As a humanitarian crisis, the pandemic has afforded a renewed focus on how corporates view people and build on people capabilities. Talking about the attrition rates in IT and the movement of talent search to tier 2 and tier 3 cities in India and abroad, Milind Kulkarni, Senior Advisor and CFO Tech Mahindra spoke to BW CFO World on the skills that are trending now and where they will be looking for it.
What are some changes that you believe CFOs should imbibe, learning from the two waves of the Covid- 19 we’ve seen?
As a result of the pandemic, I see two changes in the CFO role. One is the focus on risk management in terms of events like the pandemic and related risks of liquidity tightening, temporary closure and reduced activity. CFOs need to plan for liquidity in such scenarios and we know now that those who haven’t factored this in, would have found it extremely difficult to survive.
Second, we need to convert risks into opportunities. Many CFOs have helped change such crises into opportunities in terms of digitising the organisation so that the business can survive and prosper in such scenarios. And for companies like us, our opportunity was increased business, so keeping up with that and going forward is important.
After a positive quarter and what looks like a good year for IT companies, what is the investment focus now to sustain this?
The important investment for us is always in terms of people capabilities. And for that, we are focussing more on areas where we expect higher demand such as digital capabilities, 5G, analytics, etc. It is always a continuous process for IT companies like us and we are putting more effort in that direction. It will not reflect as an investment as its skill-building, but it will be a revenue cost.
Talking of people, talk to us about the manpower strategy going forward and how Tech Mahindra is looking to combat the 17 per cent attrition numbers we saw reported in Q1.
Attrition as you pointed out is a serious issue not just for us, for all IT companies because, after about 3-4 years, demand has suddenly moved differently. We already had a wage hike in April, we are looking at skill-based allowances and higher incentives for skills-in-demand like digital and data analytics.
We are looking at going into newer catchment areas in India and outside of India. In India, it would be tier 2 or tier 3 cities like Nagpur, Coimbatore, Bhuvneshwar, and Vishakhapatnam where we can not only get people, but retention is also higher. Similarly, internationally its countries like Mexico, Egypt, Uzbekistan, Canada and Poland. We have acquired a company called DigitalOnUs last quarter and they have a development centre in Mexico which presents two advantages- low costs and nearshore for the US. Similarly, Poland is nearshore for European markets like Germany, UK and so on, so these are places we are going in for higher-end skills with the cost advantage. We also have centres in the Philippines. Also to maintain retention, we have increased our employee engagement in general as it becomes much more important in such times.
We observed Tech Mahindra’s revenue up 4.8% QoQ and 12.0% YoY, beyond lower operating costs and the corporate agenda for digital transformation that has been advantageous across the sector, what are particular areas of growth and costs?
We have been investing in our large-deal-engine and that’s started kicking in and we’re seeing all around growth in Q1, in both CME (Communication, Media and Entertainment) division as well as Enterprise, where CME has grown by about 3.2 per cent in Q1 which is remarkable considering that it is Q1, is usually a seasonally weak quarter. We know that for product business Q4 is good and Q1 is lean. But despite that decline which is seasonally about 10 million, we have seen a 3.2 per cent growth in CME and 4.7 % in the enterprise vertical. Even in enterprise, all the verticals like DFSI, be it manufacturing or technology, have seen double digital growth, on an annualised basis. With that, we were able to absorb cost increases of the increment cycle which were there in April. There was also an increase in sub-contractor costs because, in many on-site locations, people couldn’t travel and we had to depend on new on-site sub-contractors who are much costlier. Operational efficiencies like utilisation and operational leverage with higher revenue have helped absorb such costs. Going forward, we hope to maintain a similar trajectory on revenue and EBIDTA margin.
Building on the idea of the future-ready CFO, what are areas of top priority for you?
As I said before, risk management is important and in good times we don’t pay a lot of attention to it. A situation like a pandemic brings that into focus and CEOs expect CFOs to play more business partnership roles in addition to the controllership role. A controllership role in a company like ours includes a huge focus on compliance, governance and ESG aspects. CFOs will have to play a more proactive role just to ensure if what the organisation is doing, is sustainable in long term. We are seeing more and more investment funds that are ESG focused.
Data security has also always been a focus for us. Particularly as an IT company, where we are the trustee of other companies’ data. The continuous focus and routine investments will continue as it is a matter of survival and also a practice area for us to live by what we preach.