Tech firms can earn more only by hiring more
The Indian IT Industry’s business model is stuck in the linearity mode. Simply put IT companies are stuck more revenues only by employing more people. Through many IT companies have realised that it is a big problem resulting in lower revenue per employee. Others think that linearity will continue as it’s in the nature of business.
Infosys HR head T.V.Mohandas Pai says that it is in the nature of business where you are make money by selling people’s time. The largest IT company in the world, IBM, has about 325,000 employees. The largest IT companies in India still have less than one lakh employes. clearly there is more headroom for growth. However IBM’s revenue with that headcount is around $90 billion and Indian companies do not come anywhere close in terms of revenues even if we extrapolate their headcount to IBM levels.
Infosys has about 76000 employee strength as of June 30, 2007. It plans to hire about 26000 employees this fiscal which may make it over one lakh plus employee company.
Mid-cap industry players hold a different viewpoint. 3i chief financial officer and executive director, Amar chintopanth said linearity between employees and revenues was an issue. He said it was clearly a challenge and one could break the linearity by moving towards more transaction based pricing. But this kind of model works better in software and BPO rather than IT maintenance services. One can build a combination of both transaction-based and time and materials billing models. Innovative billing model will break the linearity.
Lower revenue per employee compared to global majors is another big complementary challenge. For instance, Accenture, earns almost thrice per employee compared to top Indian IT players. Accenture’s business model comes closest to Infosys and TCS.
the annual revenue earned per employee for Accenture stands at Rs.60 lakh, almost thrice what Infosys and TCS earned in FY ‘06. Now if we compare the king of search - Google’s revenue earned per employee, the figure comes to an astounding $1082746. Google has only 5680 employees over revenues of $6.15 billion.
