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

Transcription

1 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

2 Agenda 1 The Indian R&D Landscape 2 C&B Survey The Way Ahead

3 Post the financial downtime, R&D investments worldwide are starting to pick up once again 600 Top 1,000 R&D Spenders Growth Trend, (USD Billion) After witnessing a decline in the , global R&D spending has increased significantly in 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 400 Jul 07 to Jun 08 Jul 08 to Jun 09 Jul 09 to Jun 10 Jul 10 to Jun 11 China continues to give tough competition to India in many benchmarks on various R&D desirability parameters Source: Zinnov analysis of top 1,000 R&D spenders in the world

4 MNC R&D landscape in India has rapidly grown in the last decade 1, Total Number of MNC R&D Centers in India India Penetration of World s Top 1,000 R&D Spenders India Before ' Number of MNCs: 718 Total Centers: 871 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 Source: Zinnov analysis of MNC R&D ecosystem in India

5 A multi-city R&D ecosystem is fast evolving in India MNC R&D Centers Distribution in India by Locations Fresh Talent Pool Availability by Key Locations in India 11% 10% 4% 43% 35% 13% 17% 13% 19% 10% 12% 13% Bangalore Pune/ Mumbai Hyderabad NCR Chennai Others 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 Source: Zinnov analysis of MNC R&D ecosystem in India

6 Agenda 1 The Indian R&D Landscape 2 C&B Survey The Way Ahead

7 Zinnov followed a multi-step methodology to collect and validate insights around the compensation & benefits scenario of MNC R&D centers Job Mapping Data Collection Analysis & Reporting 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 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

8 An in-depth analysis of the current compensation structure of 82 MNC R&D centers was conducted towards the scope of the engagement Location Split of R&D Centres 3.7% 17.1% 17.1% 13.4% 42.7% 6.1% Headcount Split of R&D Centres 11.0% 14.6% 37.8% 17.1% 19.5% Industry Split of R&D Centres 2% 10% 2% 2% 8% 6% 69% NCR Chennai Pune Bangalore Hyderabad Others 0 to to to to 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 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

9 2011 was marked a variety of changes on the compensation & benefits regime in India Key C&B Related Observations for 2011 a b c Salary Increase in 2011 Strategic Areas Defined Geo Spread of R&D Year 2011 saw salary increase of 13.0% at an average A number of companies increased focus on core strategy, people and process Locations other than Bangalore are catching up in C&B d e f Attrition Under Control Increasing Experience Pool Functional Leverage After a steep increase in in 2010, attrition was somewhat controlled in 2011 The overall experience pool continues to increase for the R&D centers in India The functional leverage of QA & product engineering continues to increase g Focus on Variable Pay h Employee Centric Benefits Continued focus on variable incentives based on performance Ever increasing employee centricity at the MNC R&D centers in India

10 a Salary Increase in 2011 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 Actual Salary Increments, CY11 Average 13.0% 90th Percentile 15.0% Key Themes for 2011 Cautious Approach towards Salary Increase Focused Hiring to Balance the Pyramid 75th Percentile 50th Percentile 25th Percentile 12.0% 11.8% 14.3% Focused on Sustained Career Growth for Employees Increased Maturity of the Centers 10th Percentile 10.1% Multi City Strategy 0% 5% 10% 15% 20%

11 a Salary Increase in 2011 While salary calibrations did happen across levels, the direction is still not very clear 25% Associate Engineer Engineering Lead Associate QA Engineer QA Lead QA Manager Tech Support (L1) Tech Support Manager Technical Architect Business Analyst 20% 15% 10% 5% 0% -5% -10% -15% -20% 08 VS VS VS 11 Stretching Goals at Junior Level Disparity Management Cost Optimization Technical & Business Focus

12 a Salary Increase in 2011 The difference between the HQ salary and the India salary tends to reduce as one moves up the hierarchy 250, , , ,000 50,000 Comparison Between US and India on Total Cash, CY 2011 US India 152, , , x 2.1x 71, x 74, x 68, , x 146, ,871 Software Engineer 35,457 Senior Software Engineer Engineering manager Architect Engineering Director

13 b Strategic Areas Defined 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 Top Priorities of R&D Centres Focus on quality and time to delivery Focus on operational stability Better collaboration with Global teams

14 b Strategic Areas Defined Effective matrix management, reporting structure for increasing efficiencies and executive visits to increase transparency has been a prime focus Central Reporting Structure at the R&D Centres Global Stakeholder s Visit to India 42% 58% Global Reporting Local Reporting 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 Pros - 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

15 c Geo Spread of R&D Locations outside of Bangalore are also starting to evolve in terms of total cash across levels (Max-Min)/Max Median Total Cash (INR Lacs) Across Select Positions 30 26% 18% 18% 29% 19% 23% 15% Associate Engineer Engineering Lead Engineering Manager Solution Architect Associate QA Engineer QA Lead QA Manager Bangalore Pune Chennai NCR

16 d Attrition Under Control Overall dip in attrition is a reflection of increased focus by companies on career development, communication and competitive pay to retain talent 40.0% Yearly View of Attrition & Hiring 31.5% 32.7% 20.0% 19.7% 12.7% 21.0% 17.4% 0.0% Average Hiring for the Year Average Attrition for the Year Percentile Positioning of Attrition, CY11 90th %ile 24.5% 75th %ile 19.4% 66th %ile 18.3% 50th %ile 15.5% 33rd %ile 13.7% 25th %ile 12.8% 10th %ile 8.7% 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 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

17 d Attrition Under Control Overall dip in attrition is a reflection of increased focus by companies on career development, communication and competitive pay to retain talent 12.0% 10.0% 8.0% Quarterly View of Attrition & Hiring 10.2% 8.0% 7.4% 7.9% 9.4% 8.8% 7.1% 6.0% 4.0% 2.0% 5.2% 4.0% 4.0% 6.0% 4.1% 2.4% 2.3% 5.9% 4.5% 5.3% 5.7% 5.6% 4.6% 4.5% 4.6% 3.8% 0.0% Jan to Mar 2009 Apr to Jun 2009 Jul to Sept 2009 Oct to Dec 2009 Jan to Mar 2010 Percentage of New Hires During the Month Apr to Jun 2010 Jul to Sept 2010 Oct to Dec 2010 Jan to Mar 2011 Apr to Jun 2011 Percentage Terminations During the Month Jul to SeptOct to Dec 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

18 d Attrition Under Control The aspiration of a typical R&D engineer has evolved over the last 2 decades Factors Considered When Joining a Company 60.3% 57.5% 43.1% 40.6% 36.3% 24.7% 8.1% 6.3% Job content Exposure to new technologies, frameworks and forums Compensation & Benefits Brand Image Workplace Environment Future Career Opportunities Designation Job security International assignments

19 e Increasing Experience Pool 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 Employee Experience (No. of Years) for CY Experience Level of R&D Resources Over Past 3 Years 4% 4% 6% 17% 20% 18% 47% 40% 42% % 35% 34% 0 Average 25th %ile 50th %ile 75th %ile 90th %ile CY 09 CY 10 CY Years 8 to 12 Years 4 to 8 Years 0 to 4 Years 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

20 e Increasing Experience Pool While Bangalore is maturing in terms of experienced talent pool availability, other locations are fast picking up Location Wise Experience Level of R&D Resources, CY11 100% 90% 80% 6% 9% 18% 25% 3% 5% 10% 14% 9% 6% 6% 8% 23% 24% 70% 60% 50% 42% 37% 42% 40% 35% 47% 40% 66% 30% 20% 10% 34% 29% 45% 41% 48% 23% 0% Overall Industry Bangalore Hyderabad Pune NCR Chennai Others 5% 12+ Years 8 to 12 Years 4 to 8 Years 0 to 4 Years

21 e Increasing Experience Pool With less than 1% people in the age above 45 years, number of PhDs stand close to 0.3% in the R&D industry Age Analysis of the R&D Employees, CY11 0.6% 0.1% 12.0% 68.6% 18.7% less than to to to 55 greater than 55 Education Qualification of R&D Employees, CY11 0.3% 0.3% 0.1% 29.1% 70.2% Graduate Masters Diploma PhDs Others* * Includes 12th pass and Certificate courses 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

22 e Increasing Experience Pool The R&D talent pool in India comprises of mostly young employees in the age bracket of years Others 7.1% Location Wise Age Analysis for CY % 23.4% 0.3% 0.0% Chennai 8.6% 66.7% 22.0% 2.7% NCR 7.6% 68.4% 22.9% 1.0% 0.0% Pune Hyderabad Bangalore 18.0% 23.9% 14.4% 71.1% 67.9% 68.5% 0.5% 10.3% 0.0% 0.4% 7.8% 0.0% 0.9% 16.2% Overall Industry 18.7% 68.6% 0.6% 12.0% 0.1% 0% 20% 40% 60% 80% 100% less than to to to 55 greater than 55

23 f Functional Leverage While volume increase is visible in the quality function, engineering functions appear to be focusing on domain & experience 60.0% 50.0% 40.0% 30.0% 20.0% 52.8% Headcount Split by Functions (CY 2011) 39.9% 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 10.0% 0.0% Product Development/ Sustenance Product Verification/ Testing 2.7% Technical Support 0.4% Product Management

24 f Functional Leverage Pune and Chennai lead in terms of product management focus; Hyderabad has more focus on quality function 100% 90% 0.3% 0.3% 0.8% 9.5% 0.3% 1.3% 2.6% 1.3% 15.6% 80% 70% 39.3% 36.7% 46.8% 31.1% 19.3% 60% 50% 40% 30% 20% 59.5% 46.5% 39.8% 65.2% 61.4% 10% 0% Bangalore Pune Hyderabad NCR Chennai Engineering Quality Technical Support Product Management

25 g Focus on Variable Pay The focus on variable pay continues to increase across levels in the MNC R&D ecosystem in India Variable Pay as %age of Total Cash (Across Levels) - CY2009 Variable Pay as %age of Total Cash (Across Levels) - CY % 20% 20% 15% 15% 15% 16% 11% 12% 10% 9% 10% 10% 12% 12% 5% 6% 7% 5% 5% 0% Junior Level Middle Level Senior Level 0% Junior Level Middle Level Senior Level Minimum Maximum Minimum Maximum

26 h Employee Centric Benefits There has been an increased focus on employee benefits as a tool for employee retention 90% 80% 70% 60% 82% 56% 57% Prevalence of Benefit Schemes 72% 63% 70% 50% 40% 30% 20% 10% 13% 19% 0% Joining Bonus Professional Development Plan Long Term Incentives Housing/Leased Accomodation CY 2010 CY2011 Career Path Definition/ Focus Better Communication Global Stakeholder Visits Flexible Work Environment

27 Agenda 1 The Changing R&D Landscape 2 C&B Survey The Way Ahead

28 While expected salary increments for 2012 are in the same range of the salary increments in Actual Salary Increments, CY11 Expected Salary Increase, CY12 Average 13.0% Average 12.6% 90th Percentile 15.0% 90th Percentile 15.3% 75th Percentile 14.3% 75th Percentile 13.5% 50th Percentile 12.0% 50th Percentile 12.0% 25th Percentile 11.8% 25th Percentile 11.6% 10th Percentile 10.1% 10th Percentile 10.6% 0% 5% 10% 15% 20% 0.0% 5.0% 10.0% 15.0% 20.0%

29 ..MNC R&D centers in India are expected to continue to focus on various key enablers for higher value generation Talent Pyramid Management Fresh Talent Acquisition Talent Development and Retention Adobe, Ericsson, Texas Instruments Cisco, NetApp, BMC Senior Leadership Expat Programs Technical Events Google, Microsoft EMC, Cisco Market Impact Incubation Lab Product Management EMC, Yahoo, BMC Mcafee, Yahoo, Adobe Startup Connect Microsoft, Honeywell Ecosystem Connect Vendor Connect Academia and Government relations Symantec, Cisco, Alcatel IBM, Intel, Alcatel

30 Zinnov Management Consulting 69 "Prathiba Complex", 4th 'A' Cross, Koramangala Ind. Layout 5th Block, Koramangala Bangalore Phone: /6 Thank You 11, First Floor, Paras Downtown Center, Golf Course Road, Sector 53, Gurgaon Phone: Patrick Henry Dr. Building 7 Santa Clara CA Phone: , Waterway Ave, Suite 300 The Woodlands TX Phone: info@zinnov.com 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 2 9