Employees working in IT Services companies are two-dimensional investors. They invest their human capital expecting adequate return and growth in salary and career. Also, frequently, they have financial ownership interests in the company. So a measure of Market Cap/Employee would indicate how much of the companys value can be attributed to each employee.

Human Capital RoI (%) = ((Revenue (Total Operating Expenses Personnel Cost))/Personnel Cost) 1)*100

In this measure, Indian IT Services firms command two times premium in the market as compared to MNC IT Services firms. Infosys scores the highest with $385,000 firm value for each employee.

In the capital market perspective, the "first-order" drivers of shareholder value are return and growth. Adding a human capital lens to it, these drivers become human capital RoI (HC RoI) and employee growth. Firms typically experience a trade-off between these two measures. So viewing these two components together would indicate how credible the investment in human capital has been and what has been the human capital efficiency and value creation for the firms.

Global IT majors like Accenture, Capgemini, and CSC scored low both on HC RoI as well as employee growth. So even in a low employee growth scenario, these companies werent able to obtain higher return on their human capital. In contrast, large Indian IT Services firms scored high on both counts, indicating their ability to scale up HR dramatically while maintaining high human capital efficiency figures. This has been possible through heavy investment in world class training infrastructure for talent development, excellence in recruitment process thus attracting best talent, ensuring highest standard of corporate governance, and honesty and transparency of operations leading to talent retention.

Future Outlook
Scoring high on most human capital measures, the Indian IT Services industry has shown how the potential of human capital can be maximised to achieve global leadership. But there are significant challenges ahead. One of them being becoming multi-national companies themselves with global footprint and thus having a larger foreign national employee base. It is then that the human capital management efficiency will be put to the real test. Also, going forward, Indian companies have to attempt to leapfrog into the big league through major acquisitions. That will bring along another set of human resource integration challenges which Indian companies would be experiencing for the first time in a situation where the supporting environment which is available in India will be missing. Also moving up from being a vendor to partner or a consultant for clients would require significant investment in human capital, and calls for developing an ecosystem of innovation and constant learning.

A beginning has been made by some companies in this direction. Infosys set up Infosys Consulting in 2004, and the good news is that its latest Revenue/Employee figure is $226,794 which is more than five times the Infosys average Revenue/Employee number. But its revenue contribution to overall business is a miniscule 1.5%. Similarly for TCS, 3% of its revenue comes from consulting work which is insignificant compared to global peers.

So the story of using human capital for global leadership by Indian IT services firms isnt over yet. Indian companies have done remarkably well so far, and if the human capital aspect of business continues to get its share of importance in these companies, there is no reason why this story cannot see a happy ending.

Avinash Vashistha, CEO, Tholons
maildqindia@cybermedia.co.in

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