The Indian IT sector is undergoing a major transition in its workforce. The top IT firms like TCS, Infosys and HCL have been facing high attrition rates for the past couple of years now.  TCS, the biggest employer in the sector today faces an attrition rate that has risen to 15.9% this year, significantly higher than the 12-13% it had been operating at two years ago. In order to arrest this attrition, TCS has extended the notice period to three months for all its Indian employees, a policy which they used to adhere to till 2007. From 2007 till February this year, the company had a month-long notice period. 

But is this the right move?  

Reasons for high attrition rates

There are certain reasons to blame when it comes to a sustained high attrition rate in the sector. Most of the leading IT companies are trying to maintain a tight operating profit margin band, amid weakening revenue collection; this being reflected in the final attrition figures. They are under the pressure to cut prices on the services they are offering, as the scope for traditional business is limited. Given such limitations, the companies have either the option of going for value addition services or to cut down the cost of human resources to maintain the operating margin. The aspect that has been raising flags for the sector is that major IT companies are losing people to startups, which offer a better pay package and a chance to work with newer technology domains. The opportunities provided by startups are leading to an exodus of employees from the more traditional IT firms.

The recent trend that will further affect attrition is the increase in automation of certain processes undertaken by the leaders in the sector.  Facing a sustained competitive pressure, these companies are resorting toward increasing the efficiency of their delivery systems through automation. According to a report by Centrum Broking, FY 16 could be a year of transition for the sector as most companies are looking to free-up their resources entering into automating their processes. This shift has given a push with the advent of service providers like IPSoft, Blue Prism in the field of providing automating services.

With the growth momentum not being very strong in the current period, the attrition levels remain high, especially with the employees with three to five years of experience.  Looking at Deloitte's 5th Annual Millennial Survey, businesses stand a realistic chance today of losing a large percentage of their millennial workforce to quick attrition. About 52% of millennials surveyed in India said, given the choice, they would leave their current employers within the next two years. Increasing the timeframe to 2020 pushes the figure further to 76%. Given the fact that about 80% employees at India's largest software exporter are millennials it’s typically the layer with the highest level of people leaving. 

Impact of increasing notice periods

The primary benefit behind this change in exit policy is two-fold.  TCS hopes that this move would act as a deterrent for competitors looking to poach key staff; and at the same time be able protect their own interests by buying themselves the time required to find the right replacement. It also provides them a 90 day period to retain the employees. This ensures the projects being handled have a smooth transition period as a month’s time to do the same becomes problematic for the client company at times. “Maintaining a bench is an expensive proposition. Hence, IT companies, in order to reduce their overhead costs, prefer to maintain low bench strength these days. When there are not enough people available, it is difficult to find a replacement. So, employees are now being asked to serve a 90-day notice period,” explained Kris Lakshmikanth, founder CEO and chairperson of HeadHunters, an HR consultant firm in an interview with DNA India.

However, pushing the notice period from the existing 30 days period might be a counter-productive move. Besides hampering the talent that comes in TCS it might also impact productivity.  Many job seekers see a notice period of any longer than four weeks a hindrance to their future job options as subsequent employers may be unwilling to wait that long for their services. While a longer notice period is increasingly being embraced as a policy change, once an employee resigns, it might be in the company’s interests to let the employee leave without delay. Making it obligatory for such an employee to serve a relatively long notice period might impact the firm adversely. 

The move might also bite into the ‘healthy attrition rate’ needed to organically remove employees who do not drive productivity.  Some experts also doubt if measures like these would truly help IT firms fight off employee exits as they believe stubbornly high attrition rates are symptomatic of a shortage of technically skilled engineers in the services industry and lack of challenging opportunities for growth. Instead creating systems where TCS is able to replace them quickly, a three month period has the potential to dissuade new talent form joining in.

When it comes to retaining key talent an extension of the notice period, without subsequent change in either the work culture or other components of HR management might not necessarily yield the right results. The companies looking to hire might be willing to ‘buyout’ the employees notice period; a move where companies offer to pay the employer a sum equal to what it stands to lose if the employee leaves before the notice period. 

The notice period strategy looks more like a Band-Aid on a wound and much less like the medicine that will solve the problem. It stands to reason that dissuading employees from moving through notice periods is a short-term game and one that employees will see through at some point. Instead the focus for companies must be on investing precious resources in an employee development plan that goes hand-in-hand with the organization’s long-term strategic plan. This will be a good first step in managing burgeoning long-term employee replacement costs and tackling the loss in business momentum from employee attrition. As the jury remains divided on the outcome of this move only time shall reveal its effectiveness.