apex-the aventus partners human capital index industry report · 2014-11-01 · apex-human capital...

APEX-The Aventus Partners Human

Capital Index Industry Report

Industry – Information technology

Aventus Partners, 2012

APEX-Human Capital Index Industry Report

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Preface ........................................................................................................................................ 3

APEX-The Aventus Partners Human Capital Index ......................................................................... 4

Introduction.......................................................................................................................................... 4

Concept ............................................................................................................................................... 4

Industry ....................................................................................................................................... 5

Overview ............................................................................................................................................. 5

Current Scenario ................................................................................................................................. 5

Key Highlights during FY2012 ............................................................................................................ 5

Human Capital Measures ............................................................................................................. 6

Revenue Per employee…..……………………………..……………………………………….......6

Profit Per Employee….………………………………………………………………………………..7

Human Capital Return on Investment……………………………………………………………….8

Human Capital Turnover……………..……………………………………………………………….9

Human Capital Value Added………………………………………………………………………..10

Top 5 Companies ....................................................................................................................... 11

Aventus Partners ....................................................................................................................... 14

About Aventus Partners .................................................................................................................... 14

Services............................................................................................................................................. 14

Reach us .................................................................................................................................... 16

Offices ....................................................................................................................................... 16

Table of Contents


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Preface

APEX-Human capital index is an analytical tool which analyses the value of human capital and its

related aspects based on human capital and financial parameters. Human capital parameters

constitute for 2/3rd part of the index while the remaining 1/3rd Weightage is determined by financial

parameters. Each parameter is measured on a scale. The range of scale is determined by the

criticalness of the ratio to the index. A total of 300 points is the Weightage of the index, (200 from

Human Capital and 100 from financial parameters) and the components are clubbed into 7 key

parameters. Organizational performance is measured on 300 points and the output points are

converted in to rating which ranges from AAA to D, wherein AAA is the highest rating and D is the

lowest rating. The APEX-HC Index’s 7 key parameters measurement is based on the composite score

of each key parameter and finally a response is assigned to it. The assigned response is the

representation of numerical percentage figure to simplify the ranking. Ranks range from “Very Good”

to “Very Low”, where Very Good is the top end and Very Low is bottom end rank. In order to carry

out the valuation of individual organization, the index needs at least two consecutive years’ human

capital and financial data. Each year’s rating and key parameters’ ranking is evaluated and compared

to come to the conclusions as in which year performance is better, which part of business need fresh

investment and where the organization needs to improve etc., are some of the parameters that are

considered.

APEX-HC index helps organizations –

to compare performance of itself and its competitors

to find the areas of best performance, average performance and areas where they need

improvement based on the APEX-HC’s analytics

to analyze the productivity, profitability and value addition by human capital pool in a specific

financial year

market price valuation of the organization

to analyze Human capital utilization

to measure the effect of human capital utilization on market price of stock

making decisions related to manpower requirement from top to bottom

making decisions related to investment in human capital


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APEX-The Aventus Partners Human Capital Index Introduction APEX-The Aventus Partners Human Capital Index is an analytical tool that measures the value of

human capital or talent pool in order to help service sector organizations analyze their talent

capabilities and various other critical and at times hidden aspects of human capital. The tool can be

useful to the following groups of professionals:

Business Leaders in the services domain to understand the performance of their Human

Capital from the business indicators

HR Professionals to understand which areas of the Human Resources function need to be

augmented/redesigned/better utilized

Banks and Financial Institutions, so as to understand how Human Capital contributes to the

financial performance of Services organizations and thereby arrive at some lending

mechanisms to these sectors

Private Equity players, to arrive at an optimum price discovery mechanism on their

investment strategies in the services domain

High Net Worth and Retail investors, to discover a new asset class with potential for

performance and discover new strategies of investment

Concept APEX-The Aventus Partners Human Capital Index consists of a set of human capital ratios and

financial ratios. Human Capital ratios derived from the Balance Sheet, Profit and Loss Account and

the audited and published Annual Report consist for 2/3rd part of the index weightages while

financial ratios make 1/3rd part of the total index.

Data for ratio calculation are taken from annual reports (Balance sheet, Profit and loss account, Cash

flow statement and their schedules) of companies in service sector. Each ratio is calculated in

percentage value and measured on a scale. The range of a scale is based on the importance of ratio

to index, which is why rating points on the scale varies from ratio to ratio. Range of a scale varies

from negative points to positive points being assigned, for instance if the scale is 9 for a ratio then

the ratio will be measured on the scale from -9 to +9 points based on the value of the ratio. If the

value of a ratio is negative, the rating will be measured on negative side and if ratio value is positive,

rating will be on positive. The sum of all the ratios scale is 300 points.

APEX-Human Capital Index is measured for 300 scale points in rating pattern from AAA to D where

AAA is the highest rating while D is the lowest rating. There are 7 key parameters that collectively

make the index namely - Work environment, Organization pyramid dimensions, Skill induction and

development, Remuneration, Retention, Human Capital contribution to business and financial

performance. These 7 key parameters are measured on weighted rating system which varies from

“Very Good” to “Very Low” based on the score of each parameter. These 7 key parameters and the

final index ranking make the output part of the index. To measure an organizations’ human capital

value, we require at least two years’ sequential data of a particular organization. To compare an

organization with other of same industry we need the same year’s data for both.


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Industry Overview The Indian IT industry has witnessed a strong recovery over last few quarters after facing a bleak

outlook following the onset of global economic slowdown in the last quarter of 2008. The industry

faced a difficult year but started moving towards recovery by second half of the FY10 and operating

atmosphere for the industry has continuously improved since then. The recovery which started with

pent up demand and cost cutting initiatives by large MNCs is now progressing as major companies

across the world started hiking IT budgets gradually.

However, there are some headwinds for the industry. Glitches in the global recovery continue to

remain even as demand for IT services has been increasing. A bigger threat for the industry has been

coming from home turf where the industry is facing surge in costs. There is a lot of upward pressure

on wages amidst a rapidly recovering Indian economy and high inflation. Rupee volatility has been

another problem that IT industry is facing, though we believe companies, in particular the large one,

have learned to counter this challenge to some extent. However, any sharp increase in rupee form

current levels coupled with wage inflation can impact margins.

Current Scenario After recording nearly a decade of strong growth the, Indian IT industry posted the lowest growth it

has seen in the post-deregulated era in the fiscal year 2009-10. According to the estimates prepared

by the industry body NASSCOM, the sector had grown by around 6% in FY10. However, even though

the growth was much slower compared with historical performance, the industry has certainly put

the worst behind it. The recovery has become much more visible and broad-based in FY11 with

growth increasing significantly.

The Indian IT industry today stands at an inflection point in its evolution. It is one of the biggest

contributors to the Indian GDP in the last decade. The industry, which was almost at nascent stage till

late 1980s, grew at tremendous pace after early 1990s and exports have grown by 100 times over the

last 15 years.

Key Highlights during FY2012

IT services exports is the fastest growing segment, growing by 19 per cent in FY2012, to

account for exports of USD 40 billion

Considerable traction in traditional segments – custom application development, application

management, IS outsourcing and software testing

Industry re-tooling itself to adjust to rapid change in customer priorities – from SLAs to

increased time-to-market

Emerging technologies – cloud computing, mobility, social media and big data/analytics

unleashing new opportunities for the industry

IT services is the fastest growing segment in the Indian domestic market, growing by 18 per

cent to reach Rs 589 billion, driven by increasing focus by service providers


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Human Capital Measures 1. Revenue Per Employee (RPE) – RPE is a productivity ratio which measures individual’s

contribution to the total revenue. Significance of this measure is to get an insight of the overall

performance of human capital pool based on the revenue generated in a financial year. Higher

value of this measure indicates better productive human capital pool.

Figure 1 - Revenue per employee

Revenue per employee is a critical measure for any company in order to measure the employee

productivity. Relatively high revenue per employee is a positive sign that suggests the company is

finding ways to squeeze more sales (revenue) out of each of its employees. Effectiveness of human

resource policies and practices, workforce quality and age of the company affects revenue per

employee figure. From the above chart one can infer that Infosys’ human capital pool is more

productive than others. HCL is only company with continuous Y-o-Y growth during last 6 years which

recorded a growth of more than 55% in revenue per employee figure compared to year 2006

revenue.


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2. Profit Per Employee – This is a profitability ratio which measures individual’s contribution to

the profit. Significance of this ratio is to measure the overall performance of human capital pool

based on the profit earned in a financial year. Higher value of this ratio indicates more profitable

human capital pool.

Figure 2 - Profit per Employee

Profit per employee is a profitability ratio measure which measures contribution to the total profit by

each employee. Relatively higher value is a positive sign of management’s capability to manage

human capital effectively and controlling cost in efficient manner. From the above profit per

employee line graph it is clear that Infosys’ human capital pool is more efficient than others. Value of

the ratio is almost constant over the years for each company.


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4. Human Capital Turnover - this ratio measures efficiency of human capital in terms of

generating sales or revenue as turnover on investment made on human capital in the form of

salary, incentive, bonus, land, building and other related costs.

Figure 4 - Human Capital Turnover

It directly shows the amount of revenue generated for every rupee invested in human capital. Tata

Consultancy Services and HCL are high on human capital turnover. Major change can be seen on TCS

as a sharp drop from year 2006 to 2007. As far as Infosys is concerned, it is looking under pressure

because of relatively high human capital cost which affected turnover ratio. From this ratio we can

conclude that higher the human capital cost, lower the human capital turnover ratio.


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5. Human Capital Value Added – this ratio measures the value which has been added to the

organization by each employee or in other words it is the measurement of effectiveness of

employees. The value addition is measured in monetary terms as profit earned by the company

on account of each employee. This ratio is helpful in analyzing the effect of net employee

addition on earnings by comparing previous periods profit data. Here EBIT figure is used to

calculate the ratio.

Figure 5 - Human capital value addition

Value addition playes an critical role in decision making for an organization when manpower

requiremnt and hiring related decisions has to be taken. Effect of net employee addition on earnings

of an organzation can easily be measured by comparing ratio values of previous period to current

period. Infosys and HCL are following same pattern but growth percentage is high in HCL while

infosys is at the top in this ratio category. From the above chart we can infer that employees of

infosys are adding more value than other.


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Top 5 Companies 1. Infosys

2. Tata Consultancy Services

3. HCL Technologies

4. NIIT Technologies

5. Sasken Communication Technologies

Infosys

2006 2007 2008 2009 2010 2011

Market Price 2981.40 2307.48 1700.17 1436.78 2262.20 3241.30

Rating Point 210.1 212.4 215.2 216.2 207.6 183

Infosys is a well-known brand in Indian

IT industry so is its stock in Indian stock

market. It is at the pole position in

APEX-Human Capital Index of IT

industry on the basis of rating points. To

carry out the human capital valuation of

Infosys based on its most prominent

assets “Employees” we have factored in

the last 6 years data. The graph of

Infosys Technologies’ is plotted

depicting the market price and rating

points. Rating points are taken from

Apex-Human Capital Index which shows

the overall performance of Infosys with

respect to human capital and financial

investments. High value of rating points

means higher utilization of its core asset; Human Capital, effective human resource polices &

processes, controlled cost and capable management. The effect of higher utilization of its intangible

assets can be seen on its market price as the value of intangible assets increases market price goes up

and vice-versa. The gap between market price line and rating point line can be interpreted as the

reflection of intangible value of human capital as perceived by the stock market. What one can

perceive it that there has been no significant improvement in Human Capital investments and output

over the years, and the markets tend to be favouring the brand rather than the underlying

performance.


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Tata Consultancy Services

2006 2007 2008 2009 2010 2011

Market Price 1915.50 1438.35 998.82 676.63 749.44 1183.90

Rating Points 191.1 166.9 171.4 166.7 181.2 170.6

The effect of Human capital practices and value of investments in human capital can be seen through market price trends. As the market price line comes down intangible assets (human capital) values decrease and when it goes up intangible assets value increases. A market price line (in blue) above human capital rating line (in red) shows the quality of investment. In year 2009 value of human capital and its other aspect is lowest in last 6 years, its mainly because of relatively lower growth in revenue.

HCL Technologies

2006 2007 2008 2009 2010 2011

Market Price 502.11 391.44 292.92 217.87 320.80 493.46

Rating Point 200.3 194 178.5 181.9 182.6 161.3

HCL’s market price follows trends

similar to Infosys and TCS. From year

2006 to 2009 market price dropped

and started increasing subsequently.

Markets tend to take a dull view if the

economic situation is adverse. In such

a time, the measure of the Human

Capital is the best way to gauge the

stability of Human Capital and an

organization’s continued investment

in it, even in adverse market

circumstances. In the year 2009

market price is lowest in 6 years hence

human capital value is lowest in this

year.


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NIIT Technologies

2006 2007 2008 2009 2010 2011

Market Price 228.55 376.01 184.13 92.20 146.48 184.50

Rating Point 171.8 184.8 181.5 177.8 184.2 184.9

NIIT technologies’ line graph is showing that both the lines are almost straight and overlapping. This is the case where companies should start thinking about their employees and start making good investment in human capital, better services mixes and push for more profitable opportunities. There are several reasons which are responsible for very low human capital value namely less productive and profitable human capital, less effective human resource policies and less efficient management etc.

Sasken Communication Technologies

2006 2007 2008 2009 2010 2011

Market Price 342.75 445.69 205.18 102.22 150.82 157.50

Rating Point 174.8 179.8 171.6 154 188.5 199.2

In this case, the organization should strongly focus on their human capital and start making good investment in human capital. There are several reasons which are responsible for very low human capital value namely less productive and profitable human capital pool, less effective human resource policies and less efficient management etc. Each needs to be carefully evaluated, the product mix should be analyzed closely and the services that the organization bids for should be scaled up in terms of value, since there doesn’t seem to be significant depletion in Human Capital, what comes across is that the organization is pitching for a lower order or projects with reduced profitability and recovery.


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Aventus Partners About Aventus Partners

They say your beliefs dictate your deeds. We believe that to meet the unique talent needs of any

business one has to venture out of the box. We decided to put our beliefs to practice, and resultantly,

in 2007 Aventus Partners was born. We bring to the table over thirty years of experience in Talent

Acquisition, Talent Assessment, Talent Development and an in-depth knowledge of businesses across

industry spectra. At Aventus Partners the real edge that we put at our client's disposal is our belief in

a culture of out of the box thinking.

Services

The true competitive differentiator for any organization is its human capital. At Aventus Partners, we

believe in looking beyond the obvious to find innovative solutions for your organization’s talent

needs. Our skilled team understands your organization’s unique value proposition and business goals

to offer you customized solutions for attracting, nurturing and retaining business leaders who will

take your organization to the next level.

We offer bespoke solutions in following areas:

Leadership Talent Acquisition Talent Assessment and Development Talent Management

Leadership Talent Acquisition

As every organization evolves, it discovers its unique value proposition, and learns to enjoy playing to

the skills advantages it possesses. We at Aventus Partners understand our core skill and areas where

we have enthusiastically contributed to building large business capabilities for our clients and deep

Knowledge Practices for ourselves. Our Knowledge Practices in Leadership Talent Acquisition:

I. Private Equity Practice II. Emerging Businesses Practice

III. CXO Practice IV. Emerging Technologies Practice V. Consulting Practice

I. Private Equity Practice

Aventus Partners has worked with PE funds for identifying Principals in the Investment

Management, deal sourcing and operations side, as well as in identifying critical senior

management talent for investee companies. We understand the challenges of managing

complexities of business while scaling them up to reach a predefined escape velocity at the time

of strategic exit. The talent identified by us has worked successfully with the Private Equity funds

and there investee companies in managing business cycle from investment to exit.

II. Emerging Businesses Practice


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Aventus Partners has proven credential and deep expertise in working with emerging businesses.

The team at Aventus Partners has been engaged with developing organizations over the last 15

years and understands the changing skill requirements at different stages of organizations’

evolution.

The challenge in working with emerging business is that it has less precedence. The same

challenge extends to the availability of skill or talent for them. What emerging businesses need

most is out of the box thinking and solutions to provide them with access to talent and services

that are within reach and in line with global performance frameworks. At Aventus Partners we

believe that the size of the business should not restrict the quality of talent pool available to the

organization.

III. CXO Practice

All organizations irrespective of size realize the importance of critical leadership pipeline and the

capabilities that they bring in to make their businesses successful. There is a tremendous

opportunity to induct leadership talent at the CXO levels for each organization. Aventus Partners’

CXO practice is geared to service the needs of organizations seeking to prepare themselves for

the next stage of growth.

IV. Emerging Technologies Practice

Aventus Partners has worked with organisations across the spectrum, ranging from wind power,

solar power, mobile technologies, oil & gas, geothermal energy, storage media, mining and

minerals, semiconductors to supercritical thermal energy generators over the years. Aventus

Partners has successful track record in identifying and bringing on board niche talent for client

organizations.

V. Consulting Practice

Aventus Partners has engaged with tier 1 management and strategy consulting firms, private

equity firms and MNC boutique consulting firms to help them identify talent at the level of

Partners and Principals. The individual and collective experience gained during our professional

careers with Big Four Consulting organization gives us an edge and higher appreciation of

Consulting as an industry and its skill requirements. We have deep understanding of consulting

domains, industry verticals and functional expertise. We also understand thoroughly the

competencies required to excel in the Consulting environment.

Talent Management

As professionals in the talent management domain we have been using our collective and individual

capabilities to enable our clients meet their unique talent challenges, challenges for which there have

been no real precedent to look for within their organisation or outside in their specific industry.

We partner with our clients in addressing these challenges putting in our deep expertise and

experience. We are glad to partner organizations of any emerging businesses and provide them with

the necessary expertise to enable them meet their needs. We help ideate solutions, sell it to key

stake holders and also partner in execution as per the demands of the context.


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Reach us

M P Sriram, Partner Tania Gooptu, Partner Venkat Iyer, Partner

[email protected] [email protected] [email protected] +919895345133 +919810215872 +919810608607

Offices

Aventus Human Capital LLP 40/48, Ground Floor, Pocket 40 EPDP Road, CR Park, New Delhi-110019 Phone +91 11 40561242-45 Fax +91 11 40561241

Aventus Human Capital LLP

919, 2nd Stage, Varthur Main

Road, Tubrahalli, Bangalore- 560

066 Phone +91 80 3253 7215,

+91 80 2854 3089

Aventus Human Capital LLP Personal Chamber, Natham’s House, Chittoor Road, Cochin- 682035 Phone: +91 484 3248780

www.aventus.in

mailto:[email protected]



http://www.aventus.in/


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Aventus Human Capital Solutions Pvt. Ltd.

40/48, Ground Floor, Pocket 40,

EPDP Road, CR Park, New Delhi-110019

Phone +91 11 40561242-45

Fax +91 11 40561241

www.aventus.in

All information contained in this document is sourced from our clients or other public sources. It may include opinions of Aventus Partners and its clients as well. While every effort is made to achieve accuracy in the information contained in this document Aventus Partners is not legally responsible for any content of this document or any consequent actions. We advise that all persons reading this document make their own judgments’ and seek any information desired by them from their own sources.

© 2012, Aventus Partners

Delhi I Bangalore I Kochi

http://www.aventus.in/

apex-the aventus partners human capital index industry report · 2014-11-01 · apex-human capital...

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