The case of Bench Management

Trust them with knee-jerk reactions,” said Vikram Koshy, CEO, Delta Software India, as he looked at the quarterly report of Topline Securities, a well known equity research firm. The firm had announced a downgrade od Delta, a company listed both on Indian Bonuses & the Nasdaq. The reason? “One out of every six development engineers in the company is likely to be benched during the remaining part of the year.”

Three analysts from Topline had spent some time at Delta three weeks ago. Koshy & his team had explained how benching was no different from the problems of excess inventory, idle time & surplus capacity that firms in the manufacturing sector face on a regular basis, “Delta has witnessed a scorching pace of 30 percent growth during the last five years in a row,” Koshy had said, “What is happening is a corrective phase.” But, evidently, the analysis were unconvinced.

Of course, the Topline report went on to cite several other “signals,” as it said: the rate of annual hike in salaries at Delta would come down to 5% (from between 20 & 30% last year), the entry-level intake of engineers from campuses in June 2001, would decline to 5%(unlike the traditional 30% addition to manpower every year); and earnings for the next two years could dip by between 10 & 12%. And the loftiest of them all: “The meltdown at Nasdaq is unlikely to reverse in the near future.”

“Some of the signals are no doubt valid. And ominous,” Said Koshy, addressing his A-team, which had assembled for the routine morning meeting. “But clearly, everyone is reading too much into this business of benching. In fact, benching is one of the many options that our principles in the US have been pursuing as part of cutting costs right since September, 2000. they are also expanding the share of off-shore jobs. Five of our principals have confirmed that they would outsource more from Delta in India-which is likely to hike their billings by about 30%. At one level, this is an opportunity for us. At another, of course, I am not sure if we should be jubilant, because they have asked for a 25-30% cut in billing rates. Our margins will take a hit, unless we cut costs & improve productivity.”

“Productivity, is clearly a matter of priority now,” said Vivek Vardan, Vice-President(Operations). “If you consider benching as a non-earning mode, we do have large patches of it at Delta. As you are aware, it has not been easy to secure 70% utilization of our manpower, even in normal times. I think we need to look at why we have 30% bench before examining how to turn it into an asset.”

“There are several reasons,” remarked Achyut Patwardhan, Vice-President(HR). “And a lot of it has to do with the nature of our business, which is more project-driven than product-driven. When you are managing a number of overseas & domestic projects simultaneously, as we do at Delta, people tend to go on the bench. They wait, as they complete one project, and are assigned the next. There are problems of coordination between projects, related to the logistics of moving people & resources from one customer to another

In fact, I am fine-tuning our monthly manpower utilisation report to provide breakup of bench costs into specifics-leave period, training programmes, travel time, buffers.”

“It would be worthwhile following the business model used by US principal Techno Inc, “said Aveek Mohanty, Director(Finance). “The company has a pipeline of projects, but it does not manage project by project. What it does is to slice each project into what it calls ‘activities’. For eg, communication networking; user interface development; scheduling of processes are activities common to all projects. People move from one project to another. It is somewhat like the Activity based costing. It throws up the bench time straightaway, which helps us control costs & revenue better.”

“I also think we should reduce our dependence on projects & move into products, “ said Pravin Kumar, Director(Marketing). “That is where lies the opportunity for brand building. In fact, now is the time to get our technology guys involved in marketing. Multiskilling helps reduce the bench time.”

“Benching has an analogy in the manufacturing sector,” said Girish Shahane, Vice-President(Services). “We could look for learning there. Many firms have adopted Just-in-Time(JIT) Inventory as part of eliminating idle time. It would be worthwhile exploring the possibility of JIT. But the real learning lies in standardisation of work. It is linked to what Mohanty said about managing by activities.”

“At a broader level, I see several other opportunities ,”said Koshy, “We can fill in the space vacated by US firms & move up the value chain. But before we do so, Delta should consolidate its position as the premier outsourcing centre. Since there are only two ways in which we can generate revenue-sell expertise or sell products-we should move towards a mix of both. Tie-ups with global majors will help. Now is the time to look beyond the US & strike alliances with firms in Europe-and also Japan- as part of developing new products for global markets.”

QUESTIONS

1. Should benching be a matter of concern at Delta?2. How can it convert bench into capital?3. What are the risks involved in moving from a project-centric mode to a mix of projects

& products? (OPTIONAL TO ANSWER)

Why Bench?

Clients suddenly decide to cut back on IT spends

Project mix gets skewed, affecting work allocation

Employee productivity is let to fall, creating slack

High degree of job specialisation leads to redundancy

What are the options?

Quickly cut costs in areas which are non-core

Look for learning from the manufacturing sector

Focus on alternative markets like Europe and Japan

Move into products, where margins are better