SAIL'S VOLUNTARY RETIREMENT SCHEME
Case Code-HROB002
Published-2003

INTRODUCTION

At a meeting of the board of directors in June 1999, the CEOs of Steel Authority of India's (SAIL) four plants - V. Gujral (Bhilai), S. B. Singh (Durgapur), B.K. Singh (Bokaro), and A.K. Singh (Rourkela) made their usual presentations on their performance projections. One after the other, they got up to describe how these units were going to post huge losses, once again, in the first quarter[1] of 1999-2000. After incurring a huge loss of Rs 15.74 billion in the financial year 1998-99 (the first in the last 12 years), the morale in the company was extremely low. The joke at SAIL's headquarters in Delhi was that the company's fortunes would change only if a VRS was offered to its CEOs - not just the workers.

BACKGROUND NOTE

|SAIL was the world's 10th largest and India's largest steel manufacturer with a 33% share in the domestic market. In |[pic][pi|
|the financial year 1999-2000, the company generated revenues of Rs. 162.5 billion and incurred a net loss of Rs 17.2 |c] |
|billion. Yet, as on February 23, 2001, SAIL had a market valuation of just Rs. 340.8 billion, a meager amount | |
|considering the fact that the company owned four integrated and two special steel plants. | |
|SAIL was formed in 1973 as a holding company of the government owned steel and associated input companies. In 1978, the| |
|subsidiary companies including Durgapur Mishra Ispat Ltd, Bokaro Steels Ltd, Hindustan Steel Works Ltd, Salem Steel | |
|Ltd., SAIL International Ltd were all dissolved and merged with SAIL. In 1979, the Government transferred to it the | |
|ownership of Indian Iron and Steel Company Ltd. (IISCO) which became a wholly owned subsidiary of SAIL. | |

SAIL operated four integrated steel plants, located at Durgapur (WB), Bhilai (MP), Rourkela (Orissa) and Bokaro (Bihar). The company also operated two alloy/special steel plants located at Durgapur (WB) and Salem (Tamil Nadu). The Durgapur and Bhilai plants were pre-dominantly1ong products[2] plants, whereas the Rourkela and Bokaro plants had facilities for manufacturing flat products[3] .

THE JOLT

In February 2000, the SAIL management received a financial and business-restructuring plan proposed by McKinsey & Co, a leading global management-consulting firm, and approved by the government of India (held 85.82% equity stake).

The McKinsey report suggested that SAIL be reorganized into two strategic business units (SBUs) - a flat products company and a long products company. The SAIL management board too was to be restructured, so that it should consisted of two SBU chiefs and directors of finance, HRD, commercial and technical. To increase share value, McKinsey suggested a phased divestment schedule. The plan envisaged putting the flat products company on the block first, as intense competition was expected in this area, and the long products company at a later date.
Financial restructuring envisaged waiver of Steel Development Fund[4](SDF) loans worth Rs 50.73 billion and Rs 3.8 billion lent to IISCO. The government also agreed to provide guarantee for raising loans of Rs 15 billion with a 50% interest subsidy for the amount raised. This amount had to be utilized for reducing manpower through the voluntary retirement scheme. Another guarantee was given for further raising of Rs 15 billion, for repaying past loans.

Business restructuring proposals included divestment of the following non-core assets: • Power plants at Rourkela, Durgapur & Bokaro, oxygen plant-2 of the Bhilai steel plant and the fertilizer plant at Rourkela. • Salem Steel Plant (SSP), Salem. • Alloy Steel Plant (ASP), Durgapur. • Visvesvaraya Iron and Steel Plant (VISL), Bhadravati. • Conversion of IISCO into a joint venture with SAIL having only minority shareholding.

THE DILEMMA

The major worry for SAIL's CEO Arvind Pande was the company's 160,000-strong workforce. Manpower costs alone accounted for 16.69% of the company's gross sales in 1999-2000. This was the largest percentage, as compared with other steel producers such as Essar Steel (1.47%) and Ispat Industries (1.34%). An analysis of manpower costs as a percentage of the turnover for various units of SAIL showed that its raw materials division (RMD), central marketing organisation (CMO), Research & Development Centre at Ranchi and the SAIL corporate office in Delhi were the weak spots.

There was considerable excess manpower in the non-plant departments. Around 30% of SAIL's manpower, including executives, were in the non-plant departments, merely adding to the superfluous paperwork.

Hindustan Steel, SAIL's predecessor, was modelled on government secretariats, with thousands of "babus" and messengers adding to the glory of feudal-oriented departmental heads. SAIL had yet to make any visible effort to reduce surplus manpower.
|A senior official at SAIL remarked: "If you walk into any SAIL office anywhere, you will find people chatting, reading |[pic][pi|
|novels, knitting and so on. Thousands of them just do not have any work. This area has not even been considered as a |c] |
|focus area for the present VRS, possibly because all orders emanate from and through such superfluous offices and no | |
|one wants to think of himself as surplus." With a manpower of around 60,000 in these offices and non-plant departments | |
|like schools, township activities etc, SAIL could well bring down to less than 10,000. | |
|Reduction of white-collar manpower required a change in the systems of office work and record keeping, and a very high | |
|degree of computerization. Officers across the organization employed dozens of stenographers and assistants. Signing on| |
|note sheets was a status symbol for SAIL officers. | |

Another official commented: "Systems have to be result oriented, rather than person oriented and responsibilities must match rewards and recognition. There is a need to change the mindset of the management, before specific plans can be drawn out for reduction of office staff."
From the beginning, SAIL had to contend with political intervention and pressure. Many officials held that SAIL had to overcome these objectives: “Many employees do not have sufficient orders or work on hand to justify their continuance, and yet political pressures keep them going. It is time that the top management takes a tough stand on such matters. One does not have to call in McKinsey to decide that many SAIL stockyards and branch offices are redundant.”

THE VOLUNTARY RETIREMENT SCHEME

As a part of the restructuring plan, McKinsey had advised Pande that SAIL needed to cut the 160,000-strong labor force to 100,000 by the end of 2003, through a voluntary retirement scheme. Pande was banking on natural attrition to reduce the number by 45,000 within two years, but GOI's decision to increase the retirement age to 60 further delayed the reduction. Subsequently, SAIL had requested GOI to bail it out with a one-time assistance of Rs 15 billion and another subsidized loan of the same size for a VRS, to achieve the McKinsey targets.

In a bid to 'rationalize' its huge workforce, SAIL launched a VRS in mid 1998, for employees who had put in a minimum service of 20 years or were 50 years in age or above. The scheme provided an income that was equal to 100 per cent of the prevailing basic pay and DA to the eligible employees. About 5,975 employees opted for the scheme. Of them, 5,317 were executives and 658 non-executives. Most of those who opted were above 55 years.

On March 31, 1999, SAIL introduced a 'sabbatical leave' scheme, under which employees could take a break from the company for two years for studies/employment elsewhere, with the option of rejoining the company (if they wanted to) at the end of the period. The sabbatical allowed the younger members of the SAIL staff to leave without pay for "self-renewal, enhancement of expertise/knowledge and experimentation," which broadly translated into higher studies or even new employment.

On June 01, 1999, SAIL launched another VRS for its employees. Employees who had completed a minimum of 15 years of service or were 40 years or above could opt for the scheme. The new VRS, which was opened to all regular, permanent employees of the company, would be operational till 31st January 2000. Its target groups included: • Those who were habitual absentees, regularly ill and those who had become surplus because of the closure of plants and mines; • Poor performers.
Under the new package, employees who opted for the scheme, depending on their age, would get a monthly income as a percentage of their prevailing basic salary and dearness allowance (DA) for the remaining years of their services, till superannuation. Employees above 55 years of age would be given 105 per cent of the basic pay and dearness allowance (DA) every month. Those employees who were between the age of 52 and 55 years would receive 95 per cent of the basic pay and DA while those below 52 years would get 85 per cent of the basic pay and DA. The new scheme, like the old one was a deferred payment scheme, with extra carrots like a 5% increase in monthly benefits for each of the three age groups.

By September 1999, over 4,000 employees opted for the new scheme. About 1,700 employees opted for VRS in the Durgapur steel plant while in the Bhilai, Bokaro and Rourkela steel plants. The number varied between 400 and 700.

In September 2000, SAIL announced yet another round of VRS, in a bid to remove 10,000 employees by the end of March 2001. The company planned to approach financial institutions for a credit of Rs 5 billion. Pande said: "We are awaiting the government nod for the VRS scheme, drawn on the pattern of the standard VRS by department of public enterprises. We expect to get the clearance by the end of the month."

On February 08, 2001, SAIL ended its four year recruitment freeze by announcing its plans to fill up more than 250 posts at its various plant sites in both technical and non-technical categories. According to a senior SAIL official: "This recruitment is being done to ease the vacancies created due to natural attrition and those that arose after the previous VRS."

THE PERSUASION

|In mid 1998, in a bid to convince its employees to accept VRS, SAIL highlighted six 'plus' points of VRS, in its |[pic][pi|
|internal communique, Varta. They were as follows: |c] |
|During the next 4-5 years, SAIL has to reduce its workforce by 60,000 for its own survival. Employees with chronic | |
|ailments, and habitual absentees, who add to low productivity, have to go first - maybe, with the help of | |
|administrative actions. | |
|The employees may have to be transferred to any other part of the country in the larger interest of the company. | |
|For those who started their career as healthy young men 25-30 years ago, the VRS will take care of their financial | |
|worries to a great extent, and they can discharge their domestic duties more comfortably. | |
|VRS can be used for special purposes like paying huge sum of money for getting one's son admitted to a professional | |
|course. | |
|VRS will give many individuals the money and time on pursuing personal dreams. | |
|It can be a good opportunity to do social service. | |

On December 27, 1999, SAIL initiated a company-wide information dissemination program to educate the staff on restructuring. The company drafted an internal communication document entitled "Turnaround and Transformation" and a special team of 66 internal resource persons (IRP) had been assigned the task of preparing a detailed plan to take this document to a larger number of people within the company. The 66-member team was constituted in September 1999 and was stationed in Ranchi to undergo a detailed briefing-cum-training course. A generalized module was presented to the IRP team during the course, which then summarised the root causes of SAIL's crisis and the strategies to overcome it.
According to an official involved with the program: "Initiatives like the power plant hive-off or the Salem Steel joint venture will hinge on employee concurrence, particularly at the shop floor level, and therefore there has to be an intensive communication program in place to reassure employees that their interests will be protected."

The 66-member IRP team conducted half-day workshops across plants and other units based on three specific modules:
A video film conveying a message from the chairman of the company.

A generalized module of the recommendations of the turnaround plan focusing on restoring the financial foundation, reinforcing marketing initiatives and regaining cost leadership.

A module covering plant-specific or unit-specific issues and strategies for action.
The exercise was expected to cover at least 16,000 SAIL employees by the end of March 2000. A senior official at SAIL said: "The idea is that the employees covered in this phase would take the communication process forward to their peer group and fellow colleagues."

The staff education exercise was stressed upon, particularly in view of the power plant hive-off fiasco, which could not take off as scheduled due to stiff resistance from central trade unions. The problem, at the time, was that the SAIL top brass had failed to convince the employees that jobs would not be at risk because of the hive-off.

THE REACTION

The trade unions were on a warpath against the recommendations of McKinsey. Posters put up by the Centre of Indian Trade Unions (CITU) at SAIL's central marketing office said that the McKinsey report was meant, not for the revival or survival of SAIL, but for its burial. A senior TU leader said: "SAIL TUs so far have been extremely tolerant and exercised utmost restraint. Even in the face of scanty communication by the management of SAIL, they have not lost patience in these trying times."

The TU leaders felt that SAIL would try to bolster support for the financial restructuring proposal based on the recommendations of McKinsey. But being a government-owned company, SAIL cannot take decisions on such recommendations as the privatization of SAIL or breaking it up into two product-based companies. Even in relatively small matters the like hiving off of power plants to a subsidiary company, with SAIL being the major partner, the government had not cleared SAIL's proposal, even after months of gestation. Therefore, it was futile to think that SAIL would secure the permission of the government to sell off Salem Steel Plant (SSP) in Tamil Nadu or close down Alloy Steels Plant (ASP) at Durgapur in West Bengal.

At SSP, all the TUs had joined hands to form a 'Save Salem Steel Committee' and observed a day's token strike on June 24, 1999, demanding investment in SSP by SAIL, rather than by a private partner.

Though TUs had no objection to voluntary retirements, they were not very happy about the situation. They were worried that employment opportunities were shrinking in the steel industry and that reduction of manpower would mean increasing the number of contractors and their workforce. After the Rourkela Steel Plant in Orissa absorbed contractors' workers on Supreme Court orders, fresh contractors had been appointed to fill up the vacancies.

| |SAIL'S VOLUNTARY RETIREMENT SCHEME |
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| |THE PERSUASION & THE RELATION |
| |SAIL TU leaders were emphatic that the McKinsey recommendations were not the last word on SAIL. They felt that foreign |
| |consultancy firms were unable to appreciate the role played by major public sector units like SAIL or Indian Oil in the |
| |growth of the Indian economy. |
| |They alleged that since large public sector units had shown they could withstand the onslaught of the multinationals, |
| |efforts were being made to weaken them, break them into pieces and eventually privatize them. |
| |On February 17, 2000, workers at SSP went on a strike against the government's decision to restructure SAIL. The strike was|
| |called by eight unions affiliated to CITU, INTUC, ADMK and PMK. CITU secretary Tapan Sen said: "The unions are going to |
| |serve the ultimatum to the government for indefinite action in the days to come if this retrograde decision is not |
| |reversed. Demonstrations were held against the government's decision in all steel plants and workers of Durgapur would hold|
| |a daylong dharna. Steel workers all over the country, irrespective of affiliations have reacted sharply to the disastrous |
| |and deceptive decision of the government on the so-called restructuring of SAIL." |
| |[pic][pic] |
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| |QUESTIONS FOR DISCUSSION |
| |1. McKinsey's recommendation is that SAIL cut its workforce to 100,000 by the end of 2003. SAIL has launched various VR |
| |schemes to meet this target. Though every time the company is comes out with improved schemes there are still not many |
| |takers. What according to you could be the reasons? |
| |2. The staff education exercise on VRS at SAIL seems to be more of a reaction to the power plant hive-off fiasco than a |
| |proactive measure. What other steps can SAIL take to educate employees about VRS? Explain. |
| |3. According to McKinsey proposals, offering VRS to employees was the part of the restructuring plan. Do you think VRS is |
| |sufficient without restructuring or vice-versa? Comment. |
| |4. In February 2001, SAIL ended its four-year recruitment freeze by announcing its plans to fill up more than 250 posts. Do|
| |you think this is the right move especially when a VRS is being offered to its employees? Explain. |
| |ADDITIONAL READING & REFERENCES: |
| | Bhandari Bhupesh, SAIL sill has an appetite for equity, Business World, February 7, 1996. |
| | Sarkar Ranju, Has SAIL recast its bottomline?, Business Today, July 22, 1997. |
| | Maitra Dilip, Did SAIL smelt its profits in its furnaces?, Business Today, November 7, 1998. |
| | Sarkar Ranju, Can SAIL rapidly (Re)Steel its future?, Business Today, July 22, 1999. |
| | Pannu SPS, Debate on AI contract labour case reopened, The Hindustan Times, August 15, 1999. |
| | Ghosh Indranil, In choppy waters, Business India, August 9, 1999. |
| | Mazumdar Rakhi, The TAO of top, Business Today, September 22, 1999. |
| | Chandrashekhar R. The case of the voluntary VRS, Business Today, September 22, 1999. |
| | SAIL: The new CEO centre, Business Today, November 22, 1999. |
| | Srinivas Alam, SAIL restructuring: the other guy blinked, Business Today, April 22, |
| | 2000. |
| | Ghosh Indranil, On the road to recovery, Business India, June 12, 2000. |
| | Chandrashekhar R. The case of effective downsizing, Business Today, June 22, 2000. |
| | SAIL to kick off retirement scheme next month, India Today Online, September 05, 2000. |
| | SAIL ends 4-year recruitment freeze, The Economic Times, February 9, 2001. |
| | Srinivasan MV, Voluntary retirement and workers' welfare, www.epw.org.in. |
| | www.indiainfoline.com. |
| | Sweet D.H., Derecruitment & Outplacement. |
| | Boller R., What Colour Is Your Parachute? |
| | R. L. Dipboye, The Older Workforce. |
| | Kaye B., Up Is Not The Only Way. |
| | Sweet D. H., A Manager's Guide To Termination. |
| | Spurgeon H. & Howbert P.A., Ready, Fire! |
| | Walker J.W. & Lazar H.L., The End Of Mandatory Retirement. |
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BATA INDIA'S HR PROBLEMS

Case code- HROB001
Published-2003

INTRODUCTION

For right or wrong reasons, Bata India Limited (Bata) always made the headlines in the financial dailies and business magazines during the late 1990s. The company was headed by the 60 year old managing director William Keith Weston (Weston). He was popularly known as a 'turnaround specialist' and had successfully turned around many sick companies within the Bata Shoe Organization (BSO) group.

By the end of financial year 1999, Bata managed to report rising profits for four consecutive years after incurring its first ever loss of Rs 420 million in 1995. However, by the third quarter ended September 30, 2000, Weston was a worried man. Bata was once again on the downward path. The company's nine months net profits of Rs 105.5 million in 2000 was substantially lower than the Rs 209.8 million recorded in 1999. Its staff costs of Rs 1.29 million (23% of net sales) was also higher as compared to Rs 1.18 million incurred in the previous year. In September 2000, Bata was heading towards a major labour dispute as Bata Mazdoor Union (BMU) had requested West Bengal government to intervene in what it considered to be a major downsizing exercise.

BACKGROUND NOTE

|With net revenues of Rs 7.27 billion and net profit of Rs 304.6 million for the financial year ending December 31, 1999, Bata | |
|was India's largest manufacturer and marketer of footwear products. As on February 08, 2001, the company had a market valuation | |
|of Rs 3.7 billion. For years, Bata's reasonably priced, sturdy footwear had made it one of India's best known brands. Bata sold | |
|over 60 million pairs per annum in India and also exported its products in overseas markets including the US, the UK, Europe and| |
|Middle East countries. The company was an important operation for its Toronto, Canada based parent, the BSO group run by Thomas | |
|Bata, which owned 51% equity stake. | |
| | |
|The company provided employment to over 15,000 people in its manufacturing and sales operations throughout India. Headquartered | |
|in Calcutta, the company manufactured over 33 million pairs per year in its five plants located in Batanagar (West Bengal), | |
|Faridabad (Haryana), Bangalore (Karnataka), Patna (Bihar) and Hosur (Tamil Nadu). The company had a distribution network of over| |
|1,500 retail stores and 27 wholesale depots. It outsourced over 23 million pairs per year from various small-scale | |
|manufacturers. | |

Throughout its history, Bata was plagued by perennial labor problems with frequent strikes and lockouts at its manufacturing facilities. The company incurred huge employee expenses (22% of net sales in 1999). Competitors like Liberty Shoes were far more cost-effective with salaries of its 5,000 strong workforce comprising just 5% of its turnover.

When the company was in the red in 1995 for the first time, BSO restructured the entire board and sent in a team headed by Weston. Soon after he stepped in several changes were made in the management. Indians who held key positions in top management, were replaced with expatriate Weston taking over as managing director. Mike Middleton was appointed as deputy managing director and R. Senonner headed the marketing division. They made several key changes, including a complete overhaul of the company's operations and key departments. Within two months of Weston taking over, Bata decided to sell its headquarter building in Calcutta for Rs 195 million, in a bid to stem losses. The company shifted wholesale, planning & distribution, and the commercial department to Batanagar, despite opposition from the trade unions. Robin Majumdar, president, co-ordination committee, Bata Trade Union, criticized the move, saying: "Profits may return, but honor is difficult to regain."

The management team implemented a massive revamping exercise in which more than 250 managers and their juniors were asked to quit. Bata decided to stop further recruitment, and allowed only the redundant staff to fill the gaps created by superannuation and retirements. The management offered its staff an employment policy that was linked to sales-growth performance.

ASSAULT CASE

More than half of Bata's production came from the Batanagar factory in West Bengal, a state notorious for its militant trade unions, who derived their strength from the dominant political parties, especially the left parties. Notwithstanding the giant conglomerate's grip on the shoe market in India, Bata's equally large reputation for corruption within, created the perception that Weston would have a difficult time. When the new management team weeded out irregularities and turned the company around within a couple of years, tackling the politicized trade unions proved to be the hardest of all tasks.
|On July 21, 1998, Weston was severely assaulted by four workers at the company's factory at Batanagar, while he was |[pic][pi|
|attending a business meet. The incident occurred after a member of BMU, Arup Dutta, met Weston to discuss the issue of |c] |
|the suspended employees. Dutta reportedly got into a verbal duel with Weston, upon which the other workers began to | |
|shout slogans. When Weston tried to leave the room the workers turned violent and assaulted him. This was the second | |
|attack on an officer after Weston took charge of the company, the first one being the assault on the chief welfare | |
|officer in 1996. | |
|Soon after the incident, the management dismissed the three employees who were involved in the violence. The employees | |
|involved accepted their dismissal letters but subsequently provoked other workers to go in for a strike to protest the | |
|management's move. Workers at Batanagar went on a strike for two days following the incident. Commenting on the strike,| |
|Majumdar said: "The issue of Bata was much wider than that of the dismissal of three employees on grounds of | |
|indiscipline. Stoppage of recruitment and continuous farming out of jobs had been causing widespread resentment among | |
|employees for a long time." | |
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Following the incident, BSO decided to reconsider its investment plans at Batanagar. Senior vice-president and member of the executive committee, MJZ Mowla, said[1]: "We had chalked out a significant investment programme at Batanagar this year which was more than what was invested last year. However, that will all be postponed."

The incident had opened a can of worms, said the company insiders. The three men who were charge-sheeted, were members of the 41-member committee of BMU, which had strong political connections with the ruling Communist Party of India (Marxist). The trio it was alleged, had in the past a good rapport with the senior managers, who were no longer with the organization. These managers had reportedly farmed out a large chunk of the contract operations to this trio.

Company insiders said the recent violence was more a political issue rather than an industrial relations problem, since the workers had had very little to do with it. Seeing the seriousness of the issue and the party's involvement, the union, the state government tried to solve the problem by setting up a tripartite meeting among company officials, the labor directorate and the union representatives. The workers feared a closedown as the inquiry proceeded.

INDUSTRIAL RELATIONS

For Bata, labor had always posed major problems. Strikes seemed to be a perennial problem. Much before the assault case, Bata's chronically restive factory at Batanagar had always plagued by labor strife. In 1992, the factory was closed for four and a half months. In 1995, Bata entered into a 3-year bipartite agreement with the workers, represented by the then 10,000 strong BMU, which also had the West Bengal government as a signatory.
|On July 21, 1998, Weston was severely assaulted by four workers at the company's factory at Batanagar, while he was |[pic][pi|
|attending a business meet. The incident occurred after a member of BMU, Arup Dutta, met Weston to discuss the issue of |c] |
|the suspended employees. Dutta reportedly got into a verbal duel with Weston, upon which the other workers began to | |
|shout slogans. When Weston tried to leave the room the workers turned violent and assaulted him. This was the second | |
|attack on an officer after Weston took charge of the company, the first one being the assault on the chief welfare | |
|officer in 1996. | |
|In February 1999, a lockout was declared in Bata's Faridabad Unit. Middleton commented that the closure of the unit | |
|would not have much impact on the company's revenues as it was catering to lower-end products such as canvas and Hawaii| |
|chappals. The lock out lasted for eight months. In October 1999, the unit resumed production when Bata signed a | |
|three-year wage agreement. | |

On March 8, 2000, a lockout was declared at Bata's Peenya factory in Bangalore, following a strike by its employee union. The new leadership of the union had refused to abide by the wage agreement, which was to expire in August 2001. Following the failure of its negotiations with the union, the management decided to go for a lock out. Bata management was of the view that though it would have to bear the cost of maintaining an idle plant (Rs. 3 million), the effect of the closures on sales and production would be minimal as the footwear manufactured in the factory could be shifted to the company's other factories and associate manufacturers. The factory had 300 workers on its rolls and manufactured canvas and PVC footwear.

In July 2000, Bata lifted the lockout at the Peenya factory. However, some of the workers opposed the company's move to get an undertaking from the factory employees to resume work. The employees demanded revocation of suspension against 20 of their fellow employees. They also demanded that conditions such as maintaining normal production schedule, conforming to standing orders and the settlement in force should not be insisted upon.

In September 2000, Bata was again headed for a labour dispute when the BMU asked the West Bengal government to intervene in what it perceived to be a downsizing exercise being undertaken by the management. BMU justified this move by alleging that the management has increased outsourcing of products and also due to perceived declining importance of the Batanagar unit. The union said that Bata has started outsourcing the Power range of fully manufactured shoes from China, compared to the earlier outsourcing of only assembly and sewing line job. The company's production of Hawai chappals at the Batanagar unit too had come down by 58% from the weekly capacity of 0.144 million pairs. These steps had resulted in lower income for the workers forcing them to approach the government for saving their interests.

CHANGE MANAGEMENT@ICICI

Case Code-HROB008
Published-2002
"What role am I supposed to play in this ever-changing entity? Has anyone worked out the basis on which roles are being allocated today?"
- A middle level ICICI manager, in 1998.
"We do put people under stress by raising the bar constantly. That is the only way to ensure that performers lead the change process."
- K. V. Kamath, MD & CEO, ICICI, in 1998.

THE CHANGE LEADER

In May 1996, K.V. Kamath (Kamath) replaced Narayan Vaghul (Vaghul), CEO of India's leading financial services company Industrial Credit and Investment Corporation of India (ICICI). Immediately after taking charge, Kamath introduced massive changes in the organizational structure and the emphasis of the organization changed - from a development bank [1]mode to that of a market-driven financial conglomerate.
|Kamath's moves were prompted by his decision to create new divisions to tap new markets and to introduce flexibility in|[pic][pi|
|the organization to increase its ability to respond to market changes. Necessitated because of the organization's |c] |
|new-found aim of becoming a financial powerhouse, the large-scale changes caused enormous tension within the | |
|organization. The systems within the company soon were in a state of stress. Employees were finding the changes | |
|unacceptable as learning new skills and adapting to the process orientation was proving difficult. | |
|The changes also brought in a lot of confusion among the employees, with media reports frequently carrying quotes from | |
|disgruntled ICICI employees. According to analysts, a large section of employees began feeling alienated. | |

The discontentment among employees further increased, when Kamath formed specialist groups within ICICI like the 'structured projects' and 'infrastructure' group.
Doubts were soon raised regarding whether Kamath had gone 'too fast too soon,' and more importantly, whether he would be able to steer the employees and the organization through the changes he had initiated.

BACKGROUND NOTE

ICICI was established by the Government of India in 1955 as a public limited company to promote industrial development in India. The major institutional shareholders were the Unit Trust of India (UTI), the Life Insurance Corporation of India (LIC) and the General Insurance Corporation of India (GIC) and its subsidiaries. The equity of the corporation was supplemented by borrowings from the Government of India, the World Bank, the Development Loan Fund (now merged with the Agency for International Development), Kreditanstalt fur Wiederaufbau (an agency of the Government of Germany), the UK government and the Industrial Development Bank of India (IDBI).

The basic objectives of the ICICI were to • assist in creation, expansion and modernization of enterprises • encourage and promote the participation of private capital, both internal and external • take up the ownership of industrial investment; and • expand the investment markets.
Since the mid 1980s, ICICI diversified rapidly into areas like merchant banking and retailing. In 1987, ICICI co-promoted India's first credit rating agency, Credit Rating and Information Services of India Limited (CRISIL), to rate debt obligations of Indian companies. In 1988, ICICI promoted India's first venture capital company - Technology Development and Information Company of India Limited (TDICI) - to provide venture capital for indigenous technology-oriented ventures.

In the 1990s, ICICI diversified into different forms of asset financing such as leasing, asset credit and deferred credit, as well as financing for non-project activities. In 1991, ICICI and the Unit Trust of India set up India's first screen-based securities market, the over-the-counter Exchange of India (OCTEI). In 1992 ICICI tied up with J P Morgan of the US to form an investment banking company, ICICI Securities Limited.
In line with its vision of becoming a universal bank, ICICI restructured its business based on the recommendations of consultants McKinsey & Co in 1998. In the late 1990s, ICICI concentrated on building up its retail business through acquisitions and mergers. It took over ITC Classic, Anagram Finance and merged the Shipping Credit Investment Corporation of India (SCICI) with itself. ICICI also entered the insurance business with Prudential plc of UK.
ICICI was reported to be one of the few Indian companies known for its quick responsiveness to the changing circumstances. While its development bank counterpart IDBI was reportedly not doing very well in late 2001, ICICI had major plans of expanding on the anvil. This was expected to bring with it further challenges as well as potential change management issues. However, the organization did not seem to much perturbed by this, considering that it had successfully managed to handle the employee unrest following Kamath's appointment.

CHANGE CHALLENGES - PART II

ICICI had to face change resistance once again in December 2000, when ICICI Bank was merged with Bank of Madura (BoM)[1] . Though ICICI Bank was nearly three times the size of BoM, its staff strength was only 1,400 as against BoM's 2,500. Half of BoM's personnel were clerks and around 350 were subordinate staff. There were large differences in profiles, grades, designations and salaries of personnel in the two entities. It was also reported that there was uneasiness among the staff of BoM as they felt that ICICI would push up the productivity per employee, to match the levels of ICICI [2]. BoM employees feared that their positions would come in for a closer scrutiny. They were not sure whether the rural branches would continue or not as ICICI's business was largely urban-oriented.
|The apprehensions of the BoM employees seemed to be justified as the working culture at ICICI and BoM were quite |[pic][pi|
|different and the emphasis of the respective management was also different. While BoM management concentrated on the |c] |
|overall profitability of the Bank, ICICI management turned all its departments into individual profit centers and bonus| |
|for employees was given on the performance of individual profit center rather than profits of whole organization. | |
|ICICI not only put in place a host of measures to technologically upgrade the BoM branches to ICICI's standards, but | |
|also paid special attention to facilitate a smooth cultural integration. The company appointed consultants Hewitt | |
|Associates[3]to help in working out a uniform compensation and work culture and to take care of any change management | |
|problems. | |

ICICI conducted an employee behavioral pattern study to assess the various fears and apprehensions that employees typically went through during a merger. (Refer Table I).

TABLE I
'POST-MERGER' EMPLOYEE BEHAVIORAL PATTERN

|PERIOD | EMPLOYEE BEHAVIOR |
|Day 1 |Denial, fear, no improvement |
|After a month |Sadness, slight improvement |
|After a Year |Acceptance, significant improvement |
|After 2 Years |Relief, liking, enjoyment, business development activities |

Source:www.sibm.edu

Based on the above findings, ICICI established systems to take care of the employee resistance with action rather than words. The 'fear of the unknown' was tackled with adept communication and the 'fear of inability to function' was addressed by adequate training. The company also formulated a 'HR blue print' to ensure smooth integration of the human resources. (Refer Table II).

TABLE II
MANAGING HR DURING THE ICICI-BoM MERGER

|THE HR BLUEPRINT |AREAS OF HR INTEGRATION |
| |FOCUSSED ON |
| A data base of the entire HR structure | Employee communication |
| Road map of career | Cultural integration |
| Determining the blue print of HR moves | Organization structuring |
| Communication of milestones | Recruitment & Compensation |
| IT Integration - People Integration - Business Integration. | Performance management |
| | Training |
| | Employee relations |

Source:www.sibm.edu

EMPLOYEE DOWNSIZING

Case Code- HROB016
Publication Date -2002
"Next to the death of a relative or friend, there's nothing more traumatic than losing a job. Corporate cutbacks threaten the security and self-esteem of survivors and victims alike. They cause turmoil and shatter morale inside organizations and they confirm the view that profits always come before people." - Laura Rubach, Industry Analyst, in 1994.
"The market is going to determine where we stop with the layoffs."
- Tom Ryan, a Boeing spokesman, in August 2002

DOWNSIZING BLUES ALL OVER THE WORLD

The job markets across the world looked very gloomy in the early 21st century, with many companies having downsized a considerable part of their employee base and many more revealing plans to do so in the near future. Companies on the Forbes 500 and Forbes International 800 lists had laid off over 460,000 employees' altogether, during early 2001 itself.
|This trend created havoc in the lives of millions of employees across the world, Many people lost their jobs at a very |[pic][pi|
|short or no advance notice, and many others lived in a state of uncertainty regarding their jobs. Companies claimed |c] |
|that worldwide economic slowdown during the late-1990s had had forced them to downsize, cut costs, optimize resources | |
|and survive the slump. Though the concept of downsizing had existed for a long time, its use had increased only | |
|recently, since the late-1990s. (Refer Table I for information on downsizing by major companies). | |
| | |
|Analysts commented that downsizing did more damage than good to the companies as it resulted in low morale of retained | |
|employees, loss of employee loyalty and loss of expertise as key personnel/experts left to find more secure jobs. | |
|Moreover, the uncertain job environment created by downsizing negatively effected the quality of the work produced. | |
|Analysts also felt that most companies adopted downsizing just as a 'me-too' strategy even when it was not required. | |

However, despite these concerns, the number of companies that chose to downsize their employee base increased in the early 21st century. Downsizing strategy was adopted by almost all major industries such as banking, automobiles, chemical, information technology, fabrics, FMCG, air transportation and petroleum. In mid-2002, some of the major companies that announced downsizing plans involving a large number of employees included Jaguar (UK), Boeing (US), Charles Schwab (US), Alactel (France), Dresdner (Germany), Lucent Technologies (US), Ciena Corp. (US) and Goldman Sachs Group (US). Even in companies' developing countries such as India, Indonesia, Thailand, Malaysia and South Korea were going in for downsizing.
TABLE I
DOWNSIZING BY MAJOR COMPANIES (1998-2001)
|YEAR |COMPANY |INDUSTRY | No. of Employees Downsized |
|1998 | Boeing | Aerospace | 20,000 |
|1998 | CitiCorp | Banking | 7,500 |
|1998 | Chase Manhattan Bank | Banking | 2,250 |
|1998 | Kellogs | FMCG | 1,00 |
|1998 | BF Goodrich | Tyres | 1,200 |
|1998 | Deere & Company | Farm Equipment | 2,400 |
|1998 | AT&T | Telecommunications | 18,000 |
|1998 | Compaq | IT | 6,500 |
|1998 | Intel | IT | 3,000 |
|1998 | Seagate | IT | 10,000 |
|1999 | Chase Manhattan Bank | Banking | 2,250 |
|1999 | Boeing | Aerospace | 28,000 |
|1999 | Exxon-Mobil | Petroleum | 9,000 |
|2000 | Lucent Technologies | IT | 68,000 |
|2000 | Charles Schwab | IT | 2,000 |
|2001 | Xerox | Copiers | 4,000 |
|2001 | Hewlett Packard | IT | 3,000 |
|2001 | AOL Time Warner | Entertainment | 2,400 |

THE FIRST PHASE

Till the late-1980s, the number of firms that adopted downsizing was rather limited, but the situation changed in the early-1990s. Companies such as General Electric (GE) and General Motors (GM) downsized to increase productivity and efficiency, optimize resources and survive competition and eliminate duplication of work after M&As. Some other organizations that made major job cuts during this period were Boeing (due to its merger with McDonnell Douglas), Mobil (due to the acquisition of Exxon), Deutsche Bank (due to its merger with Bankers Trust) and Hoechst AG (due to its merger with Rhone-Poulenc SA).
|According to analysts, most of these successful companies undertook downsizing as a purposeful and proactive strategy. |[pic][pi|
|These companies not only reduced their workforce, they also redesigned their organizations and implemented quality |c] |
|improvement programs. During the early and mid-1990s, companies across the world (and especially in the US), began | |
|focusing on enhancing the value of the organization as a whole. According to Jack Welch, the then GE CEO, "The ultimate| |
|test of leadership is enhancing the long-term value of the organization. For leaders of a publicly held corporation, | |
|this means long-term shareholder value." In line with this approach to leadership, GE abandoned policy of lifetime | |
|employment and introduced the concept of contingent employment. Simultaneously, it began offering employees the best | |
|training and development opportunities to constantly enhance their skills and performance and keep pace with the | |
|changing needs of the workplace. | |

During this period, many companies started downsizing their workforce to improve the image of the firm among the stockholders or investors and to become more competitive. The chemical industry came out strongly in favor of the downsizing concept in the early 1990s. Most chemical and drug companies restricted their organizations and cut down their employee base to reduce costs and optimize resources.

As the perceived value of the downsized company was more than its actual value, managers adopted downsizing even though it was not warranted by the situation. A few analysts blamed the changes in the compensation system for executive management for the increase in the number of companies downsizing their workforce in 1990s. In the new compensation system, managers were compensated in stock options instead of cash. Since downsizing increased the equity value (investors buy the downsizing company's stocks in hope of future profitability) of the company, managers sought to increase their wealth through downsizing. Thus, despite positive economic growth during the early 1990s, over 600,000 employees were downsized in the US in 1993.

However, most companies did not achieve their objectives and, instead, suffered the negative effects of downsizing. A survey conducted by the American Management Association revealed that less than half of the companies that downsized in the 1990s saw an increase in profits during that period. The survey also revealed that a majority of these companies failed to report any improvements in productivity.

One company that suffered greatly was Delta Airlines, which had laid off over 18,000 employees during the early 1990s. Delta Airlines realized in a very short time that it was running short of people for its baggage handling, maintenance and customer service departments. Though Delta succeeded in making some money in the short run, it ended up losing experienced and skilled workers, as a result of which it had to invest heavily in rehiring many workers.

As investors seemed to be flocking to downsizing companies, many companies saw downsizing as a tool for increasing their share value. The above, coupled with the fact that senior executive salaries had increased by over 1000% between 1980 and 1995, even as the layoff percentage reached its maximum during the same period, led to criticism of downsizing.

In light of the negative influence that downsizing was having on both the downsized and the surviving employees, some economists advocated the imposition of a downsizing tax (on downsizing organizations) by the government to discourage companies from downsizing. This type of tax already existed in France, where companies downsizing more than 40 workers had to report the same in writing to the labor department. Also, such companies had liable to pay high severance fees, contribute to an unemployment fund, and submit a plan to the government regarding the retraining program of its displaced employees (for their future employment). The tax burden of such companies increased because they were no longer exempt from various payroll taxes.

However, the downsizing tax caused more problems than it solved. As this policy restrained a company from downsizing, it damaged the chances of potential job seekers to get into the company. This tax was mainly responsible for the low rate of job creation and high rates of unemployment in many European countries, including France.

THE SECOND PHASE

By the mid-1990s, factors such as increased investor awareness, stronger economies, fall in inflation, increasing national incomes, decrease in level of unemployment, and high profits, reduced the need for downsizing across the globe. However, just as the downsizing trend seemed to be on a decline, it picked up momentum again in the late-1990s, this time spreading to developing countries as well.
|This change was attributed to factors such as worldwide economic recession, increase in global competition, the slump |[pic][pi|
|in the IT industry, dynamic changes in technologies, and increase in the availability of a temporary employee base. |c] |
|Rationalization of the labor force and wage reduction took place at an alarming rate during the late 1990s and early | |
|21st century, with increased strategic alliances and growing popularity of concepts such as lean manufacturing and | |
|outsourcing . | |
| | |
|Criticism of downsizing and its ill-effects soon began resurfacing. Many companies suffered from negative effects of | |
|downsizing and lost some of their best employees. Other problems such as the uneven distribution of employees (too many| |
|employees in a certain division and inadequate employees in another), excess workload on the survivors, resistance to | |
|change from the survivors, reduced productivity and fall in quality levels also cropped up. As in the early 1990s, many| |
|organizations downsized even though it was not necessary, because it appeared to be the popular thing to do. | |

Due to the loss of experienced workers, companies incurred expenditure on overtime pay and employment of temporary and contract workers. It was reported that about half of the companies that downsized their workforce ended up recruiting new or former staff within a few years after downsizing because of insufficient workers or lack of experienced people. The US-based global telecom giant AT&T was one such company, which earned the dubious reputation of frequently rehiring its former employees because the retained employees were unable to handle the work load.

AT&T frequently rehired former employees until it absorbed the 'shock' of downsizing. It was also reported that in some cases, AT&T even paid recruitment firms twice the salaries of laid-off workers to bring them back to AT&T. A former AT&T manager commented, "It seemed like they would fire someone and [the worker] would be right back at their desk the next day." Justifying the above, Frank Carrubba, Former Operations Director, AT&T, said, "It does not happen that much, but who better to bring back than someone who knows the ropes?" Very few people bought this argument, and the rationale behind downsizing and then rehiring former employees/recruiting new staff began to be questioned by the media as well as the regulatory authorities in various parts of the world.

Meanwhile, allegations that downsizing was being adopted by companies to support the increasingly fat pay-checks of their senior executives increased. AT&T was again in the news in this regard. In 1996, the company doubled the remuneration of its Chairman, even as over 40,000 employees were downsized. Leading Internet start-up AOL was also criticized for the same reasons. The increase in salary and bonuses of AOL's six highest paid executive officers was between 8.9% to 25.2% during 2000. The average increase in salary and bonus of each officer was about 16%, with the remuneration of the CEO exceeding $73 million during the period. Shortly after this raise, AOL downsized 2,400 employees in January 2001.

Following the demand that the executive officers should also share in the 'sacrifice' associated with downsizing, some companies voluntarily announced that they would cut down on the remuneration and bonuses of their top executives in case of massive layoffs. Ford was one of the first companies to announce such an initiative. It announced that over 6,000 of its top executives, including its CEO, would forgo their bonus in 2001. Other major companies that announced that their top executives would forgo cash compensations when a large number of workers were laid off were AMR Corp., Delta, Continental and Southwest Airlines. In addition to the above, companies adopted many strategies to deal with the criticisms they were facing because of downsizing.

TACKLING THE EVILS OF DOWNSIZING

During the early 21st century, many companies began offering flexible work arrangements to their employees in an attempt to avoid the negative impact of downsizing. Such an arrangement was reported to be beneficial for both employees as well as the organization. A flexible working arrangement resulted in increased morale and productivity; decreased absenteeism and employee turnover, reduced stress on employees; increased ability to recruit and retain superior quality employees improved service to clients in various time zones; and better use of office equipment and space. This type of arrangement also gave more time to pursue their education, hobbies, and professional development, and handle personal responsibilities.
|The concept of contingent employment also became highly popular and the number of organizations adopting this concept |[pic][pi|
|increased substantially during the early 21st century. According to the Bureau of Labor Statistics (BLS), US, |c] |
|contingent employees were those who had no explicit or implicit contract and expected their jobs to last no more than | |
|one year. They were hired directly by the company or through an external agency on a contract basis for a specific work| |
|for a limited period of time. | |
| | |
|Companies did not have to pay unemployment taxes, retirement or health benefits for contingent employees. Though these | |
|employees appeared on the payroll, they were not covered by the employee handbook (which includes the rights and duties| |
|of employers and employees and employment rules and regulations). In many cases, the salaries paid to them were less | |
|than these given to regular employees performing similar jobs. Thus, these employees offered flexibility without | |
|long-term commitments and enabled organizations to downsize them, when not required, without much difficulty or guilt. | |
|Analysts commented that in many cases HR managers opted for contingent employees as they offered the least resistance | |
|when downsized. | |

However, analysts also commented that while contingent employment had its advantages, it posed many problems in the long run. In the initial years, when contingent employment was introduced, such employees were asked to perform non-critical jobs that had no relation to an organization's core business. But during the early 2000s, contingent employees were employed in core areas of organizations. This resulted in increased costs as they had to be framed for the job. Not only was training time consuming, its costs were recurring in nature as contingent employees stayed only for their specified contract period and were soon replaced by a new batch of contingent employees. Productivity suffered considerably during the period when contingent employees were being trained. The fact that such employees were not very loyal to the organization also led to problems.

Analysts also found that most contingent employees preferred their flexible work arrangements and were not even lured by the carrot (carrot and stick theory of motivation) of permanent employment offered for outstanding performance. In the words of Paul Cash, Senior Vice President, Team America (a leasing company), "It used to be that you worked as a temp to position yourself for a full-time job. That carrot is not there any more for substantial numbers of temps who prefer their temporary status. They do not understand your rules, and if they are only going to be on board for a month, they may never understand." With such an attitude to remain outside the ambit of company rules and regulations, contingent employees reportedly failed to develop a sense of loyalty toward the organization. Consequently, they failed to completely commit themselves to the goals of the organization.

According to some analysts, the contingent employment arrangement was not beneficial to contingent employees. Under the terms of the contract, they were not eligible for health, retirement, or overtime benefits. Discrimination against contingent employees at the workplace was reported in many organizations. The increasing number of contingent employees in an organization was found to have a negative effect on the morale of regular employees. Their presence made the company's regular employees apprehensive about their job security. In many cases regular employees were afraid to ask for a raise or other benefits as they feared they might lose their jobs.

Though contingent employment seemed to have emerged as one of the solutions to the ills of downsizing, it attracted criticism similar to those that downsizing did. As a result, issues regarding employee welfare and the plight of employees, who were subject to constant uncertainty and insecurity regarding their future, remained unaddressed. Given these circumstances, the best option for companies seemed to be to learn from those organizations that had been comparatively successful at downsizing.

LESSONS FROM THE 'DOWNSIZING BEST PRACTICES' COMPANIES

In the late 1990s, the US government conducted a study on the downsizing practices of firms (including major companies in the country). The study provided many interesting insights into the practice and the associated problems. It was found that the formulation and communication of a proper planning and downsizing strategy, the support of senior leaders, incentive and compensation planning and effective monitoring systems were the key factors for successful downsizing.
|In many organizations where downsizing was successfully implemented and yielded positive results, it was found that |[pic][pi|
|senior leaders had been actively involved in the downsizing process. Though the downsizing methods used varied from |c] |
|organization to organization, the active involvement of senior employees helped achieve downsizing goals and objectives| |
|with little loss in quality or quantity of service. The presence and accessibility of senior leaders had a positive | |
|impact on employees - those who were downsized as well as the survivors. According to a best practice company source, | |
|"Managers at all levels need to be held accountable for - and need to be committed to - managing their surplus | |
|employees in a humane, objective, and appropriate manner. While HR is perceived to have provided outstanding service, | |
|it is the managers' behavior that will have the most impact." In many companies, consistent and committed leadership | |
|helped employees overcome organizational change caused by downsizing. | |

HR managers in these companies participated actively in the overall downsizing exercise. They developed a employee plan for downsizing, which covered issues such as attrition management and workforce distribution in the organization. The plan also included the identification of skills needed by employees to take new responsibilities and the development of training and reskilling programs for employees. Since it may be necessary to acquire other skills in the future, the plan also addressed the issue of recruitment planning.

Communication was found to be a primary success factor of effective downsizing programs. According to a survey conducted in major US companies, 79% of the respondents revealed that they mostly used letters and memorandums from senior managers to communicate information regarding restructuring or downsizing to employees. However, only 29% of the respondents agreed that this type of communication was effective.

The survey report suggested that face-to-face communication (such as briefings by managers and small group meetings) was a more appropriate technique for dealing with a subject as traumatic (to employees) as downsizing. According to best practice companies, employees expected senior leaders to communicate openly and honestly about the circumstances the company was facing (which led to downsizing).

These companies also achieved a proper balance between formal and informal forms of communication. A few common methods of communication adopted by these companies included small meetings, face to face interaction, one-on-one discussion, breakfast gatherings, all staff meetings, video conferencing and informal employee dialogue sessions, use of newsletters, videos, telephone hotlines, fax, memoranda, e-mail and bulletin boards; and brochures and guides to educate employees about the downsizing process, employee rights and tips for surviving the situation.

Many organizations encouraged employees to voice their ideas, concerns or suggestions regarding the downsizing process. According to many best practice organizations, employee inputs contributed considerably to the success of their downsizing activities as they frequently gave valuable ideas regarding the restructuring, increase in production, and assistance required by employees during downsizing.

Advance planning for downsizing also contributed to the success of a downsizing exercise. Many successful organizations planned in advance for the downsizing exercise, clearly defining every aspect of the process. Best practice companies involved employee union representatives in planning. These companies felt it was necessary to involve labor representatives in the planning process to prevent and resolve conflicts during downsizing.

According to a survey report, information that was not required by companies for their normal day-to-day operations, became critical when downsizing. This information had to be acquired from internal as well as external sources (the HR department was responsible for providing it). From external sources, downsizing companies needed to gather information regarding successful downsizing processes of other organizations and various opportunities available for employees outside the organization. And from internal sources, such companies need to gather demographic data (such as rank, pay grade, years of service, age, gender and retirement eligibility) on the entire workforce. In addition, they required information regarding number of employees that were normally expected to resign or be terminated, the number of employees eligible for early retirement, and the impact of downsizing on women, minorities, disabled employees and old employees.

The best practice organizations gathered information useful for effective downsizing from all possible sources. Some organizations developed an inventory of employee skills to help management take informed decisions during downsizing, restructuring or staffing. Many best practice organizations developed HR information systems that saved management's time during downsizing or major restructuring by giving ready access to employee information.

The major steps in the downsizing process included adopting an appropriate method of downsizing, training managers about their role in downsizing, offering career transition assistance to downsized employees, and providing support to survivors. The various techniques of downsizing adopted by organizations included attrition, voluntary retirement, leave without pay or involuntary separation (layoffs). According to many organizations, a successful downsizing process required the simultaneous use of different downsizing techniques. Many companies offered assistance to downsized employees and survivors, to help them cope with their situation.

Some techniques considered by organizations in lieu of downsizing included overtime restrictions, union contract changes, cuts in pay, furloughs, shortened workweeks, and job sharing. All these approaches were a part of the 'shared pain' approach of employees, who preferred to share the pain of their co-workers rather than see them be laid-off. Training provided to managers to help them play their role effectively in the downsizing process mainly included formal classroom training and written guidance (on issues that managers were expected to deal with, when downsizing). The primary focus of these training sessions was on dealing with violence in the workplace during downsizing.

According to best practice companies, periodic review of the implementation process and immediate identification and rectification of any deviations from the plan minimized the adverse effects of the downsizing process. In some organizations, the progress was reviewed quarterly and was published in order to help every manager monitor reductions by different categories. These categories could be department, occupational group (clerical, administrative, secretarial, general labor), reason (early retirement, leave without pay, attrition), employment equity group (women, minorities, disabled class) and region. Senior leaders were provided with key indicators (such as the effect of downsizing on the organizational culture) for their respective divisions. Some organizations tracked the progress and achievement of every division separately and emphasized the application of a different strategy for every department as reaction of employees to downsizing varied considerably from department to department.

Though the above measures helped minimize the negative effects of downsizing, industry observers acknowledged the fact that the emotional trauma of the concerned people could never be eliminated. The least the companies could do was to downsize in a manner that did not injure the dignity of the discharged employees or lower the morale of the survivors.

QUESTIONS FOR DISCUSSION

1. Explain the concept of downsizing and describe the various downsizing techniques. Critically evaluate the reasons for the increasing use of downsizing during the late 20th century and the early 21st century. Also discuss the positive and negative effects of downsizing on organizations as well as employees (downsized and remaining).

2. Why did contingent employment and flexible work arrangements become very popular during the early 2000s? Discuss. Evaluate these concepts as alternatives to downsizing in the context of organizational and employee welfare.

3. As part of an organization's HR team responsible for carrying it through a downsizing exercise, discuss the measures you would adopt to ensure the exercise's success. Given the uncertainty in the job market, what do you think employees should do to survive the trauma caused by downsizing and prepare themselves for it?
ADDITIONAL READING & REFERENCES

1. Making Sense of Corporate Downsizing, www.csaf.com, April 1996.
2. Downsizing and Employee Attitudes, www.ncspearson.com, September 1995.
3. Downsizing Strategies Used in Selected Organizations, www.c3i.osd.mil, 1995.
4. The Wages of Downsizing, www.mojones.com, January 1996.
5. Kirschener Elisabeth, Chemical & Engineering News, www.chemcenter.org, October 1996.
6. Hickok Thomas, Downsizing and Organizational Culture, www.pamji.com, 1997.
7. P.Jenkins Carri, Downsizing or Dumbsizing, http://advance.byu.edu/bym, 1997.
8. L.Lester Martha and M. Hollender Lauren, Employment Law Q&A, www.lowenstein.com, February 1997.
9. Hein Kenneth, Food for the Corporate Soul, www.martinrutte.com, May 1997.
10. GE Knows to Roll With the Changes, www.houstonchronicle.com, June 1998.
11. Jones Shannon, Job Cuts Up 53% Since 1997, www.wsws.org, October 1998.
12. Grey Barry, Boeing Announcements Brings US Job Cuts to 500,000 in 1998, www.wsws.org, December 1998.
13. Unkindest Cuts of All - And Not Always a Payoff in the Layoff, www.managementfirst.com, 1998.
14. Grice Corey and Junnarkar Sandeep, Silicon Valley: Still a Boomtown? News.com.com, January 1999.
15. Shareholders Press AT&T on Wage Gap, www.ufenet.org, May 1999.
16. Baker Wayne, How to Survice Downsizing, www.humax.net, 2000.
17. Duffy Tom, Downsizing with Dignity, www.nwfusion.com, 2001.
18. Global Slowdown Bites I.T. Gaints, www.asiafeatures.com, July 2001.
19. Bowes Barbara, Downsizing Dignity, www.winnipegfreepress2.com, October 2001.
20. Freeze Executive Pay During Periods of Downsizing, www.responsiblewealth.org, February 2002.
21. Layoff and Outsourcing Update, www.erie.net, March 2002.
22. Skaer Mark, Employee Mindset Is Different Today, www.achrnews.com, March 2002.
23. GE to Layoff 1,000, www.wspa.com, July 2002.
24. DiCarlo Lisa, US Airlines on Course with Loan Guarantee, www.forbes.com, July 2002.
25. M.Song Kyung, Boeing Tells 600 More of Layoffs Today, http://seattletimes.nwsource.com, August 2002.
26. Gomez Armando, The Ups and Downs of Downsizing, www.askmen.com, September 2002.
27. Carmaker Jaguar to Cut 400 Jobs, http://story.news.yahoo.com, September 2002.
28. Telecom Giant Sheds Scots Jobs, http://news.bbc.co.uk, September 2002.
29. Dresdner to Cut 3,000 Jobs, http://news.bbc.co.uk, September 2002.
30. Leicester John, Alactel to Cut 10,000 More Jobs, http://story.news.yahoo.com, September 2002.
31. Noguchi Yuki, With Sales Down, Ciena Cuts Another Round of Workers, www.washingtonpost.com, September 2002.
32. www.geocities.com
33. http://govinfo.library.unt.edu
34. www.greylockassociates.com
35. www.whatis.com
36. www.shrm.org
37. www.cio.com
38. www.shrm.org
39. www.forbes.com
40. www.orst.edu
41. www.humanresources.about.com
42. www.business2.com
43. www.businessweek.com
44. www.business-minds.com
45. www.themanagementor.com
46. www.bpcinc.com
47. http://members.aol.com
48. www.doleta.gov
49. www.msnbc.com

The Indian Call Center Journey

“The call center business appears to be going the dot-com way with a lot of big names pumping in dough. Ultimately, only the fittest will survive.”
- A Mumbai based call center agent, in 2001.

CALL CENTERS FARE BADLY

In the beginning of 1999, the teleworking industry had been hailed as ‘the opportunity’ for Indian corporates in the new millennium. In late 2000, a NASSCOM[1] study forecast that by 2008, the Indian IT enabled services business[2] was set to reach great heights.
|Noted Massachusetts Institute of Technology (MIT) scholar, Michael Dertouzos remarked that India could |[pic][pic] |
|boost its GDP by a trillion dollars through the IT-enabled services sector. Call center (an integral part| |
|of IT-enabled services) revenues were projected to grow from Rs 24 bn in 2000 to Rs 200 bn by 2010. | |
| | |
|During 2000-01, over a hundred call centers were established in India ranging from 5000 sq. ft. to | |
|100,000 sq. ft. in area involving investments of over Rs 12 bn. However, by early 2001, things seemed to | |
|have taken a totally different turn. | |

The reality of the Indian call center experience was manifested in rows after rows of cubicles devoid of personnel in the call centers. There just was no business coming in. In centers which did retain the employees, they were seen sitting idle, waiting endlessly for the calls to come.

Estimates indicated that the industry was saddled with idle capacity worth almost $ 75-100 mn. Owners of a substantial number of such centers were on the lookout for buyers. It was surprising that call centers were having problems in recruiting suitable entry-level agents even with attractive salaries being offered.

The human resource exodus added to the industry’s misery. Given the large number of unemployed young people in the country, the attrition rate of over 50% (in some cases) was rather surprising.

The industry, which was supposed to generate substantial employment for the country, was literally down in the dumps - much to the chagrin of industry experts, the Government, the media and above all, the players involved. The future prospects of the call center business seemed to be rather bleak indeed.

CALL CENTER BASICS

In 2001, the global call center industry was worth $ 800 mn spread across around 100,000 units. It was expected to touch the 300,000 level by 2002 employing approximately 18 mn people.
|Broadly speaking, a call center was a facility handling large volumes of inbound and outbound telephone |[pic][pic] |
|calls, manned by ‘agents,’ (the people working at the center). In certain setups, the caller and the call| |
|center shared costs, while in certain other cases, the clients bore the call’s cost. | |
| | |
|The call center could be situated anywhere in the world, irrespective of the client company’s customer | |
|base. Call centers date back to the 1970s, when the travel/hospitality industry in the US began to | |
|centralize their reservation centers. | |

With the rise of catalog shopping and outbound telemarketing, call centers became necessary for many industries. Each industry had its own way of operating these centers, with its own standards for quality, and its own preferred technologies.

The total number of people who worked at the center at any given point of time were referred to as ‘seats.’ A center could range from a small 5-10 seat set-up to a huge set-up with 500-2,000 seats.

The calls could be for customer service, sales, marketing or technical support in areas such as airline/hotel reservations, banking or regarding telemarketing, market research, etc. For instance, while a FMCG company could use the call centers for better customer relationship management, for a biotechnology company, the task could be of verifying genetic databases. (Refer Table I).

Call centers began as huge establishments managing large volumes of communications and traffic. These centers were generally set up as large rooms, with workstations, interactive voice response systems, an EPABX[3], headsets hooked into a large telecom switch and one or more supervisor stations. (Refer Table II). The center was either an independent entity, or was linked with other centers or to a corporate data network, including mainframes, microcomputers and LANs[4] .

The Indian Call Center Journey