The curious case of forced ranking and large scale lay-offs (Part 1)

Layoffs are no news in IT industry and furor over such incidences is rare. However, when the news of a planned large-scale layoff in the Indian IT giant Tata Consultancy Services started appearing in the media in early December 2014, it caused some unprecedented reactions within TCS and the community of IT professionals in general.

According to reports in the media, about 30,000 employees would be sacked in next few months. These reports also mentioned that relatively senior professionals in the mid levels of organization hierarchy would be the main targets for this workforce reduction exercise. What makes this more intriguing is the company’s claim that it is on track to hire about 50,000 professionals, mostly freshers, in the current financial year.

Though TCS denies the reports about massive layoffs, it indicated that a regular ongoing realignment of workforce could result in about 1-2% “involuntary attrition”. A statement issued by the company said:

"As a performance driven company, workforce optimization is a continuous process which happens throughout the year taking into account employee performance, business needs, and people aspirations… This leads to some amount of involuntary attrition in the company. This is nothing out of the ordinary or a special situation for us to comment about".

Even though the actual number of people being axed is not known, apparently many, mostly senior employees, are asked to leave the company across the TCS offices all over the country including Chennai, Bengaluru, Pune, Kolkata, Mumbai and Kochi. Despite some serious attempts from TCS to maintain a business-as-usual facade, the news of the present round of involuntary attritions has generated some unprecedented responses from the IT workforce. It does not look like that the company was anticipating such fierce reactions. To realize the intensity of fear, insecurity and anger that the ongoing job cuts have caused among TCS employees, one only needs to go through the posts in social media. This also resulted in the formation of a new organization called Forum of IT Employees (FITE) to safeguard the interests of IT/ITES workers. The affected employees have started fighting back through multiple channels, including legal course with the help of the support groups like these. Arguably this is the first time that the role of trade unions in IT sphere is discussed with such fervour.

Signs of the changing times

While the furor over recent events in TCS may be extraordinary, these events are no way unexpected. The signs of changing landscape of Indian IT sector are clearly visible for sometime now. For example, in an article titled “Tech firms' focus on increasing sales without adding manpower pays off” published on 22 April 2013, The Economic Times noted that

“For the first time since Indian software service exporters started focusing on delinking sales growth from headcount growth, a clear pattern is emerging of expanding revenues accompanied by a shrinking employee base. This non-linearity points to the acceleration of the trend where service providers are using templates, reusable code and other measures to increase automation and reduce the need to deploy greater numbers of people on projects.”

It does not require any extraordinary imagination to see that the TCS issue is a natural consequence of this trend. Nevertheless, it makes sense to dig deeper to understand a few underlying themes that have driven these changes.

Firstly, as cost optimization becomes a concern of vital importance for the bottom line of the companies, generating more revenue per employee is becoming a critical priority. One obvious way to achieve this objective is to bring in new technologies and processes that help to do more work with less number of people.

Secondly, another implication of the adoption of new technologies and processes to improve the productivity is that the IT ‘professional’ is increasingly being reduced to the work of an ordinary wage earner. As deskilling becomes the norm of the game, majority of IT jobs can be done by less skilled workers. So, the industry needs to systematically realign the organizational structure that was originally created to attract ‘talent’ and to retain them by providing ‘growth’ opportunities.

Thirdly, it is becomes crucial for the companies to ensure that an IT worker spends more time every day at work so that overall productivity increases. In summary, the extension of working hours, ‘involuntary attrition’ based on ‘performance’ and large-scale layoffs become the order of the day in the IT sector.

Perils of forced ranking

One the most intensely criticized issues in the ongoing discussions on layoffs in TCS is the unfairness of the performance ranking system. Performance appraisal in Indian IT companies is normally done once or twice in a year except for a few companies that conduct performance evaluation at the end of each project too. Typically, the performance appraisal process involves 3-4 distinct phases:

  1. The employee will submit a self-appraisal of his or her performance for the period for which the evaluation is done in a prescribed format.
  2. The first level supervisor or manager of the employee will then enter his/her assessment of the employee in the system.
  3. Performance rating of the employees given by the manager will be normalized so that subjectivity of individual managers is eliminated.
  4. Finally, after the necessary approvals are done, the manager will give the feedback and rating to the employee, mostly in a one-to-one meeting.

Though this process seems unbiased, it is always a topic of heated debates and point of contention between employees, managers and HR departments. Normalization of scores, even though it is designed to bring in fairness and objectivity to the process, is an area severely criticized for the lack of transparency. Most companies use a forced ranking (also known as grading based on “bell curve”) for normalization. It is based on the assumption that performance grading of a group of employees will follow a normal distribution.

Bell Curve with employee performance. Image Creidts: Wikimedia Commons

Forced ranking can be explained as follows: if a group of employees are rated in a sufficiently fine-grained ranking method, it should yield a pre-determined distribution in the form a symmetric bell curve. While the majority of employees representing average performers will find their place in the middle portion of the bell curve, the top and bottom performers will be lesser in numbers and lie in the tapering edges of the curve. Using a normal distribution, an organization can grade its employees based on performance in a few categories; top performers (20%), average (60%) and bottom (20%). The most of obvious issue with the forced ranking method is that it is not flexible. As the name indicates, in this method, managers are often forced to rank employees in certain grades so that grading will follow a normal distribution.

In a group of people where all perform equally well, such a ranking method can be unfair, especially if the system is used to weed out relatively bad performers from the system. It is not surprising that the unfairness of the performance ranking system is the most intensely criticized item in the ongoing discussions on layoffs in TCS. At the same time, the interesting fact is that it is not just the employees who are critical about bell curve based performance appraisal. Forbes magazine columnist Josh Bersin wrote on the necessity of scrapping Performance Appraisals. He wrote: “Times have changed. More and more companies have decided to radically change (read ‘scrap’ or ‘reengineer’) their performance appraisal process”.Bersin lists down many problems with the current appraisal systems. Employees require regular feedback, instead of the yearly appraisal practiced in most organizations currently. If there are poor performers, it should be addressed immediately. He also notes that forced ranking eliminates great people and damages the culture of an organization where there are a lot of high performers.

On June 6, 2014 Economic Times, quoted the former head of human resource & administration in Infosys, T V Mohandas Pai says:

"In the Indian context, the bell curve creates too much emotional stress, and most importantly, it destroys the loyalty factor and leads to high levels of attrition… A target achievement based model is the way forward, and I don't agree any more with the policy of force fitting that several companies still follow."

However, companies still use forced ranking as it is a useful tool to eliminate people as and when required. Forced ranking method, used in very common circumstances year after year, thus provides the secondary purpose of terminating the employees.

  • This article was first published in the blog of IT/ITeS Employees Centre (ITEC): Perspectives. Bodhi is republishing this with the permission of the author and the publisher.