IT consulting turnover rates declining

Robert McNeill

The companies today are trying to get answers about some intrinsic aspects of attrition. To start with, what is the industry standard attrition rate for IT companies, consulting firms and similar size companies? What criteria is attrition generally based on within these types of companies vs. the industry in general? Or even, how do the research firms define attrition?

Turnover is a function of the normal rate of attrition and the extraordinary rate of attrition. Normal rates of attrition would include the natural movement of people from an organization through retirement, change of careers or termination for poor performance, etc. Extraordinary attrition would include forced redundancy. Data from Lehman Brothers shows that the average turnover rate has dropped from 24 percent in the middle of 2000 to 14 percent in the third quarter of 2001 (see figure below).

Data was collected from among 20 leading public IT firms.

Within this economic downturn we are seeing a very low normal attrition rate within IT services companies as the market for consultancy positions is generally very weak, both in terms of prospective salaries for those considering new positions and in terms of demand from consultancies. Attrition rates will most likely remain low until the consultancy market begins to bounce back.

Only then will we see people being bold enough to change companies (unless an organization is under severe financial pressure). However, the normal rate of attrition remains unnaturally low for many of the consultancies and this has prompted some recent forced layoffs (e.g., Accenture).

No services company has been immune to layoffs and companies that were meant to provide shelter from the IT consulting slowdown, including Accenture, EDS and IBM Global Services, have also had to lay off staff. One tactic that Accenture has taken has been to reduce its non-client-facing workforce – Accenture has been working to reduce its human capital cost structure because of its public company status and the economic downturn.

Accenture is keeping consultants focused on delivery (i.e., keep them billable) and direct customer satisfaction, rather than on internal or support activities such as knowledge management, methodology development and maintenance and consultant support. At present the organization operates at a 1:5 support to-consultant ratio and the organization’s operational goal is to move to a 1:6 ratio.

This goal, however, will likely affect the quality of such things as methodology and internal training for consultants – something for which Accenture has, in the past, been renowned. So be aware that forced turnover concentrated on one specific function or vertical may work in the short term but may slow medium-term productivity and organizational goals.

The challenges for services companies during the remainder of 2002 will be having the right people in place for when an upturn returns. The increasing amount of talent on the market is providing some good opportunities for companies to, ironically, hire and lay off. Many second-tier service providers are actually hiring to take advantage of the skilled people available in the job market (either to bolster areas of weakness or hiring people that would not have come to the organization during periods of high industry growth).

The upside to the downturn is that the market should not be tempting away your best talent unless an organization appears to be financially unstable. Furthermore, it also justifies the reduction of under-performing staff. However, when the upturn does occur, be prepared to have the right compensation and communication channels open to retain your most valued staff, since retention will soon return as the most important problem knowledge organizations face.