Human Capital in the Indian IT / BPO Industry

V. Pereira, A. Malik

• Publisher: Palgrave Macmillan
• Year: 2015
• Print ISBN:
  9781137481504
• eBook ISBN:
  9781137481528
• Topic: Business
• Subtopic: Business General
• Index: Business

Human Capital in the Indian IT / BPO Industry analyses human capital management in the Indian information technology (IT) and business process outsourcing (BPO) industry, which has created a new paradigm for organising global talent engaged in designing and delivering IT and BPO services.

1

Introduction

This research monograph is a result of a robust analysis of human capital management in the Indian information technology (IT) and business process outsourcing (BPO) industry, which has created a new paradigm for organising global talent engaged in designing and delivering IT and BPO services. This analysis is an extension of our decade-long programme of research focusing on the Indian IT/BPO sector. Incorporating themes from our previous work, recent publications and ongoing research, we present an integrated account of the numerous theoretical and research contexts that needed exploration, description and analysis before we could attempt to synthesise the key human capital management practices prevalent in the industry (Malik, 2009; Malik & Nilakant, 2011; Malik et al., 2012; Pereira & Anderson, 2012; Malik, 2013a, 2013b; Pereira & Budhwar, 2015; Pereira & Fontinha, 2014; Pereira & Scott, 2014; Malik & Rowley, 2015a; Pereira et al., 2015, 2016). While several authors, both in India and abroad, have scripted various aspects of the Indian IT industry’s spectacular growth, we believe that the evolution of innovative talent management strategies of these knowledge workers has received scant attention. Our book contributes by providing a rich theoretical grounding in managing human resources in the context of high-technology professional services firms, which the Indian IT/BPO sector typifies. We focus on the design and implementation of high-performance work systems (HPWS) in the context of Indian IT/BPO organisations. Work in such organisations is knowledge-intensive and dependent on the interface between technology, its users and people who deliver such products and services. Technology underpins the delivery of services and processes; however, employees are key organisational resources and represent a cornerstone for value creation. The management of knowledge-intensive human resources is therefore central to overall performance and success. There is limited research that focuses on high-performance work systems HPWS, particularly on skills development strategies adopted by successful firms operating in the Indian IT industry. This book attempts to bridge this gap by offering deeper theoretical understandings that can richly explain the context-specific phenomenon through our qualitative case-study accounts.

Case-study examinations integrating multiple theoretical strands have been rare in management and work organisation research. In this book, we integrate three related and critical streams of human resource management (HRM) literature: high-performance work systems, strategic HRM and human resource development (HRD). Our findings suggest a complex interaction between various factors that are internal and external to firms, such that HRM is best understood as enacted in different forms, characterised by ‘shape-shifting’, a dynamic ‘entanglement’ of problem-solving and strategic adoptive and adaptive approaches to skills development, attrition and performance.

This research monograph provides evidence from existing literature of how human capital challenges drive a focus on both employer branding and perceptions of sophisticated HRM. Furthermore, it will portray how certain HRM approaches integrate other disciplines, such as strategy and human resources practices. We also show how distinctive blends or bundles of human resources and strategies emerge and the extent to which factors such as the complexities of employment life cycle, leadership ambitions, economic and market fluctuations, cultural, social, national, sub-national and institutional contexts influence them. Theoretically, we will portray how this phenomenon suggests a unique human resource management–performance link in the Indian BPO industry and how this is grounded and premised on transaction cost analysis, human capital, strategic capabilities and the resource-based views of firms. Furthermore, we explore how this idiosyncratic theoretical form is supported by several identified dimensions, including tacit knowledge, knowledge-based views, resource dependency, core competencies and core-related specificity, casual ambiguity and social complexity, thus contributing to academic knowledge. It was found that training and development, organisational learning and knowledge are common to most bundles of HR practices in the organisations studied.

Thus, this monograph also highlights the role of human capital development at an individual and organisational level for realising continued competitive advantage (Teece et al., 1997; Pfeffer, 1994; Lepak & Snell, 2003; Harrison & Kessels, 2004). It has been estimated that on average firms invest in excess of $100 billion annually on employer-funded training (Ketter, 2006). Others have noted the positive spillover effect of human capital on national competitiveness and employment (Bishop, 1994; OECD, 1994; Felstead & Green, 1994; Ashton & Green, 1996; ILO, 2001). Despite the noted advantages of investment in skills and human resource development at a national level, the debate focusing on the demand and supply of skilled labour has continued in policy, academic and business circles (Keep & Mayhew, 1996; Felstead et al., 2002). What is critical though is where these skills are needed most: we argue it is in the organisations. Improvements at a macro level can occur only if we improve human capital development initiatives at an organisational level (Cappelli, 1994; Porter et al., 2004). This monograph provides extensive details of the antecedents that support employer-funded investment in skill development and training.

Our systematic review of the extant literature suggests that the bulk of the research on demand-side training models at firm level (Pettigrew et al., 1988; Smith & Hayton, 1999; Ridoutt et al., 2002; Smith et al., 2003, 2004; Dostie & Montmarquette, 2007) was in economically advanced nations and in manufacturing industries. Moreover, there is limited understanding of emerging markets such as India, and especially of its fast-growing IT services sector (NTITSD, 2003; NASSCOM-KPMG, 2004; Narayanan & Neethi, 2005). An early estimate of India’s IT industry suggested that close to US$2.0 billion per annum is spent on employer-funded training by four major Indian IT firms with budgets close to US$500 million each or nearly US$5000 per employee (Economic Times, 2007). Subsequent studies (Malik, 2009; Malik & Nilakant, 2011) found that high-performing Indian IT/BPO firms, small and large, invested approximately 5% of their payroll on training. This book will also analyse the key antecedents for employer-sponsored training in India’s IT sector. The differences in training investment are critical in understanding the performance differences between firms within the IT/BPO industry.

The book is situated and positioned within the HRM/D literature and focuses on an already-acknowledged gap of studying both the inside-out and outside-in factors, including the influence of a firm’s clients on the provision of employer-funded training and shaping a range of HRM policies (Leimbach & Baldwin, 1997; Bing et al., 2003; Short, 2006). Such an approach is particularly important as the IT sector relies heavily on interdependence, interconnectedness and complexity between vendor and supplier firms; as IT services typically have shorter project, product and process life cycles; and also as there exists a high degree of coordination between vendor and supplier firms (Banerjee, 2004, 2006). Not only do we attempt to theorise antecedents of enterprise training, but we also look at the role of other high-performance work practices (HPWPs) (Pettigrew et al., 1988; Smith & Hayton, 1999; Ridoutt et al., 2002; Smith et al., 2003, 2004; Dostie & Montmarquette, 2007; Guest 2011) and new management practices such as market orientation, learning orientation and quality management systems in shaping training provision in a high-growth and dynamic outsourcing environment in an Indian context. We begin this introductory chapter by clarifying what we mean by training as applied to our research.

Defining training in the context of human capital

As we know that HRD has a clear focus on employee training and development, their career aspirations and aspects of organisational development (McLaglan, 1989; Swanson & Holton, 2001; De Cieri & Holland, 2006), we begin by discussing briefly the current debates on HRD conceptualisation and theory-building (Barrie & Pace, 1998; Kuchinke, 2001; McLean, 1998, 1999; Sambrook & Stewart, 1998; Lee, 2001; Mankin, 2001; McLean & McLean, 2001; Swanson, 2001). Despite the debates, there exists some consensus about what HRD is; it has been defined as ‘a process for developing and unleashing human expertise through organisation development and personnel training and development for the purpose of improving performance’ (Swanson & Holton, 2001:4).

Despite this consensus, there is still a lot of variety in HRD, with varying academic and practitioner definitions (Garavan, 1997; Garavan et al., 2000). Without dwelling upon too much on this matter, we reinforce some common views as noted by Garavan (1997), who argues to ‘view the concepts of training, development and education as an integrated whole with the concept of learning as the glue which holds them together’ (40). In a large-scale project from Australia, Hayton et al. (1996) defined enterprise training as ‘all forms of skill formation activity relevant to the operation of the enterprise’, and ‘this includes formal and informal training, and on-site and off-site education and training’ (Hayton et al., as cited in Ridoutt et al., 2002:27).

While most training definitions are focused on individuals and their performance on the job, for the purposes of this book the definition provided by Hayton et al. (1996) is modified. In line with Malik (2009) and Malik and Nilakant (2011), training is broadly conceptualised, in the context of organisations operating for profit, as all learning activities relevant to the operation of an enterprise and includes formal and informal training, development and education provided by the organisation, internally or externally.

The human capital problem in context

We examine the problem at two levels: first, at a theoretical level and, second, at a practitioner level. Even though a number of HRD scholars have identified the need to extend the field by moving away from an inward-looking approach, serving a firm’s set of fewer stakeholders, such as its shareholders and employees only, additional research on adopting an outward-looking approach, wherein one can consider the impact of a range of external stakeholders, such as its suppliers and clients, is needed (Bing et al., 2003; May et al., 2003; Packar & Sharar, 2003; Rouna et al., 2003). The significance of what clients want from a firm’s HRD and human capital function has been well acknowledged (Leimbach & Baldwin, 1997) as a critical ‘gap between research and practice’ (Short, 2006). The problem with the theoretical issues also stems from the key underpinning theories of HRD (Mankin, 2001; Swanson, 2001) and the existing focus on a small range of dependent variables or outcomes in HRD research (Swanson, 1999; Swanson & Holton, 2001). This creates severe challenges when we want to reconceptualise the field, albeit partially using an outward-looking approach.

To this end, to address the problem from a theoretical level, firstly, one should have an understanding of what drives investment in employer-funded training or human capital. Such an understanding should precede the discussion on the reasons or rationales for why HRD should exist. Despite some attempts to tease out the antecedents of investment in training (OECD/CERI, 1988; Pettigrew et al., 1988; Smith & Hayton, 1999; Green et al., 2003; Smith et al., 2003, 2004; Dostie & Montmarquette, 2007), most studies lack theoretical elegance and underpinning of HRD and its novel theories. Smith and Dowling (2001) and Ashton and Sung (2006) were among few studies that have extended the debate, but again they too tend to adopt an input–output model of theorising training. While such models are useful in understanding the relationships between the key factors, they offer a narrow understanding about the variations in training across or even within the industry.

Secondly, much of the research has been in advanced developed nations such as the United Kingdom, the United States, Australia, Canada, New Zealand and other OECD countries (Finegold & Soskice, 1988; McIntyre et al., 1996; Smith & Hayton, 1999; Bryson & O’Neil, 2008). The gaps in theorising in developing countries, such as India, are significant. Novel contextual understanding is needed as the dynamics are different and there is an increasing importance accorded to developing nations such as India for becoming a potentially economic superpower by 2020. Further, as much research is from developed nations, contextual factors remain largely ignored (Woodall, 2005).

Since HRD is an applied discipline, this book will utilise Swanson’s (2007) conceptualisation of building theoretical frameworks. In line with Swanson, this book will consider HRD’s key theories and include any useful, contributing and novel theories that best explain the phenomenon we are interested in: human capital management in the Indian IT/BPO industry.

Thirdly, for firms to adopt an outward-looking approach, it is important that they look at the needs of their external clients or customers (Leimbach & Baldwin, 1997; Bing et al., 2003; Short, 2006). In the context of research in HRD and human capital, it is important not only because of limited literature on the topic but also because of the added value that might emerge from an organisation’s clients or customers, given the richness and reach of information, as well as the influence clients/customers have on an organisation’s products and services. Added value could occur through customer feedback about product/process improvements and ideas for new product development. Such feedback loops are noted in the service, high-technology and consumer goods sectors (Baker & Sinkula, 2002, 2005). Further, staying close to customers/clients presents HRD practitioners and academics with an opportunity to engage in evidence-based HRD practice (Hamlin, 2007) and to address the academic discourse on the disconnection between HRD theory and practice (Holton, 2004; Yorks, 2005).

Given that interaction between service providers and clients/customers is highest in the services sector, and especially in the high-technology areas, where clients and service organisations demonstrate dynamic coordination and collaboration to enable service delivery (Banerjee, 2004), this book focuses on one of India’s services sectors: its IT/BPO sector. Recent research points to the limited studies on HRM and skills development issues of IT/BPO professionals (Kaplan & Lerouge, 2007; Githens et al., 2008). Further reasons for choosing India’s IT sector are discussed in the following.

First, within the services sector in India, the IT/BPO sector is relatively under-researched for HRD and human capital issues in general (Rao & Abraham, 1986; Yadapadithaya, 2001) and for training drivers in particular. Second, the sector is posting dynamic growth rates in revenues and employment and is constantly undergoing technological change, thus requiring new research to inform theory-building and future practical requirements for the sector and its sub-sectors. Third, the organisations vary greatly in the size and range of services offered, and there is likely to be more than a single explanation for investment in training. Typically, large IT/BPO firms secure long-term contracts in a range of industries and specialisations, whereas small and medium-sized firms attract short-term contracts in a narrow area of specialisation. Fourth, given the dynamic environment, short product/process life cycles and the constant need for knowledge acquisition, transfer and absorption to and from clients, a study of the temporal dimension of the projects/process in relation to training is appropriate. Such diversity and dynamism in the industry present an opportunity for HRD researchers/theorists to explore how best to synthesise or modify any applicable theoretical frameworks suitable for ensuring an outward-looking and market-based organisational learning approach (Sinkula et al., 1997; Baker & Sinkula, 1999a, 1999b, 2002, 2005).

The problems at a practitioner level pertain to, first, understanding how HRD practitioners can exploit and explore new combinations of resources and engage in evidence-based practice (Hamlin, 2007). Second, contextually, as India’s IT/BPO sector has an uneven profile (Heeks, 1998; Kuruvilla and Ranganathan, 2008, 2010) wherein significant revenues are accounted for by less than 1% of the total firms operating in the sector (Ethiraj et al., 2005), HRD practitioners have much to learn from the good practices employed by these firms, as well as see the relevance and application of such practices in small and medium-sized firms. Third, given that the IT/BPO industry is plagued by high voluntary employee quit rates, HRM and HRD practitioners need to gain a better understanding of why this happens and how its incidence can be minimised (NASSCOM, 2014a, 2014b).

Employing a qualitative case-study methodology, we begin by analysing the key factors that trigger investment in training and human capital management in India’s IT/BPO sector. Next, we look at how several factors interact with each other and stabilise the final human capital management approaches. Finally, after considering the what and how questions, we analyse and interpret the contextual reasons why IT/BPO firms in India invest in human capital management and offer explanations for variation in human capital management approaches between firms.

Book contributions

This book offers a number of key offerings, which we have summarised in this section titled ‘Book contributions’ (i.e. theoretical, methodological and practitioner), and contributions through identifying future research opportunities.

Theoretical contributions

The theoretical contribution offered by this book is unique as it shows how firms in an offshoring paradigm within the Indian IT/BPO context employ a range of human capital management approaches to respond to challenges of sustained growth and market forces. By bringing together previously ignored relationships and novel theoretical approaches from the disciplines of marketing, operations, HRM and HRD in a comprehensible style, the book contributes to uncharted and critical dimensions pertinent to the body of knowledge on HRD and human capital management. In particular, the contributions are in the following three areas.

The high-technology services sector in the context of a developing country

Most HRD literature in India focuses on national trends and the impact of India’s liberalisation policies on HRD and human capital management issues (Rao & Abraham, 1986; Yadapadithaya, 2001; Rao, 2004; Pareek & Rao, 2008; Rao & Varghese, 2009). There is limited HRD research undertaken in the services sector, particularly in the IT/BPO s...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• List of Tables and Figures
• Foreword
• Preface
• 1. Introduction
• 2. Global Offshore Outsourcing and the Indian IT/BPO Sector: Theoretical Perspectives
• 3. The Role of Human Capital Management in Firm Performance and Change
• 4. Theory-Building Through Case-Study Research
• 5. Case-Study Analysis
• 6. Discussion and Conclusions
• References
• Index