Loss or Loss of Profits!!

More than a decade ago I wrote a line that caught the fancy of a lot of readers.

"You are always Happy in the Absolute and Miserable in Comparison" (check my last article)

I want to build on this comparison and relativity theme that plays out in many industries at different times. Since I am from the IT industry, let me use this as a crucible to explore the theme of relativity.

Now the IT industry is considered to be naturally profitable and a cash generating one, especially in India. With labour arbitrage as its primary lever, the industry makes above average profits and the stock markets have come to expect that as a given. Plus given that labour is the crucial resource for this industry, the labour costs are as high has 70% of revenues. And since the average age of the IT industry is between 24 and 30 years, the atmosphere is collegial at the campuses and lots of flexibilities and perquisites are offered, which was not the norm in most traditional industries.

So the unstated but palpable statement to the staff in IT companies is "folks you are all real lucky to be able to enjoy all these facilities, pay and perks. There was nothing close to this in our times. We had to slog our butts off to get to where we have."

This kind of also plays out with the grown up kids at home isn't it? It kind of hits home when they make statements like, "we will never invest in things. We will only spend on experiences." The unstated being, we will take all the things we have been provided for granted because its already there - thank you.

Now this exactly is what happens to the staff in IT firms over time. The facilities, pay and perks are taken for granted and they work for additional growth. While in the top echelons the feeling is "hey you are paid well in any case"

Remember, the Indian IT industry continues to be very profitable. But there are also bands of profitability. At the highest band of profits are the top 7-8 firms and there is a mid level band and there could be a lower level band too. Now, note this, these are bands of profitability and not of loss. The companies are still making money!!! Its a loss of profit and not an absolute loss of money.

But the market and shareholder expectations are so high that when profits slide and firms move down the profitability band, they start to behave as if they have made an absolute loss. The tightening of the belt is taken to such an extent that one starts to wonder whether things have gotten so bad that there is an imminent loss in the books.

Which is where the first statement or hypothesis starts to kick in, albeit in an unstated manner. "Relative to most traditional industries you folks are overpaid anyway, so do remember that and if we do not pay you now, you should be fine by this." Again going by facts even this statement is not entirely true as most traditional industries have successfully played the catch up game over time.

What is perhaps missing is the transparency and the extent of communication that is necessary for the troops to listen and accept, if not fully, at least partly while the leadership attempts to recover the company performance. The scales are so very large that the communication program becomes one of a cookie cutter method and lacks the authenticity and the empathy required.

Frankly most management teams are focussed solely on the shareholders and the investors. Nothing else matters deep inside, and the show must go on.

So as an employee the strategy is to play as per the pitch and the merit of the ball. No point in getting worked up, because as I have explained the game to you, the bowling will happen only as per the above rules - Plus or Minus.

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