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Layoff in IT – Compensate Before Retrenching!!, 2017): In the last couple of months,there has been a situation of crisis in the IT services Industry. At least, it has been made to manifest so. The news of people getting sacked after their years of employment with certain organizations are trickling down and it has created some kind of fear psychosis among Software engineers,who are evicted. All of a sudden,people were evicted in a hurry escorted by security staff. Look at the embarrassment facing such an employee. The stare of the people around and the guilt of the person who got sacked create a situation close to a tragedy.

This phenomena is currently happening in Indian IT services Industry,who thrive on the exchange rate differences between Rupee and the Dollar (Cost Arbitrage). As a result of the cost arbitrage based operational model. company’s were speaking about headcounts as it was tantamount to the revenue generated. This model has been in vogue for the last several years. A trend towards outcome based services emerged and the big services companies began to feel the margin pressure,as traditional system integrator services do not get budgets from clients. The shift towards outcome based services is hard for most IT services companies as the culture is skewed towards staff augmentation and low end managed services.

In the past couple of years,the IT services companies are under margin pressure because of the changes in environment due to following factors like

  • Disruptive innovations brought out by startups and lean organizations
  • Phasing out of Legacy systems (by finding alternate solutions)
  • Emergence and Maturity of SaaS business model
  • Rise of the SOA API based Business Services
  • Transformation of Cost structure from CapEx to OpEX
  • Low billing rates and burgeoning operating expenses

All of a sudden, our IT services found out they are gluttonous and trimming down the fat became an essential thing.When a company is in crisis, retrenchment do happen. It is reality and let us face it. When somebody is removed from an organization, he needs to be sufficiently compensated.

Some companies give only money to the extent of their notice period. The person in question can go and find employment somewhere else for sure. What about the socio- economic cost incurred by he or she? A compromise situation should be paying him at least an amount equivalent to the nine months of salary drawn by the employee. That will give him enough time to find his next employer and will be saved from public embarrassment. If not compensated properly during retrenchment,the person in question will have deep psychological consequences.

We would like to suggest the following

Compensate employees properly by offering them a package. At least,6-9 months salary is a respectable solution. The guy in question can claim that his exit was result of a handshake. Otherwise, his future employer will treat him as someone who got evicted.

Since Retrenching an employee is a costly affair,Organizations need to employ people in a contractual basis (in the future). This will help bring forth a contract employment culture across the Industry

The Software services companies need to trim the fat in a structured manner to be competitive in the coming world. May be, we are foreseeing a scenario where management structure will be lean to form a shallow hierarchy

The solution has to come from within the industry by engaging HR,Operations,Strategy and Engineering divisions to avoid trade unions from exploiting this volatile situation

We strongly believe that it is a crisis of India’s IT services Industry,Especially of the nature of System Integration. .Other areas like Product development,Services around products and solutions,Captives,Infrastructure etc. continues to be robust.

Editors Desk,


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