Wednesday, October 13, 2010

Mahindra Satyam, Tech Mahindra merger to trigger 7,000 job cuts

Mahindra Satyam has downplayed fears of its merger with Tech Mahindra triggering another round of job cuts, even as analysts feel that the combined entity will have up to 7,000 excess staff.

A spokesperson for Mahindra Satyam said: “As we have stated earlier, the merger is imminent. The merged entity will provide abundant opportunities to our associates. The combined entity will be stronger and will have joint go-to-market strategies which would mean greater business and therefore increased opportunities for all.”

HR strategy 

However, industry watchers are of the view that the ‘rightsizing' the management alluded to after unveiling its full year numbers is still not complete and that further job cuts are imminent. A senior Tech Mahindra official said the company was working on a HR strategy which calls for layoffs in support and project management functions in India, given that ist2_7893507-downsizingoverseas teams of both Tech Mahindra and Mahindra Satyam are ‘lean and thin'. The merged entity is expected to have over 60,000 employees given that Tech Mahindra has a staff strength of 35,267 (fiscal 2010) while Mahindra Satyam's fiscal 2009 numbers stand at 27,500.

Offshoring analyst, Mr Sudin Apte, who is of the view that the combined entity would have 5,000-7000 excess employees, said: “Most of the layoffs will happen in the five plus years experience bracket since the scope of duplication of effort will be higher. In addition, the company may rationalize support staffers.”

Mr Peter Schumacher, Chief Executive Officer of management consultancy firm, Value Leadership Group, agrees. “Mergers between companies always present opportunities to design and implement operational and organisational improvements. In the case of these companies, there is little overlap in terms of clients or geographies. Therefore, any merger-related job cuts will focus on support functions such as accounting, finance, HR and internal IT.”

Mr Apte feels entry level staffers will not be impacted by the merger. In fact, Mahindra Satyam had restarted hiring freshers from campuses and has said it would recruit 3,000 entry-level staffers this year. Lot of it has to do with attrition of between 35-40 per cent facing the company, officials said.

“We've retained competent people and begun hiring again. We now have the right number of people in the right domain and are rehiring to create capacity for tomorrow. As we are growing, the best talent will be brought on board,” the company spokesperson said.

Rationalisation of headcount is important, especially with Mahindra Satyam operating at profitability margins of around 8 per cent. This is around a third of what the top four IT bellwethers reported for the same period.

Moreover, the company needs to invest in cloud computing and other innovative means of services delivery such as ‘platform-based BPO' which would call for substantial investments. Interestingly, at Rs 19.9 lakh, the revenues per employee for Mahindra Satyam is in line with that of larger peers Tata Consultancy Services, Infosys and Wipro.

On the merger itself, Mr Schumacher feels that the leadership of the two companies should be personally engaged in driving forward the integration in ways that are visible for employees and external stakeholders to see.

“The objective is to find approaches that connect the passions of individual employees with the big picture; facilitate mutual learning and alignment; build trust, organisational confidence and ambition - all of which are key ingredients for successful implementation,” he added. (Source: Business Line)

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