Thanks to pandemic, IT cos register record high 'employee utilisation rate'

TE Raja Simhan Chennai | Updated on January 29, 2021


In Q3, both Infosys and Wipro reported utilisation of 86.3 per cent

The Covid-19 pandemic has put top IT companies in a Catch-22 situation. It has pushed up its employee utilisation rate. While a high utilisation rate brings higher margins due to better efficiency, companies are working on a low bench strength and existing employees are under strain.

In Q3, both Infosys and Wipro reported utilisation of 86.3 per cent. It was an all-time high level for Infosys. Tata Consultancy Services and HCL Technologies do not report such numbers, but experts confirmed that both operated at the same level as their peers. Three years ago, IT companies used to perform with around 70 per cent utilisation, but that has gradually increased to over 80 per cent now.

Record hiring

The high utilisation was one reason why companies had record net hiring in the third quarter to improve the bench strength.

Pravin Rao, COO, Infosys, told analysts, “utilisation is at a record high. This is not where we want to be. Within the past few quarters, we had comfort in operating between 83 per cent and 85 per cent, and that is where we want to be. We will look at much more aggressive hiring over the next few quarters and try to bring the utilisation down to manageable levels.”

Jatin Dalal, CFO, Wipro, told analysts, “We have been able to manage our utilisation in a very tight range, especially in Q3.”

Higher utilisation burns out employees and also reflects diminishing bench strength. IT service providers with very high existing utilisation will struggle to serve newer engagements as they would not have people to deploy. This also impacts client confidence in their ability to deliver services to them, said Yugal Joshi, Vice-President, Everest Group, a research firm.

Utilisation at onshore can be very high given most people there are billable and high cost so cannot be put on the bench. It is not uncommon to have 90-95 per cent onshore utilisation as most of these resources are dedicated to one client project, he said.

“An industry running perennially on a high utilisation rate is like an engine operating on high RPM for long-distance. Burnout potential is high, and breakdowns are imminent. High utilisation rates translate as operating under stress resulting in reduced efficacy,” said Kamal Karanth, Co-Founder, Xpheno, a specialist staffing solutions company.

The bench

The bench is a reserve that companies use to ramp up resources on running projects and undertaking new projects. In the absence of sufficient reserves, the load on the active resources is higher, he said.

IT companies’ ability to afford lower utilisation rates is a key factor to attract global business. Lower utilisation means higher agility to handle surges and ensure continuity on delivery, but higher utilisation hurts the industry's long term competitive edge. With a decent bench strength, new project delivery gets to a meaningful start, he said.

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Published on January 27, 2021
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