TCS, Infosys, Wipro: Are huge bench sizes dragging down Indian IT majors?

Indian IT majors Infosys and Tata Consultancy Services (TCS) posted disappointing results last week, bringing attention to the challenges faced by the industry amid strong macroeconomic headwinds. One of the consequences of the challenges faced by the industry is the increasing bench size and under-utilisation of employees.

Infosys CFO Nilanjan Roy, speaking during an earnings call post the declaration of the company's quarterly results, noted that the bench size at the company increased to 20 per cent due to a drop in demand. Similar trends were observed at TCS as well.

“Utilisation declined to 80 per cent on the back of softness in demand. We expect the utilisation to improve gradually in the coming quarters as pressures start getting deployed. We will calibrate the hiring for FY '22 -- '24 based on the available pool of employees, growth expectations, and attrition trends," Roy noted.

But what exactly is 'bench' in the context of IT companies? As per Yeshab Giri, CCO of the recruitment and staffing company Randstad Technologies, a 'bench' refers to those employees who are on the company's payroll but are not currently working on an active project.

Based on the information provided by Infosys during their Q4 FY23 earnings, 20 per cent of the IT services company’s employees -- which amounts to around 68,646 people -- are not actively working on a project as of Q4 FY23 and are still being paid a monthly salary.

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But being put on a bench does have multiple reasons behind it. According to HR firm TeamLease HRtech's CEO, Sumit Sabharwal, the employees might be put on a bench for various reasons, which can include a lack of relevant projects and skilling exercises.

“Employees working on projects go to the bench when the clients end their projects. On the other hand, newly hired employees stay on the bench when there aren’t enough projects with their employers," he said.

Overhiring due to the pandemic and drop in demand due to the ongoing macroeconomic challenges are also some of the factors that have led to the inflation of benches at Indian IT companies, experts note.

CIEL HR’s CEO Aditya Narayan Mishra feels that the global scenario squarely needs to be blamed for this. “The current global scenario has resulted in many large IT firms, including TCS, Infosys, and Wipro, having larger bench resources. This can be attributed to a few key factors which have resulted in fewer projects due to cost optimisation across various industries and the recent banking crisis in the US. Moreover, the over-hiring that occurred during the Covid-19 pandemic has further contributed to the larger bench sizes,” he explained.

Misra also noted that the large bench impacts the bottom line of the company. “Lower utilisation rate has a direct impact on the bottomline of the organisation and hence, every organisation has to take steps towards maximising the employee utilisation," he added.

Randstad’s Giri further explained that a large bench could also lead to other issues like employee dissatisfaction, attrition, etc.

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“The higher bench size at Indian IT companies is impacting the profitability of the companies, driving up costs and decreasing profits. The high bench size can also lead to low employee morale, job dissatisfaction, attrition, loss of competitive edge, and can affect the company’s reputation,” he said.

Industry insiders fear that if the large bench sizes continue to exist throughout the next few quarters due to falling demand for IT services, it might result in mass layoffs across the sector, similar to what was observed in the tech industry.

“When layoffs began at the global tech firms last year, one of the key reasons quoted by the giants was the redundancy of middle management level. The ripple effect of this was that businesses far and wide started re-evaluating their team sizes and following suit in conducting job cuts," noted Sachin Alug, CEO of talent solutions firm NLB Services.

Alug's fears are borne out by the news of other global IT firms. Globally, IT companies have started downsizing jobs in the hope of cutting costs and realigning priorities. In its latest earnings call, Accenture announced 19,000 job cuts, Salesforce announced over 8000 job cuts, IBM announced 3,900 job cuts, and Kyndryl also cut an undisclosed number of roles across the hierarchy of the organisation.

Apart from layoffs, another option major IT companies have is to re-skill their existing bench in a bid to realign their existing roles with the projects, which can improve utilisation.

“IT companies need to focus on upskilling and reskilling their existing workforce to match the current demands of the market. This will not only improve the capabilities of the workforce but also help retain talent," CIEL HR’s Mishra noted.

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