To put this in perspective, if an organization today has 400 vendor personnel deployed then after 3 years probably less than 100 person might be performing the same role and after 5 years probably 100 personnel among the first 400 people might only be around. The above number is arrived on basic calculation of 14% attrition per year would force 150+ people to move out of Vendor company during the five years and other 150 people would get promoted and will move to different functions and customers within the Vendor organization. This situation poses challenge to IT organizations in terms of loss of skills/knowledge, higher cost of operating IT .This is a huge challenge for both the vendor and IT organization. This is a hidden cost structure which does impact productivity and effectiveness of IT organization. This does put an unnecessary burden on the Subject Matter Experts (SMEs).
It was addressed at APL by defining a certification plan (a plan to assess new person post transition on every parameter (application, technical and environment knowledge) for each individual replacing the outgoing personnel and training timeline was extended from standard 2 weeks to 6 weeks.
IT organization should also define an agreement whereby vendor organizations maintain 15-20% buffer resource at no cost to IT organizations to meet turnover (including change of roles within the customer engagement or within the vendor organizations as well as attrition) above 8-10% per year when the engagement is performed in Time & material or staff augmentation model. This would ensure that impact of fast growth of IT organizations and high attrition doesn't impact IT organizations is minimized.
The buffer resources can fill up when someone from existing team goes on long vacation and therefore can generate revenue for Vendor Company while shielding the IT organization partially against any unforeseen attrition. This would be a win-win situation for outsourcing vendor and the IT organization.
The other way to address this issue is to define work packet and manage the engagement based on SLA around productivity, quality. Note of caution here is that if IT organization doesn't have it's own baseline productivity and quality then it has to live with what vendor organization comes up with and it has no way to know whether it is getting appropriate productivity and quality in other words best value for money.
IT organization can also help manage the account team better manage the attrition by having onsite and offshore rotation and building relationship with team members and organizing team meetings. Other actions to include organizing social gathering /job well done gifts at onshore and offshore. For example, an IT organization having 100 people working in onshore/offshore model (an annual budget of approx 10 million USD) can spent USD 5000.00 towards team building can greatly enhance the outlook/perception about the client and in turn reduce attrition. The return on this investment is huge as even if this reduces one less attrition in the group will provide return of more than USD 5000.00.
Resource Qualities of Vendor companies are declining- IT industry is knowledge industry. Productivity varies a lot based on resource and experience. Hence poor quality of resource will directly increase the IT cost of IT organizations or in other words might deliver less value comparatively for every dollar spent.