Unusually High Attrition Rate In Tech Mahindra Essay Example
Unusually High Attrition Rate In Tech Mahindra Essay Example

Unusually High Attrition Rate In Tech Mahindra Essay Example

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  • Pages: 8 (2090 words)
  • Published: August 25, 2017
  • Type: Essay
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This assignment will focus on the high rate of employee turnover in the Indian IT industry, specifically at Tech Mahindra. It will examine the reasons for the higher turnover rate at Tech Mahindra compared to the industry average, analyze the impact on management, and provide suggestions for future implementation to mitigate this issue. Tech Mahindra was established in 1986 as a joint venture between British Telecom plc and Mahindra & Mahindra group. Initially known as Mahindra British Telecom - MBT, its purpose was to provide telecom solutions to the British Telecom group. Over time, the name changed to Tech Mahindra as the M&M group acquired a majority stake in the Joint Venture. This change also reflected the company's growth in its client base and diversification into various verticals to expand its services. In recent years, Tech Mahindra further expanded its op

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erations by acquiring Satyam Computer Services, a prominent global business and information technology services company (Techmahindra.com, 2011). The Indian IT industry heavily relies on revenues from ITES outsourcing from major industry players worldwide. The industry has an average attrition rate of 18%, and the average pay increase of 15% also adds to pressure on margins (Techmahindra.com, 2011). The abrasion rate for Tech Mahindra in 2009 was 18.7%, whereas in 2010 it increased to 20%, which is higher than the industry norm.
The impact of attrition on the company's direct gross profit is difficult to determine, but replacing experienced employees with fresh graduates results in an additional cost of 8-10%. According to CLSA analysts, a 5% increase in attrition leads to a decrease of 150 bits per second in gross margin. Attrition also incurs recruitment and training

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expenses and can potentially lead to loss of business compared to competitors in multi-vendor contracts. There are two types of attrition: healthy and unhealthy. Healthy attrition happens when employees leave for reasons such as career advancement, further education, health, or family circumstances. Unhealthy attrition primarily occurs due to factors like lack of motivation, lack of promotions, and internal politics within the organization. Several factors including shifts in the global IT landscape and the financial crisis have contributed to an uptick in the attrition rate (Indiainfoline.com., 2009).The tech industry faces numerous challenges, including a focus on people, the desire for branded organizations, a wide range of opportunities leading to low job stability, rapid technological advancement, objective skill assessment, flexible work hours, and a gap in the IT workforce market. The high attrition rate at Tech Mahindra is primarily caused by employee demotivation influenced by various factors in the IT sector and outsourced services in India. These factors can result in attrition and necessitate effective management solutions. Retaining employees is a significant concern for companies as they invest considerable resources in training them, and losing skilled workers can negatively impact profitability. According to William and Werther (1996), exchanging contributions for rewards is a key motivator for employees. Inefficient rewards can lead to employee dissatisfaction and potential departures that are costly and challenging to replace. F.W Taylor suggests that high wages serve as a motivating factor for employees. This text examines the traditional approach of motivating employees through external incentives such as salary increases, bonuses, and promotions within the business culture. Critics argue that employees value other aspects beyond money alone. Kinnear and Sutherland (2001) caution managers against

believing that money no longer plays a role in retaining employees;This theory also emphasizes that inadequate salary hikes can lead to dissatisfaction among employees who expect larger annual increases. The organization faced challenges in providing its usual salary hikes due to factors like recession and currency appreciation, which are crucial for employee motivation. Various factors, both intrinsic and extrinsic, can explain why Tech Mahindra's employees are leaving. According to Herzberg's theory, internal work-related factors rather than external factors motivate employees. This theory distinguishes between incentives that contribute to job satisfaction and hygiene factors that cause job dissatisfaction. Addressing hygiene factors is important in preventing dissatisfaction, but they alone do not provide satisfaction. These factors should not be seen as opposites; the absence of satisfaction is no satisfaction and the absence of dissatisfaction is no dissatisfaction. 'Hygiene' factors such as company policies, supervision, working conditions, peer-supervisor relationships, money, position, and security play a role in motivating employees. Incentives such as achievement, responsibility challenging work recognition for accomplishments growth and development also motivate employees.According to Herzberg, employees are primarily motivated by internal factors or incentives. However, salary and a friendly work environment also play a role in influencing them and helping retain employees. This theory can explain employee turnover when there are no onsite opportunities available. Financial factors are often the driving force behind onsite opportunities, especially in ITES companies that outsource projects from clients abroad. These companies typically assign employees to client locations in various regions such as the US, UK, Europe, and APCA. During these assignments, individuals can earn over five times their normal salary in India, making these chances highly anticipated by employees.

Ideally, a

company should rotate its employees for onsite assignments; however, Tech Mahindra did not strictly adhere to this rotational policy. Furthermore, other organizations were offering job opportunities directly at client sites which enticed employees to switch companies. Therefore, management needs to consider both external and internal factors when developing employee retention strategies.

According to Adams' equity theory (1965), employees aim to maintain a balance between their work efforts and the wages they receive as compensation. This theory suggests that if employees perceive themselves as being under-rewarded or unfairly compensated, it can lead to distress and negatively impact the organization's productivity (Prichard et al., 1972).Insufficient salary increases and a lack of recognition for their efforts can lead some employees at Tech Mahindra to feel undervalued or unrewarded, causing them to consider leaving the company. When faced with unfairness, employees often compare themselves to workers in other companies. If they choose to stay with their current employer, they may respond by working less efficiently and reducing their output, which ultimately has a negative impact on the organization. It is not only about monetary aspects; employees also derive a sense of value through organizational rewards and acknowledgments. For instance, appreciation awards are crucial for motivating employees as they provide regular recognition for their work. These functions are officially represented through rewards and recognition programs that managers should consistently implement to motivate top performers. The motivation and commitment of employees within an organization can be explained using Abraham Maslow's hierarchy of needs theory, which states that individuals have five sets of needs: physiological, safety, social, esteem, and self-actualization needs. As employees fulfill these needs at one level, they strive towards satisfying

the next level as a driving force behind their behavior. Only unsatisfied needs impact employee behavior; satisfied needs do not hold the same influence.Hallway and Nougaim found that as employees progress in their careers, higher-level needs become increasingly important. However, Tech Mahindra's failure to meet lower-level needs such as competitive salaries, favorable working conditions, and job security could be contributing to a high attrition rate. The limited opportunities for professional growth within the company can lead to demotivation and attrition among employees who are stuck in outdated technology or unable to switch projects due to dependency issues. While salary increases may play a role, they alone cannot explain the high attrition rate because other companies also did not provide raises during the recession. This observation supports the motivation theories of Herzberg and Maslow, which suggest that monetary benefits only address lower-level needs while true motivation and satisfaction come from meeting higher-level needs. Hay (1999) and Dess et al.(2008) stress that although monetary benefits should not be disregarded, money should not be the primary factor for attracting and retaining talent. Employees who are motivated solely by money are likely to leave for organizations offering greater financial rewards. Additionally, money may not serve as a motivating factor for certain employees, especially those in managerial positions who might become demotivated by other factors.Internal politics in organizations, where undeserving candidates are promoted based on personal connections and vested interests, can be a demotivating factor. This practice discourages deserving candidates and fosters a culture of underperformance. According to William and Werther (1996), dissatisfaction with an organization's compensation system leads to increased employee turnover. Lawler's (1991) model, depicted in Figure 1

of William and Werther's work, illustrates the impact of compensation dissatisfaction. This dissatisfaction is evident in Figure 1 and ultimately affects employee productivity and quality of life. The desire for excessive wages negatively affects employee performance, reducing productivity and hindering company production goals. The organization's work culture plays a role in this phenomenon; it is crucial to have a friendly and non-competitive environment. However, an overly competitive work environment places emphasis on recognition and rewards, creating uncertainty about the negative effects of excessive wage desires and further contributing to employee turnover. Job satisfaction is defined as having a positive attitude towards one's job and work environment (Locke, 1978). This positivity arises from how employees perceive their jobs aligning with their personal goals. Job dissatisfaction not only prompts employees to quit but also deters others from joining the organization.Satisfied employees are more likely to reduce turnover within the organization (Pierce et al., 1991). Effective leadership can enhance motivation and efficiency, but evaluating job satisfaction is challenging (Gratton et al, 2007). Appointing leaders with both task-oriented and relationship-oriented qualities can lead to optimal performance. However, managers lacking proper training in handling teams, motivating them, and becoming effective leaders can cause significant friction within a team (Fusilier & Durlabhji, 2001). Acknowledging individuals' values is crucial for their sense of worth within a company. Companies like Amdocs offer HR policies such as relaxed dress code, flexible timings, work from home options, commute alternatives, and drop-off cab services to promote employee motivation. In contrast, Tech Mahindra lacks these policies which leads to employees not staying with the company for long.As per Ashutosh Mishra, Manager of Change Management at Tech Mahindra,

the study on high attrition rates reveals that various factors contribute to attrition in the IT industry. Feedback from the onsite manager of Tech Mahindra supports these findings. Mishra states that the company has effectively tackled the mentioned reasons through its code of behavior. The company uses a bell-shaped curve policy for annual assessments, which determines salary raises and promotions based on employees' public presentations. Onsite opportunities are provided on a rotational basis as per demand. Quarterly appreciation rewards are given to the top 1% of employees based on their previous quarter's performance, possibly in a rotational manner. While professional growth can occur within the same project, transferring employees to different projects poses challenges, especially for core employees with high dependence. Efforts are being made to address this issue. Mishra does not endorse internal politics and leadership problems. He believes that a competitive work culture is vital for employee and organizational growth in today's world.
The company consistently incorporates learning and development plans, competitive compensation, a compelling work environment, empowerment at all levels, and a well-structured rewards and recognition system to combat attrition rate (Ashutosh Mishra, 2011).

Avoiding Managerial Pitfalls

To prevent attrition and maintain employee satisfaction, managers at Tech Mahindra should take the following actions based on feedback from their team members and motivation theories: 1. Managers must personally attend to each employee by conducting regular one-on-one meetings. This will address any hindrances to their growth. 2. Regularly appreciating and motivating team members will keep them committed and motivated towards their work. 3. Conducting roundtable team meetings regularly will help identify and resolve any general team issues while keeping employees involved in day-to-day

business operations. Directors should brief the squad before and after salary hikes and awards announcements to avoid negative feelings among team members. This helps maintain employee satisfaction and motivation. Additionally, directors should consult with team members to establish a rotational policy for onsite opportunities promoting equality among the team and creating a non-competitive work environment.According to Samuel and Chipunza (2009), it is vital for organizations to prevent competent employees from leaving in order to maintain productivity and profitability levels. However, implementing retention policies has become challenging in competitive economic environments. One potential solution for an ITES company is to utilize a combination of motivational theories, leadership concepts, and a new communication system. By adopting this approach, attrition rates could be reduced to an acceptable level. It is important to acknowledge that motivation procedures may vary across regions, thus each organization should develop its own plan considering both organizational and individual goals. In Indian IT companies specifically, internal motivational factors are commonly regarded as more effective than traditional external factors.

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