Case let 1
Trust them with knee-jerk reactions," said Vikram Koshy,
CEO, Delta Software India, as he looked at the
quarterly report of Top Line Securities, a well-known
equity research firm. The firm had announced a
downgrade of Delta, a company listed both on Indian bourses
and the NASDAQ. The reason? "One out
of every six development engineers in the company is likely
to be benched during the remaining part of
the year." Three analysts from Top Line had spent some time
at Delta three weeks ago. Koshy and his
team had explained how benching was no different from the
problems of excess inventory, idle time, and
surplus capacity that firms in the manufacturing sector
face on a regular basis, "Delta has witnessed a
scorching pace of 30 per cent growth during the last five
years in a row," Koshy had said, "What is
happening is a corrective phase." But, evidently, the
analysts were unconvinced.
Why Bench?
Clients suddenly decide to cut back on IT spends Project
mix gets skewed, affecting work allocation
Employee productivity is set to fall, creating slack
working conditions. High degree of job specialization
leads to redundancy
What are the options?
Quickly cut costs in areas which are non-core look for
learning’s from the manufacturing sector Focus on
alternative markets like Europe and Japan Move into
products, where margins are better. Of course, the
Top Line report went on to cite several other "signals," as
it said: the rate of annual hike in salaries at
Delta would come down to 5 per cent (from between 20 and 30
per cent last year); the entry-level intake
of engineers from campuses in June 2001, would decline to 5
per cent (unlike the traditional 30 per cent
addition to manpower every year); and earnings for the next
two years could dip by between 10 and 12
per cent. And the loftiest of them all: "The meltdown at
Nasdaq is unlikely to reverse in the near future."
"Some of the signals are no doubt valid. And ominous," said
Koshy, addressing his A-Team, which had
assembled for the routine morning meeting. "But, clearly,
everyone is reading too much into this business
of benching. In fact, benching is one of the many options
that our principals in the US have been pursuing
as part of cutting costs right since September, 2000. They
are also expanding the share of off-shore jobs.
Five of our principals have confirmed that they would
outsource more from Delta in India-which is likely
to hike their billings by about 30 per cent. At one level,
this is an opportunity for us. At another, of
course, I am not sure if we should be jubilant, because
they have asked for a 25-30 per cent cut in billing
rates. Our margins will take a hit, unless we cut costs and
improve productivity." "Productivity is clearly a
matter of priority now," said Vivek Varadan, Vice-President
(Operations). "If you consider benching as a
non-earning mode, we do have large patches of it at Delta.
As you are aware, it has not been easy to
secure 70 per cent utilization of our manpower, even in
normal times. I think we need to look at why we
have 30 per cent bench before examining how to turn it into
an asset." "There are several reasons,"
remarked Achyut Patwardhan, Vice-President (HR). "And a lot
of it has to do with the nature of our
business, which is more project-driven than product-driven.
When you are managing a number of
overseas and domestic projects simultaneously, as we do at
Delta, people tend to go on the bench. They
wait, as they complete one project, and are assigned the
next. There are problems of coordination between
projects, related to the logistics of moving people and
resources from one customer to another. In fact, I
am fine-tuning our monthly manpower utilization report to
provide a breakup of bench costs into
Examination Paper Semester I: Human Resource Management
IIBM Institute of Business Management
specifics-leave period, training programmes, travel time,
buffers, acclimatization period et al." "It would
be worthwhile following the business model used by US
principal Techno Inc," said Aveek Mohanty,
Director (Finance). "The company has a pipeline of
projects, but it does not manage project by project.
What it does is to slice each project into what it
calls 'activities'. For example, communication
networking; user interface development; scheduling of
processes are activities common to all projects.
People move from one project to another. It is somewhat
like the Activity Based Costing. It throws up the
bench time straightaway, which helps us control costs and
revenue better." "I also think we should reduce
our dependence on projects and move into products," said
Praveen Kumar, Director (Marketing). "That is
where the opportunity for brand building lies. In fact, now
is the time to get our technology guys involved
in marketing. Multiskilling helps reduce the bench
time." "Benching has an analogy in the manufacturing
sector," said Girish Shahane, Vice-President
(Services). "We could look for learning's there. Many firms
have adopted Just-In-Time (JIT) inventory as part of
eliminating idle time. It would be worthwhile
exploring the possibility of JIT. But the real learning
lies in standardization of work. It is linked to what
Mohanty said about managing by activities." "At a broader
level, I see several other opportunities," said
Koshy, "We can fill in the space vacated by US firms and
move up the value chain. But before we do so,
Delta should consolidate its position as the premier
outsourcing centre. Since there are only two ways in
which we can generate revenue-sell expertise or sell
products-we should move towards a mix of both.
Tie-ups with global majors will help. Now is the time to
look beyond the US and strike alliances with
firms in Europe- and also Japan-as part of developing new
products for global markets."
Questions
1. Should benching be a matter of concern at Delta?
2. What are the risks involved in moving from a project-
centric mode to a mix of projects and
products?