Apex Human Capital Index Report- IT industry

APEX-The Aventus Partners Human
Capital Index Industry Report

Industry – Information technology

Aventus Partners, 2012

APEX-Human Capital Index Industry Report

Table of
Contents

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

Page | 2 Aventus Partners, 2012

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


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.


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


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.



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.



3. Human Capital Return on Investment – This measures the return on investment made on
human capital as salary, incentive, bonus, land, building and other related costs. Human capital
return on investment is the key mark in service sector to measure the value of any organization
because of very less amount of fixed assets son balance sheet.

Figure 3 - Human Capital Return on Investment

It directly shows the amount of profit earned for every rupee invested in human capital – in effect
the leverage on human capital cost. Tata consultancy services and Infosys are high on human capital
return. During the last 6 years period Infosys is maintaining human capital return on investment ratio
value over and above 0.5, whereas TCS maintained it above 0.4. This value can be interpreted as if
one had invested one rupee on human capital he would have earned 50 paisa and 40 paisa
respectively as profit on it.



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.



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.


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.


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.


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.


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


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.



Reach us

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

sriram@aventus.in tania.gooptu@aventus.in venkat.iyer@aventus.in
+919895345133 +919810215872 +919810608607

Offices

Aventus Human Capital LLP Aventus Human Capital LLP Aventus Human Capital LLP

40/48, Ground Floor, Pocket 919, 2nd Stage, Varthur Main Personal Chamber, Natham’s
40 EPDP Road, CR Park, New Road, Tubrahalli, Bangalore- 560 House, Chittoor Road, Cochin-
Delhi-110019 Phone +91 11 066 Phone +91 80 3253 7215, 682035 Phone: +91 484
40561242-45 Fax +91 11 +91 80 2854 3089 3248780
40561241

www.aventus.in



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


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