The Hindu Business Line : Managing slowdown without pink slips

Software engineers and shop-floor engineers in manufacturing firms have contrasting stories to tell about their working hours and routine these days. While the software engineer is working “extended” hours, his manufacturing counterpart actually works less than five days a week!

This then is the sign of times as companies try and tide out the present slowdown in the Indian and world economy through different methods.

While IT companies have increased working hours from eight to as much as nine-and-a-half hours, some manufacturing companies have reduced the number of working days from five to three a week.

Either way, the young engineers in any of these companies have little to complain of under- or over-working as they get to keep their jobs and full salaries. This, a luxury, when one considers the situation worldwide where pink slips are doled out by the thousands to cut costs.

But how do companies gain from increasing working hours or decreasing work days?

Eight hour day no more:

Many software companies such as TCS have increased working hours from eight to nine hours a day. Accenture is looking to follow suit from January. Other peers such as Infosys Technologies, Wipro Technologies and HCL Technologies already have around 9-9.5 hour work days.

Most contracts (nearly 65 per cent) of Indian software companies are structured in a ‘time and material’ methodology. Simply put, these companies bill their clients in the US and elsewhere on the basis of the efforts put in on a ‘per-hour’ basis.

With a 40-hour work week now increased to 45-47 hours, these companies will now be able to bill them for the additional six-seven hours.

For example, if a client is billed $1 per hour, a 40 hour work-week would generate $40 for the company. A 45-hour work week means $45 for the company now.

This means additional 10-11 per cent revenue contribution for the company from its employees, for the same salary it pays them. There are other benefits from these extra working hours.

During the high-growth period during 2003-07, IT majors had kept this utilisation factor to around 70 per cent. This was because they anticipated more and more projects to come through and built up considerable bench strength. Now with the world economy, especially the US, in a deep recession, projects may slow down considerably.

The increase of work hours ensures that the number of people sitting on the bench or some ‘dummy’ project is reduced. The utilisation factor of employees goes up considerably. Now the utilisation factor is 75-80 per cent and may go up further.

This, in turn, means that recruitment can be slowed down, if necessary, considerably.

Clearly this also means lower hiring as well as training costs, which are huge cost components in IT companies’ balance-sheets.

Increased work hours also make project completion quicker than before. In a scenario where overseas clients could come back for reduction in billing rates, the increased work hour could also compensate for lower revenues.

Of course, with turbulent times, clients may come back and ask for ‘fixed-price’ contracts. This means that Indian companies will be paid a fixed price for a fixed tenure of the project.

Only a three-day week

The manufacturing sector is also facing the heat of a slowdown in global demand and the economy at large.

Ashok Leyland, manufacturer of commercial vehicles, has announced a reduction in the number of working days in its production plants from five to three a week till December this year.

Commercial vehicles, cars, bikes and three-wheelers have all seen lower offtake this year compared to last year.

Factors include rising interest rates making loans costlier, a slowing domestic and world economy resulting in increasing unemployment, which implies a slowdown in the overall demand for products.

Companies such as Ashok Leyland, affected by a lower demand environment, have reduced production in order to reduce inventory levels. Inventory carrying costs are substantial for these companies.

Eicher Motors is also looking to cut production, but has not cut working days. Tata Motors shut its plant temporarily for three days to reduce inventory with itself and dealers.

Ashok Leyland has neither cut salary nor jobs with this decision. Instead the company hopes to adjust this three-day week with earned leave that employees may accrue later.

Both the above scenarios show how companies manage a slowdown without having to resort to pink-slips.

Young engineers have to thank their stars that companies are still interested in keeping them and at the same salary levels!

Related Stories:
Firms leverage cross-training to beat slowdown
M&M says slowdown beyond March hard to endure
‘Slowdown to have minimal impact on pay hikes in 2009’

More Stories on : Human Resources | Economy | Trends

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