ROI calculation gives an insight on the return made on the investments. In knowledge industry where employee expenses form a major portion of the cost of production, computing the income that gets generated from this huge investment is essential. Recognition of the human capital ROI aids the top management in the strategic planning of the HR function.

It is said that the revenue growth in IT/ITES industry spurted from $1 billion in 1997 to an approximate figure of $40 billion during the financial year 2006-07. Flow in the IT/ITES business to India also saw an upsurge in the number of employees in the recent years. Reckoning the individual employee’s contribution to the overall profitability of the concern helps to gauge the effectiveness of the company HR policies and other decisions on the performance of the employees.

With a number of IT/ITES companies coming up in India in the recent years, understanding how the company’s key investment fairs in the industry helps in restructuring the company policies to face the competitors effectively. Competing successfully in an environment surrounded by the MNCs who have a great experience in the field requires proper data and strategy.

The following chart shows a comparative study of revenue growth and employee growth of Indian IT/ITES companies for FY’07.

Company   Revenue growth (FY 07)   Employee growth (FY 07)
Infosys                  43.50%                                   36.50%
TCS                       41.40%                                   34.10%
Wipro                    37.10%                                   26.10%
Satyam                 33.30%                                   34.50%
CTS*                      60.80%                                  59.60%

Source: Annual Reports, Tholons Analysis figures taken from Dataquest survey.
*Figures are for FY 06

It is stated that on comparing the relationship between the revenue growth and the increase in the head count of different companies in India, the performance of Indian IT majors’ supersedes that of the MNCs like Accenture, CapGemini, etc. It is the Indian IT major Wipro that topped the list of revenue per head count for the FY 2006-07.

The company dependence on the employees in the service industry is high. ROI as tool of comparison is highly useful in the comparison between various customer accounts within the organisation. Managerial decisions in determining the areas for expansion can be made on the basis of human capital ROI. With the area of operations widening, the revenue per head count can be improved by bringing in fresh talents from various geographical locations to improve efficiency. If the HR ROI is low when compared to that of the industry, an analysis can reveal the causes for the same and can lay the foundation for rectifications.

To maintain a high ROI the companies need to conduct training and developmental programs on an ongoing basis to improve the employee performance and productivity. These programs can aid the employees in coming up with innovative ideas that can add to the profitability of the business entity. The HR has to come up with ingenious methods for motivating the employees to induce them to perform better. With limited exposure compared to the MNCs, the Indian companies are concentrating on mergers and acquisitions globally to increase their revenue and competence in the industry.

Computing ROI in human resource capital has therefore key role in the knowledge industry.