What is the biggest challenge for the BPO industry in India today? Well, it is a no brainer: Attrition!

The business process outsourcing (BPO) industry in the country which is expected to employ around one million people by 2008 is facing the challenge of finding quality human resources given the current attrition rate of around 50 percent. Analysts say attrition rates vary by 20%-40% in some firms, while the top ones averages at least 15%. Nasscom in a report said the outsourcing industry was expected to face a shortage of 262,000 professionals by 2012. The size of the Indian BPO market is likely to be around $9-12 billion by 2006 and will employ around 400,000 people, ICRA said in its Indian BPO industry report. Mercer India said the industry should look beyond the traditional areas of recruitment and some thought should be given to employ physically challenged people and housewives. The reasons for the high rate of attrition was due to various factors like salary, work timings, other career options, adding that there is always the danger of costs increasing while billing rates decline. With 245,100 people employed at the end of March 31, 2004 against 171,100 last year, the industry witnessed a hiring growth rate of about 40-42 percent. On the hiring front, the industry absorbed about 74,000 people in 2003 despite the attrition rate of 45-50 percent being a matter of concern. Attrition rates in IT-enabled business process outsourcing sector have come down from the 30-33 per cent being witnessed of late to about 25 per cent now, according to statistics compiled by the National Human Resource Development Network. If you compare attrition rates for a Voice and Non-voice process, then attrition rates are significantly lower in a non-voice process. As the industry moves up the value chain and becomes a full-scale BPO player, attrition rates will further decrease. For BPO service providers, moving up the value chain is critical, given the attrition rates in the industry, which are on an average higher in low value-added segments (in call centres) as compared to higher value-added segments like engineering. It will not be possible for the industry to arrive at a blanket agreement on poaching but bilateral agreements between companies are being signed. Basic norms are being put in place and code of ethics is being stressed upon by industry. Companies are being encouraged to adopt responsible behavior in order to ensure that the industry does not become a victim of its own actions. Industry needs to go aggressive but not cannibalistic. In order to ensure a consistent flow of trained manpower in the future, the industry needs to work with the government to introduce courses at a school and college level, which are in line with the requirements of the ITES-BPO industry. India has one of the largest pool of English speaking graduate workforce. The challenge for the industry is not in employment but employability. The industry is also hiring professionals from outside the industry in order to meet its steady supply of manpower. Honest corporate managers will tell you that to make offshoring work, you need at least a 300% to 400% wage spread between American software writers, engineers, accountants, and call-center employees and their Indian and Chinese counterparts. Labor costs have to be very, very low overseas -- not just lower -- to compensate for time-shifting, managing over such long distances, and decreased productivity. High attrition rate, price wars, poor infrastructure and lack of data protection laws could derail India's booming outsourcing industry. This seemed to sum up the views of BPO fraternity at the Nasscom summit here.

Tackling Attrition Head-On

To arrest this trend, companies can look into various options like good rewards, bonding programme, flexible working hours and stronger career path. With attrition rates ranging between 30-60 percent in the BPO industry, HR specialists feel that a scientific and analytical approach should be implemented. The tremendous turnover rate is undeniably one of the main problems faced by the BPO industry globally. HR specialists at the Nasscom 2004 summit brainstormed on various approaches to handle this bugbear- either declare war on attrition and tackle it head on, or adopt a more scientific analytical approach. Pay cheques alone are not enough to retain employees. Management also needs to consider other aspects like secure career, benefits, perks and communication. The attrition battle could be won by focusing on retention, making work a fun place, having education and ongoing learning for the workforce and treating applicants and employees in the same way as one treats customers. Companies need to go in for a diverse workforce, which does not only mean race, gender diversity, but also include age, experience and perspectives. Diversity in turn results in innovation and success. The 80:20 rule also applies to recruitment, she quipped, since studies showed that 80 percent of the company's profit comes from the efforts of 20 percent of the employees. So BPOs need to focus on roles, which have the most important impact. According to experts, the cost of attrition is 1.5 times the annual salary. Age should not be a barrier for training employees and could in fact bring in more stability to the company. Conclusion: It is clear that there are massive costs associated with attrition or turnover and, while some of these are not visible to the management reporting or budget system, they are none the less real. The 'rule of thumb' appears to be very inaccurate indeed and, while it depends upon the category of staff, it is probably better to estimate around 80% of salary as a truer rule of thumb - and this will be on the conservative side. What does this mean? Well it means that if a company has 100 people doing a certain job paid 25,000 and that turnover or attrition is running at 10%, the cost of attrition is: (Total staff x attrition rate %) x (annual salary x 80%) 100 aff at 10% attrition means 10 people leave and are replaced each year. A replacement cost of 80% of a salary of 25,000 means the cost of each replacement is 20,000. The cost of turnover is therefore 10 x 20,000 or 200,000 a year. The oncost to the overall salary bill is 8%. Defining attrition: "A reduction in the number of employees through retirement, resignation or death" Defining Attrition rate: "the rate of shrinkage in size or number" Introduction: In the best of worlds, employees would love their jobs, like their coworkers, work hard for their employers, get paid well for their work, have ample chances for advancement, and flexible schedules so they could attend to personal or family needs when necessary. And never leave. But then there's the real world. And in the real world, employees, do leave, either because they want more money, hate the working conditions, hate their coworkers, want a change, or because their spouse gets a dream job in another state. So, what does all that turnover cost? And what employees are likely to have the highest turnover? Who is likely to stay the longest?
Even as BPOs in India announce elaborate hiring plans for the current year, the high levels of attrition prevalent in the sector remains an area of concern. According to several recruitment

firms in the country, attrition in the ITeS (IT enabled services)-BPO industry is close to 60%. Interestingly, the reported figures are much lower and are about 35-40%. Recruiters explain that the high attrition rates significantly increase the investment that are made in the employees in this industry. The problem of losing funds in employee acquisition is more prominent in the high-end BPO segment. Companies invest a lot of time and money in training a candidate for the first four months. But these investments do not always get converted into actual profits, said Teamlease vice-president Kavitha Reddy. Teamlease is a HR outsourcing services company. Senior officials in the ITeS-BPO sector, however, maintain that the rate of attrition is at best 40%. The range of services by an ITeS-BPO player has changed over time. For instance, it has expanded from just accounting, billing and payment services, data-entry and low-end transaction processing. Today, it has moved on to higher-value services to cover areas such as equity research and investment research support, financial data mining and insurance claims processing. In order to provide high-end knowledge services, vendors are often required to staff professionally qualified MBAs, CAs/CPAs at significantly higher salaries. The estimated per employee hiring cost is about Rs 15,000 in the plain voice-based BPO segment. This includes the fee paid out to the hiring agency, employee screening costs, maintaining an internal HR department etc. There is a reasonable time frame involved to get an employee to deliver actual results. If the employee quits before this period, the loss to the company could be as high as Rs 70,000 per person, said Focus Management Consultants director Vipul Varma. According to Mr Varma, it is estimated that the cost of acquiring a candidate is about 8.33% of the salary paid. In the high-end ITeS-BPO segment, the cost of getting a person productive to the company is about Rs 1.2 lakh to Rs 1.5 lakh. Though the high-end segment ensures a well-defined career path for individuals, the performance levels expected of them is also very high. Many employees, who are not able to sustain constant performance monitoring, eventually end up dropping out.

Attrition Rate Haunts The Booming BPO Sector Samar Halarnkar The biggest problem for India's most buoyant industry is not competitionfrom the Philippines, or the anger of American and British workers who lose their jobs to young graduates in Gurgaon or Bangalore. It's amma and appa. It's the midnight shifts. It's boredom. K Made Gowda watches anxiously as his daughter Nalini, 20, listens to a presentation on a training programme for articulate young graduates, the main resource of business process outsourcing, the industry that hopes to make India the back-office of the world. "If you speak in Tamlish or Banglish or Hindustani English, our customers in England or America won't understand a word you are saying," says Ravi Kiran,training head of PeopleOne Consulting, addressing Nalini and 20 others crammed into a cabin in the BPO pavilion at the Bangalore IT.com tech fair."But after the training you get from us, you will be able to talk to anyone."PeopleOne is offering a 10 per cent discount if you sign up for the training course right now. It will also throw in a Timex watch for free.Mr Gowda, a graying, state government health official is worried to the coreof his middleclass southern sensibilities. "It all sounds very good, I say," says Mr Gowda with a frown. "But how will she come home at 4 a.m.?"After the presentation, Nalini's face is flush with excitement. She echoes some of her father's concerns, but she's clear about what she wants from the BPO industry. "It will be difficult working at night,"sheSays,"but then Idon't want to do this for more than two years."Within the infotech

sector, BPO is the rising star. Mainline IT firms held their own and grew at a healthy 22 per cent in this year of international turmoil, but India's BPO sector expanded at an astounding 67 per cent,helping western customers with everything from credit-card payments to starting a newly brought computer. BPO is also hugely encouraged by governments like Karnataka's because of its potential to employ thousands of ndia's graduates who increasingly find work hard to come by. But in Bangalore where southern conservativeness co-exists uneasily with the City's global face, BPO's most critical resource 'people' is in very short supply.According to estimates gathered by the Indian Express, Bangalore needs more than 8,000 call-centre and other executives every month. What's available is no more than 2,000."The work ethic, commitment and education of the people here is a great,great skill," enthuses Andrew Petersen, head of America Online (AOL), which in five months has gone from a staff of six to 1,000. "But we need more of them." In July, AOL's call centre in Bangalore got its first call from a suburban housewife in Brooklyn, New York; it now serves any of the company's 35 million US customers.While raw graduates need to be expertly trained - changed accents and names are just the start - the high-pressure environment, repetitiveness, night shifts and cultural dislocation has become a cause for big concern. "Hari will become Harry, he will work this Diwali, and he will have a holiday on July 4," says Ajit Issac, CEO of PeopleOne Consulting, which is funded by JP Morgan Ventures. Yes, scarce venture-capital funding for tech in general isn't a problem for the BPO sector. "The impact of western culture on the lives of employees, the disruption of personal life and monotony are issues we need to address urgently." Mr Issac suggests fun-at-work programmes, continuing education unrelated to call- centre work and job enrichment, which implies introducing employees to decision- making and leadership roles. He notes that 20 per cent of Karnataka's 52,000 graduates would like to consider a BPO career, but they would not like to stay for more than two years on an average. "So from the start, they know they want to leave."Indeed, the attrition rate in Bangalore BPOs nears 30 per cent, though many companies report 60 per cent new workforce every year. Mohan Kharbanda, vice-president of American computer giant Dell can barely hide his excitement at the opportunities he's seen after coming to Bangalore five months ago from the US. Apart from the popularly known call centres, he explains how the BPO industry can do much more: analyzing customer data,engineering requirements - and really, anything else that a western company wants to outsource. Dell today has 32 shifts working concurrently in Bangalore. "People come and go all the time," says Mr Kharbanda.Teams,trained and divided by geography, take calls from the UK, US, Australia and Thailand. The niches in BPO are as many as the entrepreneur can imagine.The sector has come a long way from its birth four years ago as medical transcriptionists: converting the dictated notes of American doctors to typed reports while they slept.But the time-zone and cost advantage was negated by a gold-rush mentality that gave the sector a bad name. It's recovered and boomed since, thanks to some painstaking high-quality output. But cost is still an overwhelming attraction - western companies can save as much as 90 per cent - in setting up a BPO in India. Everyone says it's a boundless market: $ 300 billion worldwide, so India's frantic growth is still only just a drop, a very tiny drop. Now, if only appa and amma understood.

The country is fast becoming a hub of research centres. MNCs, seeing opportunity in the wealth of human talent, have chosen India as their base for R&D activities. Where are these research centres sourcing their manpower from? Are they wooing staff from Government-led research labs? Or are they looking at freshers from IITs and RECs? And, more important, how attractive is a research job compared to, say, a job in the corporate sector? Business Line spoke to a few heads of research centres in the country to scan the people-profile at these centres. How important is the brand name of the company in order to attract these research scientists? And how are they wooed into the research arena? Says Dr R.K. Pachauri, Director General, Tata Energy Research Institute (TERI), ``While the brand name does pull research professionals into organisations such as ours, the institute, through a cautiously-built stimulating work environment, transforms them into single-minded environmental enthusiasts.'' Most MNC research centres offer the best of both worlds: the intellectually stimulating atmosphere expected of an R&D centre and the compensation of a corporate in the private sector. Astra Zeneca India Pvt. Ltd., a Bangalore-based pharma research centre, offers all the advantages of an in-house R&D centre of a global pharma company. ``We are a research centre and, at the same time, belong to the industry and so we are able to attract the best people,'' says Dr. Kumud Sampath, Vice-President, Business Development and Administration. In the late-1980s when Astra Zeneca was set up in the country, ``We advertised for scientists and, believe me, we got responses till 1995-96!'' she says. On the other hand, TERI seldom advertises. It regularly receives resumes from research professionals, including the best in the field. But how keen are IITians and Ph.D.s from universities for a job at a research centre? Are they keen to pursue research in a good laboratory? Dr. P.J. Lavakare, former executive director, US Educational Foundation in India and currently Consultant to GE and Lucent Foundations for their scholarship programmes, some of them even opt for a smaller salary packet in return for major national projects. ``There is an increasing tendency among MNC R&D centres to pick up Ph.D.s from our universities and IISc. Our young Ph.D.s may prefer that to taking up a teaching position.'' Young graduates lacking confidence of their ability to work hard and with demanding targets -- which the industry normally likes to set -- generally take up a softer option of joining a university or a government laboratory, says Dr. Lavakare. Also, engineering graduates do not like to get into a research career unless they have done their Ph.D. Most of them prefer an executive position in an industry. He explains, ``They do not mind working rigid hours and are willing to be more regimented and deal with jobs on the shop-floor.'' He also argues that research opportunities for engineers are limited in India.

At Astra Zeneca, however, there are several engineering graduates and Dr. Sampath says, ``If their performance is good, they get the same designation that a Ph.D. gets. We now see that students are more focused and more pragmatic than ever. Many people see this as the stepping stone to success. There has been a big transition in the last 10-12 years. And the present lot have a better appreciation of what they're getting at an R&D centre.'' At TERI, the HR department finds that freshers are most willing to join research areas. Says Dr. Pachauri, ``We offer excellent learning opportunity. More than anything, there's operational freedom, research infrastructure, academic atmosphere encouraging ever `better' performance and actually experiencing the acceptance and social recognition of one's product as strong and perpetual incentive to be a part of and grow within the institute.'' The opportunity for `action research', where researchers plan, research, develop theory, suggest a policy and frequently see the policy take the shape of accepted scientific procedure, attracts freshers most to an industry R&D centre. Do freshers have any hesitation in working for a research centre? Dr. Sampath reiterates that pharma research is a highly specialised industry and students are clear about their career path at the centre. ``Recently we advertised for molecular biologists and about 20 students from IIT responded. All the three shortlisted candidates had no hesitation in working at the research centre. That's because we offer a good salary coupled with a good work environment.'' Private sector research centres often opt for campus recruitment and offer on-thespot jobs, competing with their counterparts. They prefer major institutes such as the IITs or the IISc and, these days, increasingly the regional engineering colleges. DaimlerChrysler Research Centre India Pvt. Ltd., (DCRCI), a Bangalore-based research centre belonging to the DaimlerChrysler AG Group based in Germany and the US, is sourcing manpower locally. Most of them are from IISc and BITS, Pilani, says Dr. Wilfried G. Aulbur, Head, Business Development and Strategy. ``We have a critical mass of highly talented people and, except the director and I, the rest are Indians.'' Dr. Aulbur argues that while adequate compensation is important for employees, what keeps them with the company are: DCRCI's challenging research topics, its global R&D for products of DaimlerChrysler AG, a strong identification with the parent company and its brands and opportunities for personal development and growth via new assignments, international projects and\or training. Dr. Sampath says Astra Zeneca has a performance-based salary system. ``We provide the latest equipment, different technology platforms, a great opportunity... these motivate our people. We have access to a huge chemical database. There are challenges enough here.'' Is salary a constraint in the research area? Are R&D centres able to offer job aspirants compensation much higher than what the industry offers? Dr. Lavakare says, ``If we are talking of a person within the industry moving from a managerial job to a research job, I do not think there would be such a sizeable salary difference. In fact, that can be easily protected within an industry by giving a suitable

designation.'' The more important factor is their suitability for a research career. If you are looking for people outside the industry, say educational or Government research labs, the industry always tends to offer more salary. However, the so-called academics may not always like to get into industry, owing to its targets demanding and the uncertainty of a non-permanent job. Dr. Pachauri emphasises that salary and work environment were constraints in most research organisations earlier but, today, an excellent research environment and suitable salary package are the norm. What are the incentives for people to stay in research centres? Will the inherent flair for research overweigh the monetary/perquisites consideration? Heads of these R&D centres list some of the privileges that come with a research job: Job satisfaction emanating from publishing papers in research, invitations to address academic meetings, royalties from patents, occasional recognition for scientific achievements (possibly a Nobel prize?). Then there are people motivated by the challenge of working in a hi-tech environment. Aulbur asserts that DCRCI does global research for DCAG, ``Not lowend kind of work, but in encryption technology, automobile-related, aerospacerelated, and IT-related areas.'' DCRCI offers R&D assignments for high technology products such as the new S-class Mercedes-Benz cars or the new super Airbus, the A 380. And all this at a competitive compensation, says Dr. Aulbur. A big motivating factor is that they have a strong identification with the parent company, DCAG. At Astra Zeneca, it's ``a challenging research environment, freedom of action coupled with availability of continuously upgraded infrastructure''. This is what keeps its manpower from moving away, says Dr. Sampath. When people jump from research centres, do they move to other similar set-ups or do they succumb to the lure of the corporate world? Most of the time, they prefer to move to work centres having similar kind of activities directed towards commercialisation, though in some cases they move to industrial set-ups as well. Some research staff leave for higher studies encouraged by the intellectual and research environment. Dr. Lavakare surmises, ``My guess is that people from research centres tend to move up to the senior managerial positions or may become heads of other research centres.'' At Astra Zeneca, Dr. Sampath reveals, ``When people leave us, it's generally to a bigger R&D centre such as Ranbaxy's or Reddy's Labs. The unit here is a small one. Though the challenges are there and the salary is one of the best in the industry, as one grows, the number of positions narrows down.'' What is the attrition rate in these R&D centres? At TERI, it varies between 9-15 per cent. At DCRCI, Dr. Aulbur claims the attrition rate is very low and lies at about 5 per cent. ``When we lose people, it is mostly because they want to pursue higher studies either in India or abroad.''

But thanks to the mushrooming of these private sector R&D centres, there is a serious crisis in national science agencies involved in atomic energy, space and defence research, etc., as far as scientific manpower is concerned. They are not getting fresh talent since they are not aggressively marketing themselves. Their salary structures are pathetic, rues Dr. Lavakare. On the positive side, we find that young technocrats are fast becoming entrepreneurs and adding to the strength of the small-scale and mediumscale industry. This may be a good thing if the numbers are large. But for them to succeed we must come up with attractive venture capital and other schemes to use their talent for the growth of our industry.