ChannelWorld

Editorial: Attrition, Competition & A Reviving Economy

TM Arun Kumar is the Executive Editor of the Indian ChannelWorld

As the economy perks up and business begins to look better, the good and the not so good (sometimes referred to as bad) things will come hand in hand. The good things are easy to contemplate and understand. These will typically include more contracts and projects leading to better margins and profits (hopefully). This will also perhaps be the right time to consider expansion of business– be it geographical diversification or forging new partnerships, to add to the existing products and services portfolio. And the people movement among vendor companies, which in the past few months has picked up momentum, may just aid such an initiative, as old relationships can be carried forward.

However, while planning for the good things, it will be good if one were to give adequate thought to the not so good things that the reviving economy will also bring along. These will mainly come in the form of increased competition and attrition. And these are ‘not so good‘, instead of plain bad, because it depends on which side of the fence one is sitting on.

Take attrition for instance. Every person who is leaving an organization is joining another one and most often a competitor (non-compete clauses notwithstanding). For the firm which has lost the person, the needle points to bad. On the other hand, for the company that this person joins, it indicates good news and is classified as talent acquisition. If anyone has doubts on attrition making a comeback, just wait till April!

Similarly, with increasing competition, there will be a pressure on pricing and hence on margins and profits. Obviously that’s not good. But, simultaneously, this will also mean breaking into new accounts (definitely good) or denying entry into an existing account to a competitor (schaden freude).

The success for any organization in the coming years will greatly depend on how it is able to handle these twin (and perhaps more) effects of the resurgent economy. But how does one handle these? Not only are these as different as chalk and cheese, they also have a cause and effect relationship.

One of the time-tested ways of handling attrition is increments, which has an inverse correlation with attrition – better the increment, lower the attrition. But, it also has a direct correlation with margins and profitability. As increments push up the direct cost of a company, it will have to tweak (invariably increase) its pricing to sustain the margin. However, increasing competition will not allow that to happen, implying the firm will have to sacrifice on its margins to retain an existing client or acquire a new one, which in turn will adversely affect its profitability.

So, you counter one impact successfully only to falter at the other. But, is there a way one can counter attrition without having a negative impact on competitiveness and profitability? The answer is yes, but it will be a difficult path to tread on. One will have to make a difficult choice of deciding which employees to hold on to and at what cost. Finding the right balance between the two will be the key to successfully riding the next wave of growth.