Locational Differentiation in the IT-BPM Industry - Myth or Reality?
in employee disengagement and attrition within the
organization. This one fact alone has deterred cautious
organizations from entering the Tier II and Tier III cities
with lower compensation figures as compared to their
counterparts in Tier I cities. To test this hypothesis, Aon
Hewitt looked at what we call "Talent Resiliency" i.e. what
percentage of your organization tends to continue with
you over a period of time.
Surprisingly, in Third-Party BPOs and IT services firms,
the locational strategy instead of increasing the attrition
is actually resulting in better retention in Tier II and Tier III
cities. Given that they have been in existence for a much
smaller duration, it is encouraging to see that the "4-6 years
of experience" bracket has higher retention rates in Tier II
and Tier III cities as opposed to Tier I cities. We conclude,
based on the trend data available with Aon Hewitt that
as organizations incubate the Tier II and Tier III locations
more, we expect to see greater talent resilience at the 8-12
year experience bracket as well. The fact that there are still
limited organizations present in most Tier II and Tier III cities
means that the talent does not have enough opportunities in
the location resulting in lower attrition. This fact along with
low talent mobility and higher cost of living in Tier I cities
leads us to believe that the lowered attrition rates in Tier II
and Tier III cities is sustainable at least in the short-term.
So... what's the bottom line? We believe that the
locational strategy being driven in the technology and BPO
space will only strengthen in the future. As more and more
processes/technologies mature, organizations will look at
moving them to lower cost locations to further insulate
their cost structures thereby triggering a second wave of
outsourcing but this time within the country. However, at least for IT services that would mean a substantial shift
in the talent acquisition and management mentality.
Employees would need to be made less mobile and more
"silo-ed" at least for the development support jobs to
drive meaningful cost difference across locations. These
organizations would have to look at committing to moving
entire Centers of Excellence (CoEs) - to Tier II and III cities to
really benefit from a locational strategy while not upsetting
the employee dynamics that exist in organizations.
For organizations that have not made the play into
Tier II and Tier III locations, we believe that the markets
have matured enough at this moment for these players
to enter this market and deploy a "Build" talent strategy
to hire pre-trained talent while still maintaining a cost
arbitrage as compared to Tier I cities. Having said that,
we believe the key to making this model successful for
the latecomers would be identifying the jobs to move
to these locations. Broadly, we believe that lower end
voice, transaction processing, infrastructure support and
maintenance work can be shifted to these locations.
However, the key to identifying the jobs to be moved
and the locations to which these jobs need to be moved
has to be based on empirical platforms which can
facilitate intelligent decision-making processes and give
the business leaders insights of the cost benefit analysis of
such moves. Aon Hewitt's Workforce Analytical Tools have
demonstrated considerable success in this area, and have
helped organizations make this shift in a pragmatic and
sustainable manner.
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