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Over the last few years, in the big IT services industry in India, 2 companies have consistently outperformed the rest of the industry pretty much on all key financial parameters. TCS & Cognizant have grown revenues faster, have better profit margins, have better-than-industry attrition rates etc.etc. During the Infosys Q4 results announcement, a CNBC anchor made a statement that stuck with me - "We have seen this play out everytime. Infosys declares the results, the street gets disappointed, the sensex drops. Then TCS announces results, beating estimates and the street gets confidence in the sector once again".
Coincidentally, TCS & Cognizant are the only 2 companies out of the top 6 (the others being Infosys, Wipro, HCL & Mahindra-Satyam), in my assessment, that have had a broad-based Employee Recognition program established and operational for over 10 years now. Can we attribute their financial & business success primarily to their Employee Recognition program? While the answer is clearly "NO", having a broad-based Employee Recognition program in place is an indicator of a number of other softer aspects within the company.
1) The company truly believes that a large number of their employees add value and are responsible for the success of the company. While some employees may contribute significantly more than others, they feel that a very large percentage of their employees contribute and want to acknowledge this fact.
2) They are probably better at "True Delegation", by allowing junior managers and departments to design and run their own Recognition programs within a broad framework.
3) They are better at distinguishing employee performance, growth potential and valuing them for everyday contributions. They are less worried about employees getting upset because they keep getting recognized, but do not get the promotions or the big bonuses.
4) They have moved away from event based Recognition to localized Recognition. At both the companies, Recognition is now a localized event, rather than a big bang event with top management getting involved. At most of the other companies, the focus is still on the big-bang events (essentially a gathering of 1-2% o the top performers).
5) They spend much more money on Recognition than the other firms. Their overall Recognition spend is 4-10 times higher than the others. This means that they are putting the money where their mouth is.
In summary, I think it boils down to whether the management truly believes if all their people are contributing and want to acknowledge them for that, or believe that a lot of their employees are replaceable assets. The financial results are now showing.
PS: In another coincidence, the star of the ITES industry in India - GENPACT, also happens to be the only large ITES firm to have had a broad based Employee Recognition program for over a decade now.
