Print this article

Comments

Email this article

In this globalized world, where knowledge is the hot currency, human capital seems to be its printing press. Therefore, like never before, a nations wealth and future progress hinges primarily on how efficiently it develops and utilizes its human capital. In the last few decades, many emerging nations like India and the Philippines have cleverly used the immense power of their human capital to leapfrog into the league of technologically advanced nations, leaving behind other developing nations that have relied on their natural resources or physical labor. A shining example of this achievement has been the global IT and BPO industry.

The availability of low cost, highly skilled labor and the role it played in shaping the global offshore IT Services industry in its initial stages is very well documented, but the ability of Indian IT services firms to transform and constantly align the skills of their workforce to meet the needs of a dynamic global market has been a crucial factor which requires a deeper examination.

For a long time corporate managers have used financial metrics like net present value of cash flows, economic value added, return on investment (RoI), etc for decision-making and resource allocation for value creation. But, in recent times, the application of these has encompassed human resource management. And so it would be interesting to see how quantification of the value of human capital of global and offshore IT Services firms appear in the companys value creation proposition.

Understanding Offshore IT Services
Global IT-ITeS offshore revenues have already crossed $70 bn and India commands a lions share. Revenues of Indian IT-ITeS industry exploded from a mere $1 bn in 1997 to approximately $40 bn in 2007. Interestingly, this growth in financial numbers can be linked directly with the employee growth witnessed by these firms.

The business model of IT services firms indicates a high degree of dependence on employee numbers to fuel growth. Unlike in manufacturing where capacity is built and grown by capital expenditure on tangible fixed assets, services firms have invested in intangible assets, ie people, and their capacity buildup has been in terms of number of employees. Though services firms globally have been trying hard for quite sometime to decouple this strong relationship between revenue growth and employee count, but it seems there is no escaping from this reality soon.

How the HC Metrics Stack Up
Revenue/Employee is a highly overused human capital productivity measure. The latest Infosys Revenue/Employee figure stands at $43,000, about one-third of Accentures figure of $132,000, and so, Indian IT firms have faced criticism time and again for scoring low. But its important to link the genesis of the Indian and global IT services firms to these figures.

Source: Tholons Analysis

Indian IT services firms started out about two decades ago by providing low-end application development and maintenance work, essentially to save cost for their clients, and have steadily progressed from there. In contrast, global IT majors like Accenture, IBM Global Services, and EDS, etc have been providing consulting services for decades across multiple geographical borders. Therefore, the existence of this wide gap for revenue/employee should not be seen as a surprise. But tie together Revenue/Employee, and EBITDA/Employee, and the tables turn upside down.

CSC scores highest in both Revenue/Employee and EBITDA/Employee with figures of $185,012 and $26,012, respectively. For most offshore IT services firms, EBITDA/Employee figures lie in the range of $9,000-$13,000 which is comparable with Accentures figure of $13,150. This is despite having a considerable low score on Revenue/Employee. So it clearly demonstrates Indian IT Service firms capability to generate higher income through efficient use of its human capital.

Page(s)   1  2