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This report is solely for the use of Zinnov client and Zinnov personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from Zinnov
Agenda
C&B Survey 2012 2
The Way Ahead 3
The Indian R&D Landscape 1
Post the financial downtime, R&D investments worldwide are starting to pick up once again
511
549 538
582
400
450
500
550
600
Jul 07 to Jun 08
Jul 08 to Jun 09
Jul 09 to Jun 10
Jul 10 to Jun 11
Top 1,000 R&D Spenders Growth Trend, 2007-11 (USD Billion)
• After witnessing a decline in the 2009-10, global R&D spending has increased significantly in 2010-11
• More than one-third of the global 1,000 R&D spenders already have centers in India
• Companies outside of the US HQs are starting to look at setting R&D centers in India. About 28 per cent companies with HQ in Japan, EU and APAC have a center in India
• China continues to give tough competition to India in many benchmarks on various R&D desirability parameters
Note: Source: Zinnov analysis of top 1,000 R&D spenders in the world
MNC R&D landscape in India has rapidly grown in the last decade
191
297
517
699
780
871
0
200
400
600
800
1,000
Before '00
01-02 03-04 05-06 07-08 09-11
700 418
300
Number of MNCs: 718 Total Centers: 871
Total Number of MNC R&D Centers in India
India Penetration of World’s Top 1,000 R&D Spenders
• The MNC R&D landscape in India is rapidly growing with a current base of 718 MNCs with their R&D centers in India
• India currently boasts an installed R&D talent pool base of over 200,000 engineers growing at an average of 9% a year for the last 5 years
• R&D talent pool supply comprises of varied components like migrations from industries, software professional returnees and the fresh engineering graduates
India
Note: Source: Zinnov analysis of MNC R&D ecosystem in India
A multi-city R&D ecosystem is fast evolving in India
43%
19%
13%
11%
10% 4%
MNC R&D Centers Distribution in India by Locations
Bangalore Pune/ Mumbai Hyderabad
NCR Chennai Others
13%
17%
13%
12% 10%
35%
Fresh Talent Pool Availability by Key Locations in India
Bangalore NCR Chennai
Hyderabad Pune Others
• Till about mid 2000s, MNCs were concentrating at tier-1 cities in India primarily due to availability of rich talent, investment friendly policies, and high quality of life
• MNCs started expanding to tier-2 cities post 2005 as they offered advantages such as higher catchment area, lower attrition, and cost arbitrage
Note: Source: Zinnov analysis of MNC R&D ecosystem in India
Agenda
C&B Survey 2012 2
The Way Ahead 3
The Indian R&D Landscape 1
Zinnov followed a multi-step methodology to collect and validate insights around the compensation & benefits scenario of MNC R&D centers
Job evaluation process to determine the equivalence among participating organizations
Validate job matches with comparator organization
Questionnaire to collect quantitative information pertaining to demographic details, payroll data, attrition & hiring information etc.
Qualitative Data collected through telephonic interview
Zinnov proprietary tool for collating and analyzing data gathered
Robust internal quality checks at various levels and final analysis presented for both qualitative and quantitative data
Job Mapping Data Collection Analysis & Reporting
Final Report is an in-depth study of compensation and benefits data, qualitative insights, attrition & hiring trends, expected salary increase along with future outlook of the R&D landscape
An in-depth analysis of the current compensation structure of 82 MNC R&D centers was conducted towards the scope of the engagement
Analyzed a sample of approximately 62,000 R&D employees across different geographic locations • Latest compensation data ending January 2012 has been taken into consideration for the yearly analysis • Outliers/ incumbents lacking data in terms of certain pay components have been excluded for the analysis
82 R&D Centres
Note: Source: Zinnov analysis of data collected during Jan to March 2012 towards the compensation & benefits survey 2012
17.1%
42.7%
6.1%
13.4%
17.1%
3.7%
Location Split of R&D Centres
NCR Bangalore Chennai Hyderabad Pune Others
37.8%
19.5%
17.1%
14.6%
11.0%
Headcount Split of R&D Centres
0 to 250 250 to 500
500 to 1000 1000 to 2000
2000+
69%
10%
2% 8%
2% 6%
2% Industry Split of R&D Centres
Software product development Embedded systems/ Semiconductor/ EDA Engineering Services Software pdt development & Engg services Software pdt development & Embedded systems Engg Services & Embedded systems/Semiconductor All 3 Segments
2011 was marked a variety of changes on the compensation & benefits regime in India
Salary Increase in 2011
Year 2011 saw salary increase of 13.0% at an average
Strategic Areas Defined
A number of companies increased focus on core strategy, people and process
Geo Spread of R&D
Locations other than Bangalore are catching up in C&B
Attrition Under Control
After a steep increase in in 2010, attrition was somewhat controlled in 2011
Increasing Experience Pool
The overall experience pool continues to increase for the R&D centers in India
Functional Leverage
The functional leverage of QA & product engineering continues to increase
a b c
d e f
Key C&B Related Observations for 2011
Focus on Variable Pay
Continued focus on variable incentives based on performance
Employee Centric Benefits
Ever increasing employee centricity at the MNC R&D centers in India
g h
Note: Source: Zinnov analysis of data collected during Jan to March 2012 towards the compensation & benefits survey 2012
As the world economy recovered from the downtime, year 2011 witnessed salary increments at an average of 13.0% at MNC R&D centers in India
a Salary Increase in 2011
10.1%
11.8%
12.0%
14.3%
15.0%
13.0%
0% 5% 10% 15% 20%
10th Percentile
25th Percentile
50th Percentile
75th Percentile
90th Percentile
Average
Actual Salary Increments, CY11
Note: Source: Zinnov analysis of data collected during Jan to March 2012 towards the compensation & benefits survey 2012
Cautious Approach towards Salary Increase
Focused Hiring to Balance the Pyramid
Focused on Sustained Career Growth for Employees
Increased Maturity of the Centers
Multi City Strategy
Key Themes for 2011
While salary calibrations did happen across levels, the direction is still not very clear
Stretching Goals at Junior Level
Disparity Management
Cost Optimization
Technical & Business Focus
Note: Source: Zinnov analysis of data collected during Jan to March 2012 towards the compensation & benefits survey 2012
a Salary Increase in 2011
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Associate Engineer
Engineering Lead
Associate QA Engineer
QA Lead
QA Manager
Tech Support (L1)
Tech Support Manager
Technical Architect
Business Analyst
08 VS 09 09 VS 10 10 VS 11
The difference between the HQ salary and the India salary tends to reduce as one moves up the hierarchy
Note: Source: Zinnov analysis of data collected during Jan to March 2012 towards the compensation & benefits survey 2012
71,369
112,771
141,389
152,000
196,181
25,871 35,457
68,000 74,674
146,400
0
50,000
100,000
150,000
200,000
250,000
Software Engineer
Senior Software Engineer
Engineering manager
Architect Engineering Director
US India
Comparison Between US and India on Total Cash , CY 2011
2.8x
3.2x
2.1x
2.0x
1.3x
a Salary Increase in 2011
MNC R&D centers saw a revived focus on center level strategy, people centricity and process efficiency
Focus on innovation and new product development
Complete product/ business ownership
Brand Visibility
Talent development & retention
Focus on employee engagement
Technical career path definition
Focus on quality and time to delivery
Focus on operational stability
Better collaboration with Global teams
Top Priorities of R&D Centres
Note: Source: Zinnov analysis of data collected during Jan to March 2012 towards the compensation & benefits survey 2012
b Strategic Areas Defined
Effective matrix management, reporting structure for increasing efficiencies and executive visits to increase transparency has been a prime focus
Global Stakeholder’s Visit to India
• CEO/President – Typically once or twice a duration of stay ranges from 2 to 3 days
• CXOs/Senior VPs – Ranging from once/twice a year to once a quarter; duration of stay is 2 days to a week
• Directors/Sr. Mgrs – Ranges from once a quarter to once in 2 months; Longer duration to support product requirements
- Increased transparency
- Increased ownership
- Cross leverage of expertise (Co-development)
- Communication gaps; More time to trickle down information
- Lack of personal touch
- Global Managers not aware of Indian policies
Cons
Pros
Note: Source: Zinnov analysis of data collected during Jan to March 2012 towards the compensation & benefits survey 2012
b Strategic Areas Defined
58%
42%
Central Reporting Structure at the R&D Centres
Global Reporting
Local Reporting
Locations outside of Bangalore are also starting to evolve in terms of total cash across levels
c Geo Spread of R&D
Median Total Cash (INR Lacs) Across Select Positions
Note: Source: Zinnov analysis of data collected during Jan to March 2012 towards the compensation & benefits survey 2012
0
5
10
15
20
25
30
Associate Engineer
Engineering Lead
Engineering Manager
Solution Architect
Associate QA Engineer
QA Lead QA Manager
Bangalore Pune Chennai NCR
26%
(Max-Min)/Max
18% 18% 29% 19% 23% 15%
Overall dip in attrition is a reflection of increased focus by companies on career development, communication and competitive pay to retain talent
• Best in class companies were able to keep their attrition rate below the industry average
• Increased focus on career enhancement by ensuring increased ownership
• Increased investment in new products and improvement of existing processes to focus on technical career path, faster time to market and quality enhancements
Note: Source: Zinnov analysis of data collected during Jan to March 2012 towards the compensation & benefits survey 2012
d Attrition Under Control
8.7%
12.8%
13.7%
15.5%
18.3%
19.4%
24.5%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%
10th %ile
25th %ile
33rd %ile
50th %ile
66th %ile
75th %ile
90th %ile
Percentile Positioning of Attrition, CY11
19.7%
31.5% 32.7%
12.7% 21.0%
17.4%
0.0%
20.0%
40.0%
2009 2010 2011
Yearly View of Attrition & Hiring
Average Hiring for the Year Average Attrition for the Year
Overall dip in attrition is a reflection of increased focus by companies on career development, communication and competitive pay to retain talent
• Companies generally do their man power planning (MPP) and budgeting at the start of the new financial year.
This leads to fresh hiring based on the annual MPP around these quarters
• Employees generally tend to look for better opportunities post their appraisal in March/ July (majority appraisal cycles fall in this range) and companies are able to get the best talent either to back fill or for new positions
Note: Source: Zinnov analysis of data collected during Jan to March 2012 towards the compensation & benefits survey 2012
d Attrition Under Control
5.2% 6.0%
4.1%
5.9%
8.0%
10.2%
7.4% 7.9%
9.4% 8.8%
7.1%
4.0% 4.0%
2.4% 2.3%
4.5%
5.3% 5.7% 5.6%
4.6% 4.5% 4.6% 3.8%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Jan to Mar 2009
Apr to Jun 2009
Jul to Sept 2009
Oct to Dec 2009
Jan to Mar 2010
Apr to Jun 2010
Jul to Sept 2010
Oct to Dec 2010
Jan to Mar 2011
Apr to Jun 2011
Jul to Sept 2011
Oct to Dec 2011
Quarterly View of Attrition & Hiring
Percentage of New Hires During the Month Percentage Terminations During the Month
The aspiration of a typical R&D engineer has evolved over the last 2 decades
Note: Source: Zinnov analysis of data collected during Jan to March 2012 towards the compensation & benefits survey 2012
d Attrition Under Control
60.3% 57.5%
43.1% 40.6%
36.3%
24.7%
8.1% 6.3%
Job content Compensation & Benefits
Brand Image Workplace Environment
Future Career Opportunities
Designation Job security International assignments
Factors Considered When Joining a Company
Exposure to new technologies,
frameworks and forums
The overall experience level of the industry stands at about 5.7 years; Best in class companies have been able to strengthen their experience pool further
• Over 25% of the talent pool has more than 8 years of experience compared to 6 years in CY2010
• Most companies have also struck a balance by hiring fresh talent at junior levels to optimize cost
• CY 2011 continued to witness an increased focus on hiring key technical as well as business skills
Note: Source: Zinnov analysis of data collected during Jan to March 2012 towards the compensation & benefits survey 2012
e Increasing Experience Pool
5.7
3.2
5.2
7.8
10.9
0
2
4
6
8
10
12
Average 25th %ile 50th %ile 75th %ile 90th %ile
Employee Experience (No. of Years) for CY11
CY 09 CY 10 CY 11
32% 35% 34%
47% 40% 42%
17% 20% 18%
4% 4% 6%
12+ Years 8 to 12 Years
4 to 8 Years 0 to 4 Years
Experience Level of R&D Resources Over Past 3 Years
While Bangalore is maturing in terms of experienced talent pool availability, other locations are fast picking up
Note: Source: Zinnov analysis of data collected during Jan to March 2012 towards the compensation & benefits survey 2012
e Increasing Experience Pool
34% 29%
45% 41% 48%
5%
23%
42%
37%
42% 40%
35%
66%
47%
18%
25%
10% 14% 8%
23% 24%
6% 9% 3% 5% 9% 6% 6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Overall Industry
Bangalore Hyderabad Pune NCR Chennai Others
Location Wise Experience Level of R&D Resources, CY11
12+ Years 8 to 12 Years 4 to 8 Years 0 to 4 Years
With less than 1% people in the age above 45 years, number of PhDs stand close to 0.3% in the R&D industry
Note: Source: Zinnov analysis of data collected during Jan to March 2012 towards the compensation & benefits survey 2012
e Increasing Experience Pool
• India has a rich talent pool of scientists and engineers thus, adding to the talent pool year on year; Over 45,000
engineers suitable for MNC R&D Centres graduate every year • There has been increased trend towards encouraging employees to opt for technical as well as soft skills courses
• Few organizations consider PhD as one of the parameters during performance evaluation and very few have ties
with the universities to encourage the same
* Includes 12th pass and Certificate courses
Education Qualification of R&D Employees, CY11
18.7%
68.6%
12.0%
0.6% 0.1%
Age Analysis of the R&D Employees, CY11
less than 25
25 to 35
35 to 45
45 to 55
greater than 55
70.2%
29.1%
0.3%
0.3%
0.1%
Graduate
Masters
Diploma
PhDs
Others*
The R&D talent pool in India comprises of mostly young employees in the age bracket of 25-35 years
Note: Source: Zinnov analysis of data collected during Jan to March 2012 towards the compensation & benefits survey 2012
e Increasing Experience Pool
18.7%
14.4%
23.9%
18.0%
7.6%
8.6%
7.1%
68.6%
68.5%
67.9%
71.1%
68.4%
66.7%
69.3%
12.0%
16.2%
7.8%
10.3%
22.9%
22.0%
23.4%
0.6%
0.9%
0.4%
0.5%
1.0%
2.7%
0.3%
0.1%
0.0%
0.0%
0.0%
0.0%
0% 20% 40% 60% 80% 100%
Overall Industry
Bangalore
Hyderabad
Pune
NCR
Chennai
Others
Location Wise Age Analysis for CY11
less than 25 25 to 35 35 to 45 45 to 55 greater than 55
While volume increase is visible in the quality function, engineering functions appear to be focusing on domain & experience
f Functional Leverage
• Most of the product engineering work in India is centered around product development/ sustenance, though the overall headcount for the same has dipped in the last 3 years
• As companies better utilize & optimize the “relatively expensive” resources, this trend might continue in the future
• Product management function has yet not matured in India and only a handful of product managers are currently available in India
Note: Source: Zinnov analysis of data collected during Jan to March 2012 towards the compensation & benefits survey 2012
52.8%
39.9%
2.7% 0.4%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Product Development/ Sustenance
Product Verification/ Testing
Technical Support
Product Management
Headcount Split by Functions (CY 2011)
Pune and Chennai lead in terms of product management focus; Hyderabad has more focus on quality function
f Functional Leverage
Note: Source: Zinnov analysis of data collected during Jan to March 2012 towards the compensation & benefits survey 2012
59.5% 46.5%
39.8%
65.2% 61.4%
39.3%
36.7% 46.8%
31.1%
19.3%
0.3%
9.5% 1.3% 2.6%
15.6%
0.3% 0.8% 0.3% 1.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Bangalore Pune Hyderabad NCR Chennai
Engineering Quality Technical Support Product Management
The focus on variable pay continues to increase across levels in the MNC R&D ecosystem in India
g Focus on Variable Pay
6% 7%
10%
9%
11%
15%
0%
5%
10%
15%
20%
Junior Level Middle Level Senior Level
Minimum Maximum
5%
12% 12%
12%
16%
20%
0%
5%
10%
15%
20%
Junior Level Middle Level Senior Level
Minimum Maximum
Variable Pay as %age of Total Cash (Across Levels) - CY2009
Variable Pay as %age of Total Cash (Across Levels) - CY2011
Note: Source: Zinnov analysis of data collected during Jan to March 2012 towards the compensation & benefits survey 2012
There has been an increased focus on employee benefits as a tool for employee retention
h Employee Centric Benefits
Career Path Definition/ Focus
Better Communication
Global Stakeholder Visits
Flexible Work Environment
Note: Source: Zinnov analysis of data collected during Jan to March 2012 towards the compensation & benefits survey 2012
56% 57%
63%
13%
82%
72% 70%
19%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Joining Bonus Professional Development Plan Long Term Incentives Housing/Leased Accomodation
CY 2010 CY2011
Prevalence of Benefit Schemes
Agenda
C&B Survey 2012 2
The Way Ahead 3
The Changing R&D Landscape 1
While expected salary increments for 2012 are in the same range of the salary increments in 2011..
10.1%
11.8%
12.0%
14.3%
15.0%
13.0%
0% 5% 10% 15% 20%
10th Percentile
25th Percentile
50th Percentile
75th Percentile
90th Percentile
Average
Actual Salary Increments, CY11
Note: Source: Zinnov analysis of data collected during Jan to March 2012 towards the compensation & benefits survey 2012
10.6%
11.6%
12.0%
13.5%
15.3%
12.6%
0.0% 5.0% 10.0% 15.0% 20.0%
10th Percentile
25th Percentile
50th Percentile
75th Percentile
90th Percentile
Average
Expected Salary Increase, CY12
..MNC R&D centers in India are expected to continue to focus on various key enablers for higher value generation
Fresh Talent Acquisition
Talent Development and Retention
Expat Programs
Technical Events
Incubation Lab
Product Management
Startup Connect
Adobe, Ericsson, Texas Instruments
Cisco, NetApp, BMC
Google, Microsoft
EMC, Cisco
EMC, Yahoo, BMC
Mcafee, Yahoo, Adobe
Microsoft, Honeywell
Vendor Connect
Talent Pyramid Management
Senior Leadership
Market Impact
Ecosystem Connect
Academia and Government relations
Symantec, Cisco, Alcatel
IBM, Intel, Alcatel
Zinnov Management Consulting
29
Zinnov Management Consulting
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www.zinnov.com @zinnov
This report is solely for the use of Zinnov client and Zinnov personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from Zinnov