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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 firstquarter[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 itsCEOs - not just the workers.

BACKGROUND NOTE

SAIL was the world's 10th largest and India's largest steel manufacturer with a 33% share inthe domestic market. In the financial year 1999-2000, the company generated revenues ofRs. 162.5 billion and incurred a net loss of Rs 17.2 billion. Yet, as on February 23, 2001, SAILhad a market valuation of just Rs. 340.8 billion, a meager amount considering the fact thatthe company owned four integrated and two special steel plants.SAIL was formed in 1973 as a holding company of the government owned steel andassociated input companies. In 1978, the subsidiary companies including Durgapur MishraIspat Ltd, Bokaro Steels Ltd, Hindustan Steel Works Ltd, Salem Steel Ltd., SAIL InternationalLtd 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 ownedsubsidiary 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 planproposed by McKinsey & Co, a leading global management-consulting firm, and approved by thegovernment 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 berestructured, 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 divestmentschedule. The plan envisaged putting the flat products company on the block first, as intensecompetition 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 50.73billion and Rs 3.8 billion lent to IISCO. The government also agreed to provide guarantee for raisingloans of Rs 15 billion with a 50% interest subsidy for the amount raised. This amount had to be

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utilized for reducing manpower through the voluntary retirement scheme. Another guarantee wasgiven 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 wasthe 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 forvarious 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 theweak spots.

There was considerable excess manpower in the non-plant departments. Around 30% of SAIL'smanpower, including executives, were in the non-plant departments, merely adding to thesuperfluous 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 tomake any visible effort to reduce surplus manpower.

A senior official at SAIL remarked: "If you walk into any SAIL office anywhere, you will findpeople chatting, reading novels, knitting and so on. Thousands of them just do not have anywork. This area has not even been considered as a focus area for the present VRS, possiblybecause all orders emanate from and through such superfluous offices and no one wants tothink 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 lessthan 10,000.Reduction of white-collar manpower required a change in the systems of office work andrecord keeping, and a very high degree of computerization. Officers across the organizationemployed dozens of stenographers and assistants. Signing on note sheets was a statussymbol for SAIL officers.

Another official commented: "Systems have to be result oriented, rather than person oriented andresponsibilities must match rewards and recognition. There is a need to change the mindset of themanagement, 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 workon hand to justify their continuance, and yet political pressures keep them going. It is time that thetop management takes a tough stand on such matters. One does not have to call in McKinsey todecide 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 the160,000-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

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decision to increase the retirement age to 60 further delayed the reduction. Subsequently, SAIL hadrequested GOI to bail it out with a one-time assistance of Rs 15 billion and another subsidized loanof 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 whohad put in a minimum service of 20 years or were 50 years in age or above. The scheme providedan 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 658non-executives. Most of those who opted were above 55 years.

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

On June 01, 1999, SAIL launched another VRS for its employees. Employees who had completed aminimum 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 till31st 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 amonthly income as a percentage of their prevailing basic salary and dearness allowance (DA) for theremaining years of their services, till superannuation. Employees above 55 years of age would begiven 105 per cent of the basic pay and dearness allowance (DA) every month. Those employeeswho were between the age of 52 and 55 years would receive 95 per cent of the basic pay and DAwhile those below 52 years would get 85 per cent of the basic pay and DA. The new scheme, likethe old one was a deferred payment scheme, with extra carrots like a 5% increase in monthlybenefits for each of the three age groups.

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

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

On February 08, 2001, SAIL ended its four year recruitment freeze by announcing its plans to fill upmore 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 createddue 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 internal communique, Varta. They were as follows:

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 lowproductivity, have to go first - maybe, with the help of administrative actions.

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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 dischargetheir 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 toeducate the staff on restructuring. The company drafted an internal communication documententitled "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 ofpeople within the company. The 66-member team was constituted in September 1999 and wasstationed in Ranchi to undergo a detailed briefing-cum-training course. A generalized module waspresented to the IRP team during the course, which then summarised the root causes of SAIL'scrisis 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 employeesthat their interests will be protected."

The 66-member IRP team conducted half-day workshops across plants and other units based onthree 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 thefinancial 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. Asenior official at SAIL said: "The idea is that the employees covered in this phase would take thecommunication process forward to their peer group and fellow colleagues."

The staff education exercise was stressed upon, particularly in view of the power plant hive-offfiasco, which could not take off as scheduled due to stiff resistance from central trade unions. Theproblem, at the time, was that the SAIL top brass had failed to convince the employees that jobswould 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 bythe Centre of Indian Trade Unions (CITU) at SAIL's central marketing office said that the McKinseyreport 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 ofscanty communication by the management of SAIL, they have not lost patience in these tryingtimes."

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

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

Though TUs had no objection to voluntary retirements, they were not very happy about thesituation. They were worried that employment opportunities were shrinking in the steel industry andthat 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.

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SAIL'S VOLUNTARY RETIREMENT SCHEME

THE PERSUASION & THE RELATION

SAIL TU leaders were emphatic that the McKinsey recommendations were not the last word onSAIL. They felt that foreign consultancy firms were unable to appreciate the role played bymajor 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 theonslaught of the multinationals, efforts were being made to weaken them, break theminto pieces and eventually privatize them.On February 17, 2000, workers at SSP went on a strike against the government'sdecision 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 thisretrograde decision is not reversed. Demonstrations were held against the government'sdecision in all steel plants and workers of Durgapur would hold a daylong dharna. Steelworkers all over the country, irrespective of affiliations have reacted sharply to thedisastrous and deceptive decision of the government on the so-called restructuring ofSAIL."

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 iscomes out with improved schemes there are still not many takers. What according to you couldbe the reasons?

2. The staff education exercise on VRS at SAIL seems to be more of a reaction to the powerplant hive-off fiasco than a proactive measure. What other steps can SAIL take to educateemployees about VRS? Explain.

3. According to McKinsey proposals, offering VRS to employees was the part of the restructuringplan. 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 fillup more than 250 posts. Do you think this is the right move especially when a VRS is beingoffered to its employees? Explain.

ADDITIONAL READING & REFERENCES:

1. Bhandari Bhupesh, SAIL sill has an appetite for equity, Business World, February 7,

1996.

2. Sarkar Ranju, Has SAIL recast its bottomline?, Business Today, July 22, 1997.

3. Maitra Dilip, Did SAIL smelt its profits in its furnaces?, Business Today, November 7,

1998.4. Sarkar Ranju, Can SAIL rapidly (Re)Steel its future?, Business Today, July 22, 1999.

5. Pannu SPS, Debate on AI contract labour case reopened, The Hindustan Times, August

15, 1999.6. Ghosh Indranil, In choppy waters, Business India, August 9, 1999.

7. Mazumdar Rakhi, The TAO of top, Business Today, September 22, 1999.

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BATA INDIA'S HR PROBLEMS

Case code- HROB001Published-2003

INTRODUCTION

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

By the end of financial year 1999, Bata managed to report rising profits for four consecutive yearsafter incurring its first ever loss of Rs 420 million in 1995. However, by the third quarter endedSeptember 30, 2000, Weston was a worried man. Bata was once again on the downward path. Thecompany's nine months net profits of Rs 105.5 million in 2000 was substantially lower than the Rs209.8 million recorded in 1999. Its staff costs of Rs 1.29 million (23% of net sales) was also higheras compared to Rs 1.18 million incurred in the previous year. In September 2000, Bata was headingtowards a major labour dispute as Bata Mazdoor Union (BMU) had requested West Bengalgovernment 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. Ason February 08, 2001, the company had a market valuation of Rs 3.7 billion. For years, Bata'sreasonably priced, sturdy footwear had made it one of India's best known brands. Bata sold over 60million pairs per annum in India and also exported its products in overseas markets including theUS, the UK, Europe and Middle East countries. The company was an important operation for itsToronto, 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 operationsthroughout India. Headquartered in Calcutta, the company manufactured over 33 million pairs peryear 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 over1,500 retail stores and 27 wholesale depots. It outsourced over 23 million pairs per year fromvarious small-scale manufacturers.

Throughout its history, Bata was plagued by perennial labor problems with frequent strikes andlockouts at its manufacturing facilities. The company incurred huge employee expenses (22% of netsales in 1999). Competitors like Liberty Shoes were far more cost-effective with salaries of its 5,000strong 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 andsent in a team headed by Weston. Soon after he stepped in several changes were made in themanagement. Indians who held key positions in top management, were replaced with expatriate

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Weston taking over as managing director. Mike Middleton was appointed as deputy managingdirector and R. Senonner headed the marketing division. They made several key changes, includinga complete overhaul of the company's operations and key departments. Within two months ofWeston taking over, Bata decided to sell its headquarter building in Calcutta for Rs 195 million, in abid to stem losses. The company shifted wholesale, planning & distribution, and the commercialdepartment 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 250managers and their juniors were asked to quit. Bata decided to stop further recruitment, andallowed only the redundant staff to fill the gaps created by superannuation and retirements. Themanagement 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 statenotorious for its militant trade unions, who derived their strength from the dominant politicalparties, especially the left parties. Notwithstanding the giant conglomerate's grip on the shoemarket in India, Bata's equally large reputation for corruption within, created the perception thatWeston would have a difficult time. When the new management team weeded out irregularities andturned the company around within a couple of years, tackling the politicized trade unions proved tobe the hardest of all tasks.

On July 21, 1998, Weston was severely assaulted by four workers at the company's factory atBatanagar, while he was attending a business meet. The incident occurred after a member ofBMU, Arup Dutta, met Weston to discuss the issue of the suspended employees. Duttareportedly got into a verbal duel with Weston, upon which the other workers began to shoutslogans. 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 firstone being the assault on the chief welfare officer in 1996.Soon after the incident, the management dismissed the three employees who were involvedin 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 atBatanagar 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 threeemployees on grounds of indiscipline. Stoppage of recruitment and continuous farming out ofjobs had been causing widespread resentment among employees for a long time."

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 asignificant investment programme at Batanagar this year which was more than what was investedlast year. However, that will all be postponed."

The incident had opened a can of worms, said the company insiders. The three men who werecharge-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 thepast a good rapport with the senior managers, who were no longer with the organization. Thesemanagers 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 industrialrelations problem, since the workers had had very little to do with it. Seeing the seriousness of theissue and the party's involvement, the union, the state government tried to solve the problem bysetting up a tripartite meeting among company officials, the labor directorate and the unionrepresentatives. The workers feared a closedown as the inquiry proceeded.

INDUSTRIAL RELATIONS

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For Bata, labor had always posed major problems. Strikes seemed to be a perennial problem. Muchbefore the assault case, Bata's chronically restive factory at Batanagar had always plagued by laborstrife. 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 alsohad 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 attending a business meet. The incident occurred after a member ofBMU, Arup Dutta, met Weston to discuss the issue of the suspended employees. Duttareportedly got into a verbal duel with Weston, upon which the other workers began to shoutslogans. 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 firstone being the assault on the chief welfare officer in 1996.In February 1999, a lockout was declared in Bata's Faridabad Unit. Middleton commentedthat the closure of the unit would not have much impact on the company's revenues as it wascatering to lower-end products such as canvas and Hawaii chappals. The lock out lasted foreight months. In October 1999, the unit resumed production when Bata signed a three-yearwage agreement.

On March 8, 2000, a lockout was declared at Bata's Peenya factory in Bangalore, following a strikeby 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 theunion, the management decided to go for a lock out. Bata management was of the view that thoughit would have to bear the cost of maintaining an idle plant (Rs. 3 million), the effect of the closureson sales and production would be minimal as the footwear manufactured in the factory could beshifted to the company's other factories and associate manufacturers. The factory had 300 workerson its rolls and manufactured canvas and PVC footwear.

In July 2000, Bata lifted the lockout at the Peenya factory. However, some of the workers opposedthe company's move to get an undertaking from the factory employees to resume work. Theemployees demanded revocation of suspension against 20 of their fellow employees. They alsodemanded that conditions such as maintaining normal production schedule, conforming to standingorders 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 WestBengal 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 increasedoutsourcing of products and also due to perceived declining importance of the Batanagar unit. Theunion said that Bata has started outsourcing the Power range of fully manufactured shoes fromChina, compared to the earlier outsourcing of only assembly and sewing line job. The company'sproduction of Hawai chappals at the Batanagar unit too had come down by 58% from the weeklycapacity of 0.144 million pairs. These steps had resulted in lower income for the workers forcingthem to approach the government for saving their interests.

CHANGE MANAGEMENT@ICICI

Case Code-HROB008Published-2002

"What role am I supposed to play in this ever-changing entity? Has anyone worked out the basis onwhich 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 thatperformers lead the change process."

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- 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 leadingfinancial services company Industrial Credit and Investment Corporation of India (ICICI).

Immediately after taking charge, Kamath introduced massive changes in the organizationalstructure and the emphasis of the organization changed - from a development bank [1]mode to thatof a market-driven financial conglomerate.

Kamath's moves were prompted by his decision to create new divisions to tap new marketsand to introduce flexibility in the organization to increase its ability to respond to marketchanges. Necessitated because of the organization's new-found aim of becoming a financialpowerhouse, the large-scale changes caused enormous tension within the organization. Thesystems within the company soon were in a state of stress. Employees were finding thechanges unacceptable as learning new skills and adapting to the process orientation wasproving difficult.The changes also brought in a lot of confusion among the employees, with media reportsfrequently carrying quotes from disgruntled ICICI employees. According to analysts, a largesection of employees began feeling alienated.

The discontentment among employees further increased, when Kamath formed specialist groupswithin ICICI like the 'structured projects' and 'infrastructure' group.

Doubts were soon raised regarding whether Kamath had gone 'too fast too soon,' and moreimportantly, whether he would be able to steer the employees and the organization through thechanges he had initiated.

BACKGROUND NOTE

ICICI was established by the Government of India in 1955 as a public limited company to promoteindustrial 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 Agencyfor International Development), Kreditanstalt fur Wiederaufbau (an agency of the Government ofGermany), 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. In1987, 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 promotedIndia's first venture capital company - Technology Development and Information Company of IndiaLimited (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 creditand deferred credit, as well as financing for non-project activities. In 1991, ICICI and the Unit Trustof 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.

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In line with its vision of becoming a universal bank, ICICI restructured its business based on therecommendations of consultants McKinsey & Co in 1998. In the late 1990s, ICICI concentrated onbuilding up its retail business through acquisitions and mergers. It took over ITC Classic, AnagramFinance and merged the Shipping Credit Investment Corporation of India (SCICI) with itself. ICICIalso 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 doingvery well in late 2001, ICICI had major plans of expanding on the anvil. This was expected to bringwith it further challenges as well as potential change management issues. However, the organizationdid not seem to much perturbed by this, considering that it had successfully managed to handle theemployee unrest following Kamath's appointment.

CHANGE CHALLENGES - PART II

ICICI had to face change resistance once again in December 2000, when ICICI Bank was mergedwith Bank of Madura (BoM)[1] . Though ICICI Bank was nearly three times the size of BoM, its staffstrength was only 1,400 as against BoM's 2,500. Half of BoM's personnel were clerks and around350 were subordinate staff.

There were large differences in profiles, grades, designations and salaries of personnel in the twoentities. It was also reported that there was uneasiness among the staff of BoM as they felt thatICICI would push up the productivity per employee, to match the levels of ICICI [2]. BoMemployees feared that their positions would come in for a closer scrutiny. They were not surewhether 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 atICICI and BoM were quite different and the emphasis of the respective management was alsodifferent. While BoM management concentrated on the overall profitability of the Bank, ICICImanagement turned all its departments into individual profit centers and bonus foremployees was given on the performance of individual profit center rather than profits ofwhole 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 uniformcompensation and work culture and to take care of any change management problems.

ICICI conducted an employee behavioral pattern study to assess the various fears andapprehensions 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 resistancewith action rather than words. The 'fear of the unknown' was tackled with adept communication andthe 'fear of inability to function' was addressed by adequate training. The company also formulateda 'HR blue print' to ensure smooth integration of the human resources. (Refer Table II).

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TABLE IIMANAGING HR DURING THE ICICI-BoM MERGER

THE HR BLUEPRINTAREAS OF HR INTEGRATIONFOCUSSED ON

A data base of the entire HR structure Road map of career

Determining the blue print of HR moves

Communication of milestones

IT Integration - People Integration -

Business Integration.

Employee communication

Cultural integration

Organization structuring

Recruitment & Compensation

Performance management

Training

Employee relations

Source:www.sibm.edu

EMPLOYEE DOWNSIZING

Case Code- HROB016Publication 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 causeturmoil and shatter morale inside organizations and they confirm the view that profits always comebefore 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 manycompanies having downsized a considerable part of their employee base and many more revealingplans to do so in the near future. Companies on the Forbes 500 and Forbes International 800 listshad 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 peoplelost their jobs at a very short or no advance notice, and many others lived in a state of

uncertainty regarding their jobs. Companies claimed that worldwide economic slowdownduring the late-1990s had had forced them to downsize, cut costs, optimize resources andsurvive the slump. Though the concept of downsizing had existed for a long time, its use hadincreased only recently, since the late-1990s. (Refer Table I for information on downsizing bymajor companies).

Analysts commented that downsizing did more damage than good to the companies as itresulted in low morale of retained employees, loss of employee loyalty and loss of expertiseas key personnel/experts left to find more secure jobs. Moreover, the uncertain jobenvironment 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

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when it was not required.

However, despite these concerns, the number of companies that chose to downsize their employeebase increased in the early 21st century. Downsizing strategy was adopted by almost all majorindustries such as banking, automobiles, chemical, information technology, fabrics, FMCG, airtransportation and petroleum. In mid-2002, some of the major companies that announceddownsizing 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 INDUSTRYNo. of EmployeesDownsized

1998 Boeing Aerospace 20,000

1998 CitiCorp Banking 7,500

1998 Chase Manhattan Bank Banking 2,250

1998 Kellogs FMCG 1,001998 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 thesituation 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 competitionand 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 theacquisition of Exxon), Deutsche Bank (due to its merger with Bankers Trust) and Hoechst AG (dueto its merger with Rhone-Poulenc SA).

According to analysts, most of these successful companies undertook downsizing as apurposeful and proactive strategy. These companies not only reduced their workforce, theyalso redesigned their organizations and implemented quality improvement programs. Duringthe early and mid-1990s, companies across the world (and especially in the US), beganfocusing on enhancing the value of the organization as a whole. According to Jack Welch, thethen GE CEO, "The ultimate test of leadership is enhancing the long-term value of theorganization. For leaders of a publicly held corporation, this means long-term shareholder

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value." In line with this approach to leadership, GE abandoned policy of lifetime employmentand introduced the concept of contingent employment. Simultaneously, it began offeringemployees the best training and development opportunities to constantly enhance their skillsand 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 thefirm 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 drugcompanies restricted their organizations and cut down their employee base to reduce costs andoptimize resources.

As the perceived value of the downsized company was more than its actual value, managersadopted downsizing even though it was not warranted by the situation. A few analysts blamed thechanges in the compensation system for executive management for the increase in the number ofcompanies downsizing their workforce in 1990s. In the new compensation system, managers werecompensated 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 economicgrowth 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 negativeeffects 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 thatperiod. The survey also revealed that a majority of these companies failed to report anyimprovements in productivity.

One company that suffered greatly was Delta Airlines, which had laid off over 18,000 employeesduring the early 1990s. Delta Airlines realized in a very short time that it was running short ofpeople for its baggage handling, maintenance and customer service departments. Though Deltasucceeded in making some money in the short run, it ended up losing experienced and skilledworkers, 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 atool for increasing their share value. The above, coupled with the fact that senior executive salarieshad increased by over 1000% between 1980 and 1995, even as the layoff percentage reached itsmaximum during the same period, led to criticism of downsizing.

In light of the negative influence that downsizing was having on both the downsized and thesurviving employees, some economists advocated the imposition of a downsizing tax (on downsizingorganizations) by the government to discourage companies from downsizing. This type of taxalready existed in France, where companies downsizing more than 40 workers had to report thesame in writing to the labor department. Also, such companies had liable to pay high severancefees, contribute to an unemployment fund, and submit a plan to the government regarding theretraining program of its displaced employees (for their future employment). The tax burden of suchcompanies 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 acompany 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 inmany European countries, including France.

THE SECOND PHASE

By the mid-1990s, factors such as increased investor awareness, stronger economies, fall ininflation, increasing national incomes, decrease in level of unemployment, and high profits, reducedthe need for downsizing across the globe. However, just as the downsizing trend seemed to be on adecline, it picked up momentum again in the late-1990s, this time spreading to developing countriesas well.

This change was attributed to factors such as worldwide economic recession, increase inglobal competition, the slump in the IT industry, dynamic changes in technologies, and

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increase in the availability of a temporary employee base. Rationalization of the labor forceand wage reduction took place at an alarming rate during the late 1990s and early 21stcentury, with increased strategic alliances and growing popularity of concepts such as leanmanufacturing and outsourcing .

Criticism of downsizing and its ill-effects soon began resurfacing. Many companies sufferedfrom 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 andinadequate employees in another), excess workload on the survivors, resistance to changefrom the survivors, reduced productivity and fall in quality levels also cropped up. As in theearly 1990s, many organizations downsized even though it was not necessary, because itappeared to be the popular thing to do.

Due to the loss of experienced workers, companies incurred expenditure on overtime pay andemployment of temporary and contract workers. It was reported that about half of the companiesthat downsized their workforce ended up recruiting new or former staff within a few years afterdownsizing because of insufficient workers or lack of experienced people. The US-based globaltelecom giant AT&T was one such company, which earned the dubious reputation of frequentlyrehiring 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 workersto bring them back to AT&T. A former AT&T manager commented, "It seemed like they would firesomeone 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 whobetter 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 beganto 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 increasinglyfat pay-checks of their senior executives increased. AT&T was again in the news in this regard. In1996, the company doubled the remuneration of its Chairman, even as over 40,000 employees weredownsized. Leading Internet start-up AOL was also criticized for the same reasons. The increase insalary and bonuses of AOL's six highest paid executive officers was between 8.9% to 25.2% during2000. 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, AOLdownsized 2,400 employees in January 2001.

Following the demand that the executive officers should also share in the 'sacrifice' associated withdownsizing, some companies voluntarily announced that they would cut down on the remunerationand bonuses of their top executives in case of massive layoffs. Ford was one of the first companiesto 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 executiveswould 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 manystrategies 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 theiremployees in an attempt to avoid the negative impact of downsizing. Such an arrangement wasreported to be beneficial for both employees as well as the organization. A flexible workingarrangement resulted in increased morale and productivity; decreased absenteeism and employeeturnover, reduced stress on employees; increased ability to recruit and retain superior qualityemployees improved service to clients in various time zones; and better use of office equipment and

15



space. This type of arrangement also gave more time to pursue their education, hobbies, andprofessional development, and handle personal responsibilities.

The concept of contingent employment also became highly popular and the number oforganizations adopting this concept increased substantially during the early 21st century.According to the Bureau of Labor Statistics (BLS), US, contingent employees were those whohad 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 basisfor a specific work for a limited period of time.

Companies did not have to pay unemployment taxes, retirement or health benefits forcontingent employees. Though these employees appeared on the payroll, they were notcovered by the employee handbook (which includes the rights and duties of employers andemployees and employment rules and regulations). In many cases, the salaries paid to themwere less than these given to regular employees performing similar jobs. Thus, theseemployees offered flexibility without long-term commitments and enabled organizations todownsize them, when not required, without much difficulty or guilt. Analysts commented thatin many cases HR managers opted for contingent employees as they offered the leastresistance 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'score business. But during the early 2000s, contingent employees were employed in core areas oforganizations. This resulted in increased costs as they had to be framed for the job. Not only wastraining time consuming, its costs were recurring in nature as contingent employees stayed only fortheir 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 andwere not even lured by the carrot (carrot and stick theory of motivation) of permanent employmentoffered for outstanding performance. In the words of Paul Cash, Senior Vice President, TeamAmerica (a leasing company), "It used to be that you worked as a temp to position yourself for afull-time job. That carrot is not there any more for substantial numbers of temps who prefer theirtemporary 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 ofcompany rules and regulations, contingent employees reportedly failed to develop a sense of loyaltytoward the organization. Consequently, they failed to completely commit themselves to the goals ofthe organization.

According to some analysts, the contingent employment arrangement was not beneficial tocontingent employees. Under the terms of the contract, they were not eligible for health,retirement, or overtime benefits. Discrimination against contingent employees at the workplace wasreported in many organizations. The increasing number of contingent employees in an organizationwas found to have a negative effect on the morale of regular employees. Their presence made thecompany's regular employees apprehensive about their job security. In many cases regularemployees 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 ofdownsizing, 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 andinsecurity regarding their future, remained unaddressed. Given these circumstances, the best optionfor companies seemed to be to learn from those organizations that had been comparativelysuccessful 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 thepractice and the associated problems. It was found that the formulation and communication of a

16



proper planning and downsizing strategy, the support of senior leaders, incentive and compensationplanning and effective monitoring systems were the key factors for successful downsizing.

In many organizations where downsizing was successfully implemented and yielded positiveresults, it was found that senior leaders had been actively involved in the downsizing process.Though the downsizing methods used varied from organization to organization, the activeinvolvement 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 apositive impact on employees - those who were downsized as well as the survivors. Accordingto 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 themanagers' behavior that will have the most impact." In many companies, consistent andcommitted leadership helped employees overcome organizational change caused bydownsizing.

HR managers in these companies participated actively in the overall downsizing exercise. Theydeveloped a employee plan for downsizing, which covered issues such as attrition management andworkforce distribution in the organization. The plan also included the identification of skills neededby employees to take new responsibilities and the development of training and reskilling programsfor 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 thatthey mostly used letters and memorandums from senior managers to communicate informationregarding restructuring or downsizing to employees. However, only 29% of the respondents agreedthat this type of communication was effective.

The survey report suggested that face-to-face communication (such as briefings by managers andsmall group meetings) was a more appropriate technique for dealing with a subject as traumatic (toemployees) as downsizing. According to best practice companies, employees expected seniorleaders 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 includedsmall meetings, face to face interaction, one-on-one discussion, breakfast gatherings, all staffmeetings, video conferencing and informal employee dialogue sessions, use of newsletters, videos,telephone hotlines, fax, memoranda, e-mail and bulletin boards; and brochures and guides toeducate employees about the downsizing process, employee rights and tips for surviving thesituation.

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

Advance planning for downsizing also contributed to the success of a downsizing exercise. Manysuccessful organizations planned in advance for the downsizing exercise, clearly defining every

aspect of the process. Best practice companies involved employee union representatives inplanning. These companies felt it was necessary to involve labor representatives in the planningprocess 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 frominternal as well as external sources (the HR department was responsible for providing it). Fromexternal sources, downsizing companies needed to gather information regarding successfuldownsizing processes of other organizations and various opportunities available for employeesoutside the organization. And from internal sources, such companies need to gather demographic

17



data (such as rank, pay grade, years of service, age, gender and retirement eligibility) on the entireworkforce. In addition, they required information regarding number of employees that werenormally expected to resign or be terminated, the number of employees eligible for earlyretirement, and the impact of downsizing on women, minorities, disabled employees and oldemployees.

The best practice organizations gathered information useful for effective downsizing from all

possible sources. Some organizations developed an inventory of employee skills to helpmanagement take informed decisions during downsizing, restructuring or staffing. Many bestpractice organizations developed HR information systems that saved management's time duringdownsizing 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 downsizedemployees, and providing support to survivors. The various techniques of downsizing adopted byorganizations included attrition, voluntary retirement, leave without pay or involuntary separation(layoffs). According to many organizations, a successful downsizing process required thesimultaneous use of different downsizing techniques. Many companies offered assistance todownsized 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 painof their co-workers rather than see them be laid-off. Training provided to managers to help themplay their role effectively in the downsizing process mainly included formal classroom training andwritten guidance (on issues that managers were expected to deal with, when downsizing). Theprimary focus of these training sessions was on dealing with violence in the workplace duringdownsizing.

According to best practice companies, periodic review of the implementation process and immediateidentification and rectification of any deviations from the plan minimized the adverse effects of thedownsizing process. In some organizations, the progress was reviewed quarterly and was publishedin order to help every manager monitor reductions by different categories. These categories couldbe 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 ofdownsizing on the organizational culture) for their respective divisions. Some organizations tracked

the progress and achievement of every division separately and emphasized the application of adifferent strategy for every department as reaction of employees to downsizing varied considerablyfrom department to department.

Though the above measures helped minimize the negative effects of downsizing, industry observersacknowledged the fact that the emotional trauma of the concerned people could never beeliminated. The least the companies could do was to downsize in a manner that did not injure thedignity 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. Criticallyevaluate the reasons for the increasing use of downsizing during the late 20th century and the early21st century. Also discuss the positive and negative effects of downsizing on organizations as wellas employees (downsized and remaining).

2. Why did contingent employment and flexible work arrangements become very popular during theearly 2000s? Discuss. Evaluate these concepts as alternatives to downsizing in the context oforganizational 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 inthe job market, what do you think employees should do to survive the trauma caused by downsizingand prepare themselves for it?

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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, February1997.9. 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, January1999.15. 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.com33. http://govinfo.library.unt.edu34. www.greylockassociates.com35. www.whatis.com36. www.shrm.org37. www.cio.com38. www.shrm.org39. www.forbes.com40. www.orst.edu41. www.humanresources.about.com42. www.business2.com43. www.businessweek.com44. www.business-minds.com45. www.themanagementor.com46. www.bpcinc.com47. http://members.aol.com48. www.doleta.gov49. www.msnbc.com

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The Indian Call Center Journey

The call center business appears to be going the dot-com way with a lot of big names pumping indough. 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 Indiancorporates in the new millennium. In late 2000, a NASSCOM[1] study forecast that by 2008, theIndian IT enabled services business[2] was set to reach great heights.

Noted Massachusetts Institute of Technology (MIT) scholar, Michael Dertouzosremarked that India could 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 rangingfrom 5000 sq. ft. to 100,000 sq. ft. in area involving investments of over Rs 12bn. 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 devoidof personnel in the call centers. There just was no business coming in. In centers which did retainthe 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 surprisingthat call centers were having problems in recruiting suitable entry-level agents even with attractivesalaries being offered.

The human resource exodus added to the industrys misery. Given the large number of unemployedyoung 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 literallydown in the dumps - much to the chagrin of industry experts, the Government, the media andabove all, the players involved. The future prospects of the call center business seemed to be ratherbleak indeed.

CALL CENTER BASICS

In 2001, the global call center industry was worth $ 800 mn spread across around 100,000 units. Itwas 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 inboundand outbound telephone calls, manned by agents, (the people working at thecenter). In certain setups, the caller and the call center shared costs, while incertain other cases, the clients bore the calls cost.

The call center could be situated anywhere in the world, irrespective of the clientcompanys customer base. Call centers date back to the 1970s, when thetravel/hospitality industry in the US began to centralize their reservation centers.

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http://www.icmrindia.org/free%20resources/casestudies/Indian%20Call%20Center%20Journey1.htm#_ftn1#_ftn1http://www.icmrindia.org/free%20resources/casestudies/Indian%20Call%20Center%20Journey1.htm#_ftn2#_ftn2http://www.icmrindia.org/free%20resources/casestudies/Indian%20Call%20Center%20Journey1.htm#_ftn1#_ftn1http://www.icmrindia.org/free%20resources/casestudies/Indian%20Call%20Center%20Journey1.htm#_ftn2#_ftn2



With the rise of catalog shopping and outbound telemarketing, call centers became necessary formany industries. Each industry had its own way of operating these centers, with its own standardsfor 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 asseats. 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 asairline/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, fora 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 responsesystems, an EPABX[3], headsets hooked into a large telecom switch and one or more supervisorstations. (Refer Table II). The center was either an independent entity, or was linked with othercenters or to a corporate data network, including mainframes, microcomputers and LANs[4].

The Indian Call Center Journey



companies at various stages viz. setting up of the center, internal infrastructure revamps, excesstraffic situations etc.

INDIAN CALL CENTERS MYTHS AND REALITIES

There were many reasons why India was considered an attractive destination to set up call centers.The boom in the Indian information technology sector in the mid 1990s led to the countrys ITstrengths being recognized all over the world.

Moreover, India had the largest English-speaking population after the US and hada vast workforce of educated, reasonably tech-savvy personnel. In a call center,manpower typically accounted for 55-60% of the total costs in the US andEuropean markets - in India, the manpower cost was approximately one-tenth ofthis.

While per agent cost in US worked out to approximately $ 40,000, in India it wasonly $ 5,000. This was cited to be the biggest advantage India could offer to theMNCs. Apart from these, the Governments pro call center industry approach anda virtual 12-hour time zone difference with the US added to Indias advantages.

There were a host of players in the Indian call center industry. Apart from the pioneers BritishAirways, GE and Swiss Air, HLL, BPL, Godrej Soaps, Global Tele-Systems, Wipro, ICICI BankingCorporation, American Express, Bank of America, Citibank, ABN AMRO, Global Trust, Deutsche Bank,Airtel, and Bharati BT were the other major players in the call-center business.

After the projections of the NASSCOM-McKinsey report were made public, many people beganthinking of entering the call center business. (Refer Table III). During this rush to make money fromthe call center wave, NASSCOM received queries from many people with spare cash and space,including lorry-fleet operators, garment exporters, leather merchants, tyre distributors andplantation owners among others.

TABLE IIITHE INDIAN CALL-CENTER MILESTONES

Mid

1990s

GE, Swiss Air, British Airways set up captive call center units

for their global needs.

May-99

Following increasing interest in the IT-enabled servicessector, NASSCOM held the first IT-enabled services meet.Over 600 participant firms plan to set up medicaltranscription outfits and call centers.

Dec-99A NASSCOM-McKinsey report says that remote servicescould generate $ 18 billion of annual revenues by 2008.

May-00Venture Capitalists rush in. Make huge investments in callcenters.

Sep-00

More than 1,000 participants flock to the NASSCOM meet tohear about new opportunities in remote services. Though themedical transcription business is not flourishing, call centersseen as a big opportunity.

Quarter4 2000

NASSCOM report, indicates that a center could be set upwith $ 1 million. Gold rush begins. Everyone, from plantationowners to lorry-fleet operators, wanted to set up centers.

Quarter1, 2001

Most of the call centers are waiting for customers. Newventures still coming up: capacity of between 25 seats and10,000 seats per company. Small operators discover that thebusiness is a black hole where investments just disappear.They look for buyers, strategic partnerships and jointventures. Brokers and middlemen make an entry to fix suchdeals.

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INDIAN CALL CENTERS MYTHS AND REALITIES contd...

However, most of these people entered the field, without having any idea as to what the businesswas all about. Their knowledge regarding the technology involved, the marketing aspects, clientservicing issues etc was very poor.

They assumed that by offering cheaper rates, they would be able to attract clientseasily. They did not realize that more than easy access to capital and real estate,the field required experience and a sound business background. Once theydecided to enter the field, they found that most of the capital expenditure (inform of building up the infrastructure[5]) occurred even before the first client wasbagged.

These players seemed to have neglected the fact that most successful call centerswere quite large and had either some experience in the form of promoters havingworked abroad in similar ventures or previous experience with such ventures orwere subsidiaries of foreign companies. The real trouble started when thesecompanies began soliciting clients.

As call centers were a new line of business in India, the lack of track record forced the clients to gofor much detailed and prolonged studies of the Indian partners. Many US clients insisted on a strict

inspection of the facilities offered, such as work-areas, cafeterias and even the restrooms. Theclients expected to be shown detailed Service Level Agreements (SLAs)[6], which a majority of theIndian firms could not manage.

Under these circumstances, no US company was willing to risk giving business to amateurs at thecost of losing their customers. Because of the inadequate investments in technology, lack ofprocesses to scale the business[7]and the lack of management capabilities, most of the Indianplayers were unable to get international customers.

Even for those who did manage to rope in some clients, the business was limited. As if theseproblems were not enough, the players hit another roadblock - this time in form of the high laborturnover problem. Agent performance was the deciding factor in the success of any call center.Companies had recognized agents as one of the most important and influential points of contactbetween the business and the customer.

However, it was this very set of people whom the Indian call centers were finding extremely difficultto recruit and more importantly, retain. In 2000, the average attrition rate in the industry was 40-45%, with about 10-15% of the staff quitting within the first two months itself.

Even though attrition rates were very high in this industry worldwide, the same trend was notexpected to emerge in India, as the unemployment levels were much higher. The reasons were notvery hard to understand. In a eight-and-a-half hour shift, the agents had to attend calls for seven-and-a-half hours.

INDIAN CALL CENTERS MYTHS AND REALITIES contd...

The work was highly stressful and monotonous with frequent night shifts. A typical call center agentcould be described as being overworked, underpaid, stressed-out and thoroughly bored. Theagents were frequently reported to develop an identity crisis because of the dual personality they

had to adopt.

They had to take on European/US names or abbreviate their own names andacquire foreign accents in order to pose as locals. The odd timings took a toll ontheir health with many agents complaining of their biological clocks beingdisturbed. (Especially the ones in night shifts).

Job security was another major problem, with agents being fired frequently fornot being able to adhere to the strict accuracy standards. (Not more than onemistake per 100 computer lines.) The industry did not offer any creative work or

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growth opportunities to keep the workers motivated.

The scope for growth was very limited. For instance, in a 426-seat center, there were 400 agents,20 team leaders, four service delivery leaders, one head of department and one head of business.Thus, going up the hierarchy was almost impossible for the agents.

Analysts remarked that the fault was mainly in the recruitment, training, and career progression

policies of the call centers. Organizations that first set up call centers in India were able to pick andchoose the best talent available.

The entry norms established at this point were - a maximum age limit of 25 years, a minimumqualification of a university degree, English medium school basic education and a preference tocandidates belonging to westernized and well-off upper middle class families. The companies hencedid not have to spend too much time and effort in training the new recruits on the two importantaspects of a good level of spoken and written English and a good exposure to western culture andtraditions.

However, companies soon realized that people with such backgrounds generally had much higheraspirations in life. While they were initially excited to work in the excellent working environment of amultinational company for a few months, they were not willing to make a career in the call centerindustry. They generally got fed up and left within a few months when the excitement waned.

A consistently high attrition rate affected not only a centers profits but also customer service andsatisfaction. This was because a new agent normally took a few months before becoming asproficient as an experienced one. This meant that opportunities for providing higher levels ofcustomer service were lost on account of high staff turnover

FUTURE PROSPECTS

The Indian call center majors were trying to handle the labor exodus through various measures.Foremost amongst these was the move to employ people from social and academic backgroundsdifferent from the norms set earlier.

Young people passing out of English medium high schools and universities andhousewives and back-to-work mothers looking for suitable opportunities were

identified as two of the biggest possible recruitment pools for the industry.

Such students with a good basic level of English could be trained easily to improvetheir accents, pronunciation, grammar, spelling and diction. They could be trainedto become familiar with western culture and traditions. The housewives and back-to-work mothers pool could also be developed into excellent resources.

This had been successfully tried out in the US and European markets, where call centers employed alarge number of housewives and back-to-work mothers. Another solution being thought about wasto recruit people from non-metros, as people from these places were deemed to be more likely tostay with the organization, though being more difficult to recruit and expensive to train. Even as thepeople and infrastructure problems were being tackled, a host of other issues had cropped up,posing threats for the Indian call centers.

The promise of cheap, English speaking and technically aware labor from India was suddenly not as

lucrative in the international markets. A survey of Fortune 1,000 companies on their outsourcingconcerns showed that cost-reduction was not the most important criterion for selecting anoutsourcing partner. This did not augur well for a country banking on its cost competitiveness. Also,China was fast emerging as a major t

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