see spikes in attrition over the last two quarters. Staff turnover is decidedly a global challenge, but the problem is acute in India. The average global attrition rate for Q3 2021 is 20.4% for announced results. While these officially reported figures are not India-specific, we believe India’s attrition rate is far higher. Anecdotally, we hear that companies’ attrition rates in India are hovering anywhere between 30% and 50%, which is certainly higher than the last few years.

Two key reasons contribute to this talent crunch across Indian IT and BPO markets:

• An unexpected mid-pandemic demand surge as global clients try to pivot their operating models to respond to myriad market changes, not least seeking cost savings, is emptying the talent pool. The supply side as a whole underestimated this comeback in demand following last year’s initial slowdown. The result is a lack of ready talent, as most providers maintain a lean bench of resources.
• The employee value proposition is in jeopardy for many service providers. Due to the pandemic, experienced resources now ask for higher compensation, more flexible work-from-anywhere environments, healthcare, and other perks that are not always a given, especially in India.

Attrition has always been part and parcel of this industry (see 2019 figures for reference). So far, service providers have managed attrition through robust hiring and talent development practices. These well-developed hiring and training capabilities that major service providers have invested in over the last two decades will be put to the test in India over the next few months. The key to solving this pandemic-influenced turnover will be for providers to re-emphasize their employee value proposition, including a strong and flexible culture and providing financial and skills-based incentives for career growth. Enterprise clients will similarly have to amp up employee recognition programs to do their part in retaining top talent in their accounts.

The Bottom Line: HFS declares 2022 as the year of the employee. Service providers must lean heavily on employee-centric culture, incentive programs, and hiring practices to keep attrition stable in India. The talent crisis will be a test of customer trust like we’ve never seen before

The longer-term play, of course, is for service providers to continue to expand operations and tap into talent worldwide. This strategy is already working well for service providers like Infosys, Accenture, and HCL, which have lower than average global attrition. On the flipside, Cognizant is highly concentrated in India, and it shows. Its global attrition rate is the highest—37%—for Q3 2021, no doubt spurred by Indian talent turnover. We see talent attrition as a challenge for enterprises looking to expand operations in India as an industry-wide issue. HFS is keeping a close eye on this topic, including studying a few cases where clients are insourcing as a reactionary measure. We’re also organizing an upcoming industry roundtable to develop solutions that put employee experiences at the center of enterprise strategy.