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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 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 the financial year 1999-2000, the company generated revenues of Rs. 162.5 billion and incurred a net loss of Rs 17.2 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:

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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 novels, knitting and so on. Thousands of them just do not have any work. This area has not even been considered as a 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 nonplant 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

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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:

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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 internal communique, Varta. They were as follows:

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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.

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• • •
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

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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

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."

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:

1. 2.

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.

23. 19. Srinivas Alam. www. Sweet D. 9. Bata India Limited (Bata) always made the headlines in the financial dailies and business magazines during the late 1990s. The case of the voluntary VRS. Ready. Business Today. 1999. 4. However. The company's nine months net profits of Rs 105. 1999.. BATA INDIA'S HR PROBLEMS Case code. In September 2000. Ghosh Indranil. Derecruitment & Outplacement.in.29 million (23% of net sales) was also higher as compared to Rs 1. Ghosh Indranil. In choppy waters. February 9. Chandrashekhar R. 15. Can SAIL rapidly (Re)Steel its future?. 14. 2000. Bata was heading . Business Today. July 22.. 20. Chandrashekhar R.epw. Weston was a worried man. June 12. Sarkar Ranju.5 million in 2000 was substantially lower than the Rs 209. Did SAIL smelt its profits in its furnaces?.com.HROB001 Published-2003 INTRODUCTION For right or wrong reasons. SAIL ends 4-year recruitment freeze. August 9.18 million incurred in the previous year. 1999. September 05. June 22. Maitra Dilip. 2000. By the end of financial year 1999. 5. Business Today.indiainfoline. SAIL restructuring: the other guy blinked. 11. Kaye B. SAIL to kick off retirement scheme next month. November 22. 2000. Business Today. Voluntary retirement and workers' welfare. Srinivasan MV.H. 10. by the third quarter ended September 30. A Manager's Guide To Termination. 2001. April 22. L. 12. The company was headed by the 60 year old managing director William Keith Weston (Weston). September 22. Mazumdar Rakhi. He was popularly known as a 'turnaround specialist' and had successfully turned around many sick companies within the Bata Shoe Organization (BSO) group. The TAO of top. 22. Dipboye. & Howbert P. Spurgeon H.. 17. The Economic Times. The Hindustan Times. Sweet D. www.org. 21. The case of effective downsizing. Business Today. The Older Workforce. Business India. Pannu SPS. Business Today. 16. Debate on AI contract labour case reopened. 2000.. September 22. 2000.W. 1999. What Colour Is Your Parachute? R. The End Of Mandatory Retirement. 1999. 6. 7. 18. Business Today..8 million recorded in 1999. Fire! Walker J.A.L. Its staff costs of Rs 1. Bata was once again on the downward path. SAIL: The new CEO centre. Up Is Not The Only Way. November 7. H. 13. & Lazar H. On the road to recovery. August 15. 1998. 1999. India Today Online. Business India. Bata managed to report rising profits for four consecutive years after incurring its first ever loss of Rs 420 million in 1995.. 8. Boller R.6 3.

000 strong workforce comprising just 5% of its turnover. BACKGROUND NOTE With net revenues of Rs 7. but honor is difficult to regain. in a bid to stem losses. Soon after he stepped in several changes were made in the management. The company shifted wholesale." The management team implemented a massive revamping exercise in which more than 250 managers and their juniors were asked to quit.6 million for the financial year ending December 31. Bata was plagued by perennial labor problems with frequent strikes and lockouts at its manufacturing facilities. 2001. president. Bata sold over 60 million pairs per annum in India and also exported its products in overseas markets including the US. Senonner headed the marketing division. despite opposition from the trade unions. the company had a market valuation of Rs 3. The management offered its staff an employment policy that was linked to sales-growth performance. Indians who held key positions in top management. 1999. The company provided employment to over 15. especially the left parties. and the commercial department to Batanagar. Competitors like Liberty Shoes were far more cost-effective with salaries of its 5. the BSO group run by Thomas Bata. Bata's reasonably priced. planning & distribution. As on February 08. Patna (Bihar) and Hosur (Tamil Nadu). a state notorious for its militant trade unions. the company manufactured over 33 million pairs per year in its five plants located in Batanagar (West Bengal). The company had a distribution network of over 1. BSO restructured the entire board and sent in a team headed by Weston. Throughout its history. saying: "Profits may return. When the new management team weeded out irregularities and turned the company around within a couple of years. including a complete overhaul of the company's operations and key departments. and allowed only the redundant staff to fill the gaps created by superannuation and retirements. The company was an important operation for its Toronto. coordination committee. Canada based parent. Europe and Middle East countries. Bangalore (Karnataka). Bata decided to sell its headquarter building in Calcutta for Rs 195 million.500 retail stores and 27 wholesale depots. It outsourced over 23 million pairs per year from various small-scale manufacturers. Headquartered in Calcutta. They made several key changes.7 billion. who derived their strength from the dominant political parties.27 billion and net profit of Rs 304.000 people in its manufacturing and sales operations throughout India. Bata decided to stop further recruitment. Notwithstanding the giant conglomerate's grip on the shoe market in India. which owned 51% equity stake. Robin Majumdar. sturdy footwear had made it one of India's best known brands.7 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. created the perception that Weston would have a difficult time. When the company was in the red in 1995 for the first time. For years. Bata's equally large reputation for corruption within. Within two months of Weston taking over. criticized the move. Bata Trade Union. Bata was India's largest manufacturer and marketer of footwear products. The company incurred huge employee expenses (22% of net sales in 1999). . were replaced with expatriate Weston taking over as managing director. the UK. Faridabad (Haryana). ASSAULT CASE More than half of Bata's production came from the Batanagar factory in West Bengal. tackling the politicized trade unions proved to be the hardest of all tasks. Mike Middleton was appointed as deputy managing director and R.

MJZ Mowla. On July 21. Bata entered into a 3year bipartite agreement with the workers. said[1]: "We had chalked out a significant investment programme at Batanagar this year which was more than what was invested last year. The incident occurred after a member of BMU. Commenting on the strike. BSO decided to reconsider its investment plans at Batanagar. Soon after the incident. the first one being the assault on the chief welfare officer in 1996. the effect of the closures on sales and production would be minimal as the footwear manufactured in the factory could be . These managers had reportedly farmed out a large chunk of the contract operations to this trio. This was the second attack on an officer after Weston took charge of the company. which was to expire in August 2001. 2000. Bata's chronically restive factory at Batanagar had always plagued by labor strife. the union. the management decided to go for a lock out. The workers feared a closedown as the inquiry proceeded. Arup Dutta. However. 3 million). The new leadership of the union had refused to abide by the wage agreement. Seeing the seriousness of the issue and the party's involvement. In 1992.8 On July 21. the unit resumed production when Bata signed a three-year wage agreement. The trio it was alleged." The incident had opened a can of worms. Stoppage of recruitment and continuous farming out of jobs had been causing widespread resentment among employees for a long time. Weston was severely assaulted by four workers at the company's factory at Batanagar. while he was attending a business meet. The employees involved accepted their dismissal letters but subsequently provoked other workers to go in for a strike to protest the management's move. Much before the assault case. 1998. 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. 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 incident occurred after a member of BMU. upon which the other workers began to shout slogans. Company insiders said the recent violence was more a political issue rather than an industrial relations problem. In 1995. since the workers had had very little to do with it. upon which the other workers began to shout slogans. had in the past a good rapport with the senior managers. 1998. Arup Dutta. were members of the 41-member committee of BMU. Workers at Batanagar went on a strike for two days following the incident. that will all be postponed. the state government tried to solve the problem by setting up a tripartite meeting among company officials. Following the failure of its negotiations with the union. following a strike by its employee union. which also had the West Bengal government as a signatory. the first one being the assault on the chief welfare officer in 1996. which had strong political connections with the ruling Communist Party of India (Marxist). said the company insiders. while he was attending a business meet. labor had always posed major problems.000 strong BMU. The three men who were charge-sheeted. who were no longer with the organization. When Weston tried to leave the room the workers turned violent and assaulted him. Bata management was of the view that though it would have to bear the cost of maintaining an idle plant (Rs. Dutta reportedly got into a verbal duel with Weston." Following the incident. the factory was closed for four and a half months. the management dismissed the three employees who were involved in the violence. Senior vicepresident and member of the executive committee. In February 1999. the labor directorate and the union representatives. Dutta reportedly got into a verbal duel with Weston. INDUSTRIAL RELATIONS For Bata. The lock out lasted for eight months. Weston was severely assaulted by four workers at the company's factory at Batanagar. Majumdar said: "The issue of Bata was much wider than that of the dismissal of three employees on grounds of indiscipline. met Weston to discuss the issue of the suspended employees. a lockout was declared in Bata's Faridabad Unit. In October 1999. met Weston to discuss the issue of the suspended employees. Strikes seemed to be a perennial problem. represented by the then 10. On March 8. a lockout was declared at Bata's Peenya factory in Bangalore.

with media reports frequently carrying quotes from disgruntled ICICI employees. 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. The employees demanded revocation of suspension against 20 of their fellow employees. The union said that Bata has started outsourcing the Power range of fully manufactured shoes from China. Immediately after taking charge. In September 2000. compared to the earlier outsourcing of only assembly and sewing line job. That is the only way to ensure that performers lead the change process. The changes also brought in a lot of confusion among the employees. K. a large section of employees began feeling alienated. V. Bata lifted the lockout at the Peenya factory. in 1998. In July 2000. THE CHANGE LEADER In May 1996. the large-scale changes caused enormous tension within the organization. According to analysts. some of the workers opposed the company's move to get an undertaking from the factory employees to resume work. 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. However.from a development bank [1]mode to that of a market-driven financial conglomerate. These steps had resulted in lower income for the workers forcing them to approach the government for saving their interests. .144 million pairs.V. Employees were finding the changes unacceptable as learning new skills and adapting to the process orientation was proving difficult.K. Kamath introduced massive changes in the organizational structure and the emphasis of the organization changed . They also demanded that conditions such as maintaining normal production schedule. Kamath. The factory had 300 workers on its rolls and manufactured canvas and PVC footwear. in 1998. The company's production of Hawai chappals at the Batanagar unit too had come down by 58% from the weekly capacity of 0. CEO of India's leading financial services company Industrial Credit and Investment Corporation of India (ICICI). ICICI. Necessitated because of the organization's new-found aim of becoming a financial powerhouse. The systems within the company soon were in a state of stress. MD & CEO." . conforming to standing orders and the settlement in force should not be insisted upon. Kamath's moves were prompted by his decision to create new divisions to tap new markets and to introduce flexibility in the organization to increase its ability to respond to market changes. 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. "We do put people under stress by raising the bar constantly.9 shifted to the company's other factories and associate manufacturers. Kamath (Kamath) replaced Narayan Vaghul (Vaghul).

The major institutional shareholders were the Unit Trust of India (UTI). and expand the investment markets. ICICI was reported to be one of the few Indian companies known for its quick responsiveness to the changing circumstances. However.' and more importantly. Anagram Finance and merged the Shipping Credit Investment Corporation of India (SCICI) with itself.400 as against BoM's 2. its staff strength was only 1. Kreditanstalt fur Wiederaufbau (an agency of the Government of Germany).10 The discontentment among employees further increased. the Development Loan Fund (now merged with the Agency for International Development). BACKGROUND NOTE ICICI was established by the Government of India in 1955 as a public limited company to promote industrial development in India. the World Bank. The basic objectives of the ICICI were to • • • • assist in creation. It took over ITC Classic. In line with its vision of becoming a universal bank. considering that it had successfully managed to handle the employee unrest following Kamath's appointment. ICICI diversified rapidly into areas like merchant banking and retailing. CHANGE CHALLENGES . ICICI co-promoted India's first credit rating agency. Though ICICI Bank was nearly three times the size of BoM. the UK government and the Industrial Development Bank of India (IDBI). ICICI restructured its business based on the recommendations of consultants McKinsey & Co in 1998. In 1988. Doubts were soon raised regarding whether Kamath had gone 'too fast too soon. to rate debt obligations of Indian companies. ICICI and the Unit Trust of India set up India's first screen-based securities market. The equity of the corporation was supplemented by borrowings from the Government of India. the organization did not seem to much perturbed by this. ICICI Securities Limited. ICICI concentrated on building up its retail business through acquisitions and mergers. ICICI had major plans of expanding on the anvil. ICICI also entered the insurance business with Prudential plc of UK. In the late 1990s. This was expected to bring with it further challenges as well as potential change management issues.Technology Development and Information Company of India Limited (TDICI) . While its development bank counterpart IDBI was reportedly not doing very well in late 2001. whether he would be able to steer the employees and the organization through the changes he had initiated.500. ICICI diversified into different forms of asset financing such as leasing. In the 1990s. when ICICI Bank was merged with Bank of Madura (BoM)[1] . as well as financing for non-project activities. when Kamath formed specialist groups within ICICI like the 'structured projects' and 'infrastructure' group. . Credit Rating and Information Services of India Limited (CRISIL). Half of BoM's personnel were clerks and around 350 were subordinate staff. expansion and modernization of enterprises encourage and promote the participation of private capital. In 1987. ICICI promoted India's first venture capital company . both internal and external take up the ownership of industrial investment. the Life Insurance Corporation of India (LIC) and the General Insurance Corporation of India (GIC) and its subsidiaries. the over-the-counter Exchange of India (OCTEI). asset credit and deferred credit. In 1991.to provide venture capital for indigenous technology-oriented ventures. In 1992 ICICI tied up with J P Morgan of the US to form an investment banking company. Since the mid 1980s.PART II ICICI had to face change resistance once again in December 2000.

significant improvement Relief. TABLE II MANAGING HR DURING THE ICICI-BoM MERGER AREAS OF HR INTEGRATION FOCUSSED ON EMPLOYEE BEHAVIOR Denial. business development activities THE HR BLUEPRINT • • • • • A data base of the entire HR structure Road map of career Determining the blue print of HR moves Communication of milestones IT Integration .sibm. BoM employees feared that their positions would come in for a closer scrutiny. no improvement Sadness.11 There were large differences in profiles. slight improvement Acceptance.edu Based on the above findings. designations and salaries of personnel in the two entities. grades. to match the levels of ICICI [2]. ICICI conducted an employee behavioral pattern study to assess the various fears and apprehensions that employees typically went through during a merger. They were not sure whether the rural branches would continue or not as ICICI's business was largely urban-oriented. liking. but also paid special attention to facilitate a smooth cultural integration.People Integration Business 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. The 'fear of the unknown' was tackled with adept communication and the 'fear of inability to function' was addressed by adequate training. enjoyment. 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. (Refer Table I). 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. fear. • • • • • • • Employee communication Cultural integration Organization structuring Recruitment & Compensation Performance management Training Employee relations Source:www.sibm. While BoM management concentrated on the overall profitability of the Bank. ICICI not only put in place a host of measures to technologically upgrade the BoM branches to ICICI's standards. TABLE I 'POST-MERGER' EMPLOYEE BEHAVIORAL PATTERN PERIOD Day 1 After a month After a Year After 2 Years Source:www. (Refer Table II). The company also formulated a 'HR blue print' to ensure smooth integration of the human resources. The apprehensions of the BoM employees seemed to be justified as the working culture at ICICI and BoM were quite different and the emphasis of the respective management was also different.edu EMPLOYEE DOWNSIZING . ICICI established systems to take care of the employee resistance with action rather than words.

information technology.HROB016 Publication Date -2002 "Next to the death of a relative or friend. a Boeing spokesman. Boeing (US). since the late-1990s. some of the major companies that announced downsizing plans involving a large number of employees included Jaguar (UK). of Employees Downsized 20. Downsizing strategy was adopted by almost all major industries such as banking.00 1. Indonesia. TABLE I DOWNSIZING BY MAJOR COMPANIES (1998-2001) YEAR 1998 1998 1998 1998 1998 1998 COMPANY Boeing CitiCorp Chase Manhattan Bank Kellogs BF Goodrich Deere & Company INDUSTRY Aerospace Banking Banking FMCG Tyres Farm Equipment No. its use had increased only recently. Though the concept of downsizing had existed for a long time. Lucent Technologies (US). Analysts also felt that most companies adopted downsizing just as a 'me-too' strategy even when it was not required. chemical.250 1. and many others lived in a state of uncertainty regarding their jobs. in 1994. fabrics.Tom Ryan.200 2. Charles Schwab (US). "The market is going to determine where we stop with the layoffs. In mid-2002. Malaysia and South Korea were going in for downsizing. loss of employee loyalty and loss of expertise as key personnel/experts left to find more secure jobs. the number of companies that chose to downsize their employee base increased in the early 21st century. in August 2002 DOWNSIZING BLUES ALL OVER THE WORLD The job markets across the world looked very gloomy in the early 21st century. They cause turmoil and shatter morale inside organizations and they confirm the view that profits always come before people. FMCG. Companies claimed that worldwide economic slowdown during the late-1990s had had forced them to downsize. Moreover." . Many people lost their jobs at a very short or no advance notice. However. Ciena Corp. optimize resources and survive the slump. Analysts commented that downsizing did more damage than good to the companies as it resulted in low morale of retained employees.500 2. (US) and Goldman Sachs Group (US). This trend created havoc in the lives of millions of employees across the world. despite these concerns.000 employees' altogether.400 . Thailand.000 7. (Refer Table I for information on downsizing by major companies). air transportation and petroleum. cut costs. the uncertain job environment created by downsizing negatively effected the quality of the work produced. with many companies having downsized a considerable part of their employee base and many more revealing plans to do so in the near future. there's nothing more traumatic than losing a job. Corporate cutbacks threaten the security and self-esteem of survivors and victims alike. Companies on the Forbes 500 and Forbes International 800 lists had laid off over 460. automobiles. Dresdner (Germany). Alactel (France). Even in companies' developing countries such as India.12 Case Code. during early 2001 itself.Laura Rubach." . Industry Analyst.

However. suffered the negative effects of downsizing. over 600. optimize resources and survive competition and eliminate duplication of work after M&As. "The ultimate test of leadership is enhancing the long-term value of the organization.000 2. In the new compensation system.000 10. As the perceived value of the downsized company was more than its actual value.000 employees were downsized in the US in 1993." In line with this approach to leadership. During this period. For leaders of a publicly held corporation. this means long-term shareholder value.000 2. These companies not only reduced their workforce. The chemical industry came out strongly in favor of the downsizing concept in the early 1990s. The survey also revealed that a majority of these companies failed to report any improvements in productivity. but the situation changed in the early-1990s. Deutsche Bank (due to its merger with Bankers Trust) and Hoechst AG (due to its merger with Rhone-Poulenc SA). . most companies did not achieve their objectives and. 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. Companies such as General Electric (GE) and General Motors (GM) downsized to increase productivity and efficiency. managers sought to increase their wealth through downsizing.000 3. GE abandoned policy of lifetime employment and introduced the concept of contingent employment. Thus. According to Jack Welch. Most chemical and drug companies restricted their organizations and cut down their employee base to reduce costs and optimize resources.500 3. companies across the world (and especially in the US).250 28. the then GE CEO. Some other organizations that made major job cuts during this period were Boeing (due to its merger with McDonnell Douglas). the number of firms that adopted downsizing was rather limited. During the early and mid-1990s.000 2. Since downsizing increased the equity value (investors buy the downsizing company's stocks in hope of future profitability) of the company.400 THE FIRST PHASE Till the late-1980s. Mobil (due to the acquisition of Exxon). According to analysts. managers adopted downsizing even though it was not warranted by the situation. Simultaneously.000 4. managers were compensated in stock options instead of cash. 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. 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.000 68. most of these successful companies undertook downsizing as a purposeful and proactive strategy. despite positive economic growth during the early 1990s.000 6.13 1998 1998 1998 1998 1999 1999 1999 2000 2000 2001 2001 2001 AT&T Compaq Intel Seagate Chase Manhattan Bank Boeing Exxon-Mobil Lucent Technologies Charles Schwab Xerox Hewlett Packard AOL Time Warner Telecommunications IT IT IT Banking Aerospace Petroleum IT IT Copiers IT Entertainment 18. many companies started downsizing their workforce to improve the image of the firm among the stockholders or investors and to become more competitive. they also redesigned their organizations and implemented quality improvement programs.000 9. began focusing on enhancing the value of the organization as a whole. instead.

This tax was mainly responsible for the low rate of job creation and high rates of unemployment in many European countries. which earned the dubious reputation of frequently rehiring its former employees because the retained employees were unable to handle the work load. The US-based global telecom giant AT&T was one such company. Also. Due to the loss of experienced workers. companies incurred expenditure on overtime pay and employment of temporary and contract workers. It was also reported that in some cases. maintenance and customer service departments. just as the downsizing trend seemed to be on a decline. many companies saw downsizing as a tool for increasing their share value. Though Delta succeeded in making some money in the short run. "It seemed like they would fire someone and [the worker] would be right back at their desk the next day. contribute to an unemployment fund. stronger economies. fall in inflation. with increased strategic alliances and growing popularity of concepts such as lean manufacturing and outsourcing . resistance to change from the survivors. As investors seemed to be flocking to downsizing companies. The tax burden of such companies increased because they were no longer exempt from various payroll taxes.000 employees during the early 1990s. even as the layoff percentage reached its maximum during the same period. it picked up momentum again in the late-1990s. Other problems such as the uneven distribution of employees (too many employees in a certain division and inadequate employees in another). and submit a plan to the government regarding the retraining program of its displaced employees (for their future employment). this time spreading to developing countries as well. led to criticism of downsizing. decrease in level of unemployment." Justifying the above. many organizations downsized even though it was not necessary. excess workload on the survivors. as a result of which it had to invest heavily in rehiring many workers. As this policy restrained a company from downsizing. and high profits. As in the early 1990s. THE SECOND PHASE By the mid-1990s. The above. increase in global competition. it ended up losing experienced and skilled workers. . However. This change was attributed to factors such as worldwide economic recession. AT&T even paid recruitment firms twice the salaries of laid-off workers to bring them back to AT&T. the slump in the IT industry. This type of tax already existed in France. which had laid off over 18. Criticism of downsizing and its ill-effects soon began resurfacing. However. because it appeared to be the popular thing to do. and increase in the availability of a temporary employee base. including France. AT&T frequently rehired former employees until it absorbed the 'shock' of downsizing. coupled with the fact that senior executive salaries had increased by over 1000% between 1980 and 1995. reduced the need for downsizing across the globe. Rationalization of the labor force and wage reduction took place at an alarming rate during the late 1990s and early 21st century. Many companies suffered from negative effects of downsizing and lost some of their best employees. increasing national incomes. some economists advocated the imposition of a downsizing tax (on downsizing organizations) by the government to discourage companies from downsizing. Delta Airlines realized in a very short time that it was running short of people for its baggage handling. where companies downsizing more than 40 workers had to report the same in writing to the labor department. reduced productivity and fall in quality levels also cropped up. factors such as increased investor awareness.14 One company that suffered greatly was Delta Airlines. In light of the negative influence that downsizing was having on both the downsized and the surviving employees. dynamic changes in technologies. 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. it damaged the chances of potential job seekers to get into the company. A former AT&T manager commented. the downsizing tax caused more problems than it solved. such companies had liable to pay high severance fees.

US. Continental and Southwest Airlines. and handle personal responsibilities.000 of its top executives. including its CEO. Shortly after this raise. This resulted in increased costs as they had to be framed for the job. According to the Bureau of Labor Statistics (BLS). the salaries paid to them were less than these given to regular employees performing similar jobs. contingent employees were employed in core areas of organizations. retirement or health benefits for contingent employees. Though these employees appeared on the payroll. Former Operations Director. without much difficulty or guilt. increased ability to recruit and retain superior quality employees improved service to clients in various time zones. Analysts commented that in many cases HR managers opted for contingent employees as they offered the least resistance when downsized. decreased absenteeism and employee turnover. many companies began offering flexible work arrangements to their employees in an attempt to avoid the negative impact of downsizing. but who better to bring back than someone who knows the ropes?" Very few people bought this argument. Such an arrangement was reported to be beneficial for both employees as well as the organization.15 Frank Carrubba. the company doubled the remuneration of its Chairman. Thus.9% to 25. and better use of office equipment and space. it posed many problems in the long run. when contingent employment was introduced. The concept of contingent employment also became highly popular and the number of organizations adopting this concept increased substantially during the early 21st century. with the remuneration of the CEO exceeding $73 million during the period. analysts also commented that while contingent employment had its advantages. and professional development. when not required. hobbies. The increase in salary and bonuses of AOL's six highest paid executive officers was between 8. A flexible working arrangement resulted in increased morale and productivity. Companies did not have to pay unemployment taxes. In many cases.000 employees were downsized.2% during 2000.. said. companies adopted many strategies to deal with the criticisms they were facing because of downsizing. Leading Internet start-up AOL was also criticized for the same reasons. Meanwhile. they were not covered by the employee handbook (which includes the rights and duties of employers and employees and employment rules and regulations). TACKLING THE EVILS OF DOWNSIZING During the early 21st century. contingent employees were those who had no explicit or implicit contract and expected their jobs to last no more than one year. AT&T was again in the news in this regard. In addition to the above. some companies voluntarily announced that they would cut down on the remuneration and bonuses of their top executives in case of massive layoffs. 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. "It does not happen that much. Following the demand that the executive officers should also share in the 'sacrifice' associated with downsizing. This type of arrangement also gave more time to pursue their education. It announced that over 6. would forgo their bonus in 2001. 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. AOL downsized 2. 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. But during the early 2000s. Ford was one of the first companies to announce such an initiative. such employees were asked to perform non-critical jobs that had no relation to an organization's core business.400 employees in January 2001. However. reduced stress on employees. AT&T. Delta. In the initial years. even as over 40. The average increase in salary and bonus of each officer was about 16%. Not only was . these employees offered flexibility without long-term commitments and enabled organizations to downsize them. allegations that downsizing was being adopted by companies to support the increasingly fat pay-checks of their senior executives increased. In 1996.

While HR is perceived to have provided outstanding service. "It used to be that you worked as a temp to position yourself for a full-time job.those who were downsized as well as the survivors. The increasing number of contingent employees in an organization was found to have a negative effect on the morale of regular employees. incentive and compensation planning and effective monitoring systems were the key factors for successful downsizing. The fact that such employees were not very loyal to the organization also led to problems. Senior Vice President. the contingent employment arrangement was not beneficial to contingent employees.and need to be committed to . Team America (a leasing company). and appropriate manner. Though the downsizing methods used varied from organization to organization. consistent and committed leadership helped employees overcome organizational change caused by downsizing. Under the terms of the contract. Productivity suffered considerably during the period when contingent employees were being trained. and if they are only going to be on board for a month. As a result. In many organizations where downsizing was successfully implemented and yielded positive results. In the words of Paul Cash. LESSONS FROM THE 'DOWNSIZING BEST PRACTICES' COMPANIES In the late 1990s. They developed a employee plan for downsizing.16 training time consuming. retirement. or overtime benefits. "Managers at all levels need to be held accountable for . Given these circumstances. They do not understand your rules. the US government conducted a study on the downsizing practices of firms (including major companies in the country). According to a best practice company source. According to some analysts. they were not eligible for health. That carrot is not there any more for substantial numbers of temps who prefer their temporary status. 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. 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. Discrimination against contingent employees at the workplace was reported in many organizations. the best option for companies seemed to be to learn from those organizations that had been comparatively successful at downsizing. they failed to completely commit themselves to the goals of the organization. the support of senior leaders. it was found that senior leaders had been actively involved in the downsizing process. 79% of the respondents revealed that . who were subject to constant uncertainty and insecurity regarding their future. It was found that the formulation and communication of a proper planning and downsizing strategy. the plan also addressed the issue of recruitment planning. According to a survey conducted in major US companies. which covered issues such as attrition management and workforce distribution in the organization. it attracted criticism similar to those that downsizing did.managing their surplus employees in a humane. objective. The study provided many interesting insights into the practice and the associated problems. Though contingent employment seemed to have emerged as one of the solutions to the ills of downsizing. issues regarding employee welfare and the plight of employees. it is the managers' behavior that will have the most impact. the active involvement of senior employees helped achieve downsizing goals and objectives with little loss in quality or quantity of service. Consequently. contingent employees reportedly failed to develop a sense of loyalty toward the organization. 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. Since it may be necessary to acquire other skills in the future. remained unaddressed. The presence and accessibility of senior leaders had a positive impact on employees . Their presence made the company's regular employees apprehensive about their job security. Communication was found to be a primary success factor of effective downsizing programs." In many companies. they may never understand." With such an attitude to remain outside the ambit of company rules and regulations. HR managers in these companies participated actively in the overall downsizing exercise. In many cases regular employees were afraid to ask for a raise or other benefits as they feared they might lose their jobs.

These companies felt it was necessary to involve labor representatives in the planning process to prevent and resolve conflicts during downsizing. to help them cope with their situation. face to face interaction. employees expected senior leaders to communicate openly and honestly about the circumstances the company was facing (which led to downsizing). leave without pay or involuntary separation (layoffs). all staff meetings. e-mail and bulletin boards. restructuring or staffing. Best practice companies involved employee union representatives in planning. A few common methods of communication adopted by these companies included small meetings. The major steps in the downsizing process included adopting an appropriate method of downsizing. training managers about their role in downsizing. The . shortened workweeks. concerns or suggestions regarding the downsizing process. Some techniques considered by organizations in lieu of downsizing included overtime restrictions. From external sources. became critical when downsizing. gender and retirement eligibility) on the entire workforce. use of newsletters. who preferred to share the pain of their co-workers rather than see them be laid-off. Many organizations encouraged employees to voice their ideas. they required information regarding number of employees that were normally expected to resign or be terminated. age. pay grade. furloughs. years of service. memoranda. disabled employees and old employees. video conferencing and informal employee dialogue sessions. fax. employee rights and tips for surviving the situation. the number of employees eligible for early retirement. when downsizing). and assistance required by employees during downsizing. union contract changes. Many successful organizations planned in advance for the downsizing exercise. 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. and the impact of downsizing on women. The best practice organizations gathered information useful for effective downsizing from all possible sources. one-on-one discussion. and providing support to survivors. All these approaches were a part of the 'shared pain' approach of employees. In addition. increase in production. 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. This information had to be acquired from internal as well as external sources (the HR department was responsible for providing it). The various techniques of downsizing adopted by organizations included attrition. cuts in pay. 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. Advance planning for downsizing also contributed to the success of a downsizing exercise. telephone hotlines. a successful downsizing process required the simultaneous use of different downsizing techniques. Many companies offered assistance to downsized employees and survivors. and job sharing. minorities. breakfast gatherings.17 they mostly used letters and memorandums from senior managers to communicate information regarding restructuring or downsizing to employees. such companies need to gather demographic data (such as rank. And from internal sources. According to best practice companies. voluntary retirement. Some organizations developed an inventory of employee skills to help management take informed decisions during downsizing. offering career transition assistance to downsized employees. According to many organizations. clearly defining every aspect of the process. However. and brochures and guides to educate employees about 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. videos. information that was not required by companies for their normal dayto-day operations. downsizing companies needed to gather information regarding successful downsizing processes of other organizations and various opportunities available for employees outside the organization. These companies also achieved a proper balance between formal and informal forms of communication. only 29% of the respondents agreed that this type of communication was effective. According to a survey report.

www. L. 11.net. Boeing Announcements Brings US Job Cuts to 500. 20.com. www. secretarial. Downsizing or Dumbsizing.edu/bym. Grey Barry. 2000.mil. Grice Corey and Junnarkar Sandeep.com.ufenet. Freeze Executive Pay During Periods of Downsizing.com.nwfusion. Hein Kenneth.com. 8. Why did contingent employment and flexible work arrangements become very popular during the early 2000s? Discuss. www. Hollender Lauren. Employment Law Q&A. www. 18. Gaints. In some organizations. Downsizing with Dignity. Downsizing Strategies Used in Selected Organizations. 1995. 3. 19.T. www.lowenstein.com.pamji. Jones Shannon.000 in 1998. what do you think employees should do to survive the trauma caused by downsizing and prepare themselves for it? ADDITIONAL READING & REFERENCES 1.net. October 1998. 14. www. GE Knows to Roll With the Changes.com. Kirschener Elisabeth.csaf.com. May 1999. June 1998.c3i. January 1996.managementfirst. www.org.com. www. Given the uncertainty in the job market. February 2002.org. 6. www. 1998. 7. Baker Wayne. leave without pay.com. 1997.Lester Martha and M. Downsizing and Organizational Culture.byu. Downsizing Dignity. www. Explain the concept of downsizing and describe the various downsizing techniques. administrative.org. How to Survice Downsizing. 13. January 1999. September 1995. www. Job Cuts Up 53% Since 1997. October 2001. Making Sense of Corporate Downsizing. www. disabled class) and region. www.houstonchronicle. minorities. www.osd. 15.responsiblewealth. 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. As part of an organization's HR team responsible for carrying it through a downsizing exercise. 17.mojones. July 2001.com. 3. attrition). Also discuss the positive and negative effects of downsizing on organizations as well as employees (downsized and remaining).Jenkins Carri. www.asiafeatures.com. These categories could be department. Critically evaluate the reasons for the increasing use of downsizing during the late 20th century and the early 21st century. Global Slowdown Bites I. December 1998. discuss the measures you would adopt to ensure the exercise's success.18 primary focus of these training sessions was on dealing with violence in the workplace during downsizing.And Not Always a Payoff in the Layoff. 10. Evaluate these concepts as alternatives to downsizing in the context of organizational and employee welfare. 16. Though the above measures helped minimize the negative effects of downsizing. April 1996. P. 9. Chemical & Engineering News.com. QUESTIONS FOR DISCUSSION 1. . Hickok Thomas.com. occupational group (clerical. the progress was reviewed quarterly and was published in order to help every manager monitor reductions by different categories. Bowes Barbara.winnipegfreepress2. 2001. Food for the Corporate Soul.erie. Silicon Valley: Still a Boomtown? News. 1997. Downsizing and Employee Attitudes. reason (early retirement. 12. Unkindest Cuts of All . October 1996. 4.wsws. Duffy Tom. Shareholders Press AT&T on Wage Gap.wsws. www. 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. employment equity group (women. 2. 5. general labor). 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. May 1997. www. industry observers acknowledged the fact that the emotional trauma of the concerned people could never be eliminated. February 1997. The Wages of Downsizing. http://advance. March 2002.martinrutte. 21.ncspearson.humax.org. According to best practice companies. Senior leaders were provided with key indicators (such as the effect of downsizing on the organizational culture) for their respective divisions. www. 2.chemcenter. www.org. Layoff and Outsourcing Update.

com 40.unt. www.humanresources. http://story.com.bpcinc. Ciena Cuts Another Round of Workers. www.forbes.com 43. 24.orst. September 2002.” . www. www.com 45. http://news. September 2002. the Indian IT enabled services business[2] was set to reach great heights. www.businessweek. www. www. August 2002. Boeing Tells 600 More of Layoffs Today.Song Kyung. CALL CENTERS FARE BADLY In the beginning of 1999.news.edu 34. www. March 2002.askmen.com. 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.A Mumbai based call center agent. www.com 36. . www.cio.aol.about.co.com.com 33. Telecom Giant Sheds Scots Jobs.uk.com 46. September 2002.com 42. Noguchi Yuki.yahoo. www.com 48.greylockassociates. Leicester John.achrnews.com 35. Skaer Mark. M.uk. http://seattletimes.com. US Airlines on Course with Loan Guarantee. July 2002.gov 49. Gomez Armando.business2. Ultimately.msnbc. September 2002. www. www. GE to Layoff 1. 31. 29.yahoo.forbes. the teleworking industry had been hailed as ‘the opportunity’ for Indian corporates in the new millennium.org 37. 32. Alactel to Cut 10. in 2001. www. www.com.000. Carmaker Jaguar to Cut 400 Jobs.com. www.nwsource. www.19 22. www.wspa. 25. Employee Mindset Is Different Today. a NASSCOM[1] study forecast that by 2008. In late 2000.co.com. www. http://govinfo.library.com. www.themanagementor.washingtonpost. only the fittest will survive. Noted Massachusetts Institute of Technology (MIT) scholar.shrm.doleta. Dresdner to Cut 3. DiCarlo Lisa.business-minds. http://story. September 2002.000 More Jobs. www.com 44.bbc.geocities. 23.com 38. September 2002.shrm.edu 41. July 2002.whatis. Michael Dertouzos remarked that India could boost its GDP by a trillion dollars through the ITenabled services sector. http://news.news.com 47. 28. http://members.bbc. 30. With Sales Down. 26. 27.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.org 39.000 Jobs. The Ups and Downs of Downsizing.

’ (the people working at the center). ft. banking or regarding telemarketing.20 During 2000-01. headsets hooked into a large telecom switch and one or more supervisor stations. while in certain other cases. an EPABX[3]. sales. Estimates indicated that the industry was saddled with idle capacity worth almost $ 75-100 mn. The total number of people who worked at the center at any given point of time were referred to as ‘seats. the clients bore the call’s cost. in area involving investments of over Rs 12 bn. things seemed to have taken a totally different turn. they were seen sitting idle.much to the chagrin of industry experts. It was expected to touch the 300. when the travel/hospitality industry in the US began to centralize their reservation centers. Owners of a substantial number of such centers were on the lookout for buyers. the attrition rate of over 50% (in some cases) was rather surprising. a call center was a facility handling large volumes of inbound and outbound telephone calls. The human resource exodus added to the industry’s misery. etc. The Indian Call Center Journey <<Previous TABLE I BENEFITS OF A CALL-CENTER . Each industry had its own way of operating these centers. call centers became necessary for many industries. was literally down in the dumps . The call center could be situated anywhere in the world. manned by ‘agents. (Refer Table II).000 level by 2002 employing approximately 18 mn people. There just was no business coming in. by early 2001. The center was either an independent entity. In centers which did retain the employees. interactive voice response systems. the media and above all. market research. The calls could be for customer service. and its own preferred technologies. The reality of the Indian call center experience was manifested in rows after rows of cubicles devoid of personnel in the call centers. for a biotechnology company. The industry. marketing or technical support in areas such as airline/hotel reservations. or was linked with other centers or to a corporate data network. the global call center industry was worth $ 800 mn spread across around 100. However. Given the large number of unemployed young people in the country. with its own standards for quality.000 units. with workstations.’ A center could range from a small 5-10 seat set-up to a huge set-up with 500-2. With the rise of catalog shopping and outbound telemarketing. In certain setups. Broadly speaking. The future prospects of the call center business seemed to be rather bleak indeed. waiting endlessly for the calls to come. while a FMCG company could use the call centers for better customer relationship management. Call centers began as huge establishments managing large volumes of communications and traffic. Call centers date back to the 1970s. ft. microcomputers and LANs[4] . which was supposed to generate substantial employment for the country. irrespective of the client company’s customer base. It was surprising that call centers were having problems in recruiting suitable entry-level agents even with attractive salaries being offered. to 100. the task could be of verifying genetic databases.000 seats. including mainframes.000 sq. over a hundred call centers were established in India ranging from 5000 sq. For instance. (Refer Table I). the players involved. These centers were generally set up as large rooms. the Government. the caller and the call center shared costs. CALL CENTER BASICS In 2001.

INDIAN CALL CENTERS – MYTHS AND REALITIES There were many reasons why India was considered an attractive destination to set up call centers. travel and tourism. In a call center. telecommunications. Apart from the pioneers British Airways. transport. Moreover. Global call centers handling calls from across the world. BPL. excess traffic situations etc. The boom in the Indian information technology sector in the mid 1990s led to the country’s IT strengths being recognized all over the world. Deutsche Bank. assisted in using latest technologies. This was cited to be the biggest advantage India could offer to the MNCs.21 • • • • • • Enhances the customer base and business prospects Offers an economical means of reaching diverse and widely distributed customer group Fine-tunes offerings to specific customer groups by specialized and focussed assistance Allows customers easy access to experts Facilitates business round the clock and in any geographical region Allows a company to reduce the overheads of brick and mortar branches Source: Compiled from various sources. Wipro. E-mail call center with leased lines and computers. Outsourcing bureaus were outfits with prior experience in running call centers. setting up of the center. Citibank. Regional call centers handling calls from local clients. Global Tele-Systems. internal infrastructure revamps. These helped the new players in dealing with complex labor issues.in India. While per agent cost in US worked out to approximately $ 40. other financial services. the Government’s pro call center industry approach and a virtual 12-hour time zone difference with the US added to India’s advantages. entertainment. Airtel. investments and securities. ICICI Banking Corporation. Apart from these. technology. the manpower cost was approximately one-tenth of this. There were a host of players in the Indian call center industry. American Express. TABLE II CALL CENTER CLASSIFICATION • • • • • Voice call center with phones and computers. Web-based call centers using internet chat facilities with customers. Bank of America. healthcare and education etc. GE and Swiss Air.000. Outsourced bureau operators were utilized by companies at various stages viz. utilities. HLL. manufacturing. ABN AMRO. and Bharati BT were the other major players in the call-center business.’ Captive call centers were typically used by various segments like insurance. Call centers could either be ‘captive/in-house’ or in form of an ‘outsourced bureau. Source: Compiled from various sources. in India it was only $ 5. Godrej Soaps. helped in lowering the operating expenses and financial risks. India had the largest English-speaking population after the US and had a vast workforce of educated. retail banking. manpower typically accounted for 55-60% of the total costs in the US and European markets . Global Trust. reasonably tech-savvy personnel. .000.

They look for buyers. they would be able to attract clients easily. the lack of track record forced the clients to go for much detailed and prolonged studies of the Indian partners. Everyone. garment exporters. Sep-00 NASSCOM report. However. most of these people entered the field. including lorry-fleet operators. TABLE III THE INDIAN CALL-CENTER MILESTONES Mid 1990s GE. The clients expected to be shown detailed Service Level Agreements (SLAs)[6] .. British Airways set up captive call center units for their global needs. Brokers and middlemen make an entry to fix such deals. client servicing issues etc was very poor. Venture Capitalists rush in. Following increasing interest in the IT-enabled services sector. which a majority of the Indian firms could not manage.22 After the projections of the NASSCOM-McKinsey report were made public. Their knowledge regarding the technology involved.. They did not realize that more than easy access to capital and real estate. These players seemed to have neglected the fact that most successful call centers were quite large and had either some experience in the form of promoters having worked abroad in similar ventures or previous experience with such ventures or were subsidiaries of foreign companies.000 participants flock to the NASSCOM meet to hear about new opportunities in remote services. During this rush to make money from the call center ‘wave. New ventures still coming up: capacity of between 25 seats and 10. INDIAN CALL CENTERS – MYTHS AND REALITIES contd. many people began thinking of entering the call center business. Make huge investments in call centers. Most of the call centers are waiting for customers. the field required experience and a sound business background.’ NASSCOM received queries from many people with spare cash and space. they found that most of the capital expenditure (in form of building up the infrastructure[5] ) occurred even before the first client was bagged. As call centers were a new line of business in India. strategic partnerships and joint ventures. Once they decided to enter the field. (Refer Table III). NASSCOM held the first IT-enabled services meet. The real trouble started when these companies began soliciting clients. leather merchants. tyre distributors and plantation owners among others.000 seats per company. They assumed that by offering cheaper rates. May-99 Over 600 participant firms plan to set up medical transcription outfits and call centers. Many US clients insisted on a strict inspection of the facilities offered. . Though the medical transcription business is not flourishing. the marketing aspects. Swiss Air. Gold rush begins. without having any idea as to what the business was all about. Dec-99 May-00 A NASSCOM-McKinsey report says that remote services could generate $ 18 billion of annual revenues by 2008. from plantation 4 2000 owners to lorry-fleet operators. indicates that a center could be set up Quarter with $ 1 million. wanted to set up centers. Small operators discover that Quarter the business is a black hole where investments just 1. More than 1. call centers seen as a big opportunity. 2001 disappear. cafeterias and even the restrooms. such as work-areas.

20 team leaders. most of the Indian players were unable to get international customers. underpaid. Thus. the business was limited. However. The scope for growth was very limited. Because of the inadequate investments in technology. it was this very set of people whom the Indian call centers were finding extremely difficult to recruit and more importantly. They had to take on European/US names or abbreviate their own names and acquire foreign accents in order to pose as ‘locals. In 2000. four service delivery leaders. training. as the unemployment levels were much higher.. As if these problems were not enough. one head of department and one head of business. Analysts remarked that the fault was mainly in the recruitment. A typical call center agent could be described as being ‘overworked.this time in form of the high labor turnover problem. In a eight-and-a-half hour shift. Companies had recognized agents as one of the most important and influential points of contact between the business and the customer. This was because a new agent normally took a few months before becoming as . companies soon realized that people with such backgrounds generally had much higher aspirations in life. They generally got fed up and left within a few months when the excitement waned. A consistently high attrition rate affected not only a center’s profits but also customer service and satisfaction. the same trend was not expected to emerge in India. they were not willing to make a career in the call center industry. there were 400 agents. with about 10-15% of the staff quitting within the first two months itself. The work was highly stressful and monotonous with frequent night shifts. going up the hierarchy was almost impossible for the agents. lack of processes to scale the business[7] and the lack of management capabilities. Job security was another major problem. the average attrition rate in the industry was 4045%. While they were initially excited to work in the excellent working environment of a multinational company for a few months. retain.’ The agents were frequently reported to develop an identity crisis because of the ‘dual personality’ they had to adopt. (Not more than one mistake per 100 computer lines.a maximum age limit of 25 years. For instance. Organizations that first set up call centers in India were able to pick and choose the best talent available. and career progression policies of the call centers. stressed-out and thoroughly bored.’ The odd timings took a toll on their health with many agents complaining of their biological clocks being disturbed. The reasons were not very hard to understand. Agent performance was the deciding factor in the success of any call center. in a 426-seat center. English medium school basic education and a preference to candidates belonging to westernized and well-off upper middle class families. no US company was willing to risk giving business to amateurs at the cost of losing their customers. The entry norms established at this point were .23 Under these circumstances. with agents being fired frequently for not being able to adhere to the strict accuracy standards.. However. the players hit another roadblock . the agents had to attend calls for sevenand-a-half hours. (Especially the ones in night shifts).) The industry did not offer any creative work or growth opportunities to keep the workers motivated. INDIAN CALL CENTERS – MYTHS AND REALITIES contd. Even for those who did manage to rope in some clients. The companies hence did not have to spend too much time and effort in training the new recruits on the two important aspects of a good level of spoken and written English and a good exposure to western culture and traditions. Even though attrition rates were very high in this industry worldwide. a minimum qualification of a university degree.

Electricity infrastructure is going from bad to worse – in fact during my stay at a 5 star hotel and at the corporate HQ of a big MNC. Young people passing out of English medium high schools and universities and housewives and back-to-work mothers looking for suitable opportunities were identified as two of the biggest possible recruitment pools for the industry. The telephony system is analog and inadequate. as it had embarked on a massive plan to train people in English to overcome its handicap in the language. we had on average 7 blackouts a day where the generators would kick in after 2-3 seconds.” Despite the mounting criticisms and worries. It took on average three attempts just to get a line of out my hotel. Other companies including Spectramind and Global Telesystems planned to either enter or enhance their presence in . Another solution being thought about was to recruit people from non-metros. He said: “The English spoken by Indians is a very heavy dialect – in fact. the need for US companies to outsource was expected to be even higher. In February 2001. Niels Kjellerup. where call centers employed a large number of housewives and back-to-work mothers. though being more difficult to recruit and expensive to train. Such students with a good basic level of English could be trained easily to improve their accents. the call center business was considered to hold a lot of potential by many corporates.24 proficient as an experienced one. since such a luxury as service is not part of everyday life in India. They could be trained to become familiar with western culture and traditions. pronunciation. no. Even as the people and infrastructure problems were being tackled. The business culture and the mix of Government intervention will be a cultural shock for Western business people with no previous experience. Add to this a lack of a call center industry and very few people with call center experience which makes it very hard to recruit call center managers with a proven track record.’ Unlike other industries. How will this play out over the telephone with people much less educated that my conversation partners? The non-existent customer service culture in India will make training of reps mandatory and difficult. I found it very difficult to understand what was said. China was fast emerging as a major threat to India. and international calls are very expensive. Foremost amongst these was the move to employ people from social and academic backgrounds different from the norms set earlier. a host of other issues had cropped up. spelling and diction. the shakeout in this industry was not only because of an over supply of call center providers. but also because of the quality of supply offered. as people from these places were deemed to be more likely to stay with the organization. This did not augur well for a country banking on its cost competitiveness. A survey of Fortune 1. editor and publisher of ‘Call Center Managers Forum’ came out strongly against India being promoted as an ideal place to set up call centers. hope still existed for the Indian call center industry. This had been successfully tried out in the US and European markets. The promise of cheap.000 companies on their outsourcing concerns showed that cost-reduction was not the most important criterion for selecting an outsourcing partner. This meant that opportunities for providing higher levels of customer 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. wherein only the fundamentally strong players would remain in the fray after an inevitable ‘shakeout. posing threats for the Indian call centers. The telecom market is not deregulated. Analysts remarked that the call center business was in the midst of a transition. The Reliance group was planning to open call centers in 10 cities across the country. The infrastructure is bad. The housewives and back-to-work mothers’ pool could also be developed into excellent resources. Also. With the US economy facing a slowdown. grammar. in face to face conversations. English speaking and technically aware labor from India was suddenly not as lucrative in the international markets. In spite of the downturn. make that antiquated: The attempts by a major US corporation to set up a satellite link has so far been expensive and not very successful.

Source : ICMR . workflow management tools assist call center supervisors to script and manage employee activity. The system answers each call immediately and. holds it in a queue till the time an agent is available. When an agent becomes free. • Web Integration: The integration of Web technology in call centers offers personalized. 2. product information. order entry. selecting the best agent for handling particular types of calls. • Computer Telephony (CTI): CTI is one of the most common features of call center environments. Critically examine the above statement giving reasons to support your stand. first served basis. Depending upon the firm’s specifications. Prepare a note on the functioning of a call center and comment on its necessity and viability in the Indian context. it had been identified as the preferred destination on a global basis for outsourcing IT services. Organizations can either have a call back button on their Web page whereby a call is automatically made to the customer or have a seamless addition of voice over IP to the web application. With a simple click of a mouse. For example. • Interactive Voice Response (IVR): IVR applications support the automated retrieval of stored data.’ IVR applications range from basic inquiry to the most sophisticated speech recognition applications. Whether the dream of call centers contributing to substantial economic growth for India would turn into reality was something only time would reveal. These usually took the form of pre-stored messages saying ‘Press 1 for this or Press 2 for that. if need be. What were the problems being faced on the human resources front by the call centers? How were the players planning to address them? EXHIBIT I CALL CENTER TERMINOLOGY • Automatic Call Distribution (ACD): The ACD processes all inbound telephone calls on a first come. fulfillment request. either simple proprietary tools could be used or advanced tools that blend information from multiple communications and information systems platforms can be adopted. customer history. • Workflow Management Tools: Coordinating telephony applications with information systems applications. a sophisticated call control algorithm that can search for the last agent that spoke to the caller. However. among other fields. India had certain inherent advantages because of which. a call center agent can quickly move between a customer profile. They can either be a simple screen pop-up window. he/she services the first caller in the queue. template cover letters and quote entry. By providing sequencing and uniform distribution of incoming calls among multiple agents in a call center. Or calls from customers placing orders can be taken before than those seeking technical support. people calling long distance can be given priority handling. • Reporting Systems: Different reporting applications are used to optimize the use of different communications platforms. ACDs offer time/labor savings and enhance productivity.25 the business. time and cost effective customer service. or a predictive dialing solution that doubles the efficiency of outbound calling. 3. QUESTIONS FOR DISCUSSION 1. For example. these very advantages were proving to be its drawbacks in the early 21st century. A system can be configured to offer different kinds of treatment to different callers.

1999. Can I help you sir?. Computer Today. How can I help you. No-fuss gus. Call Centers: Not-so dreamy affair. Call centers.T Enabled Services . November 1. www.com. 3. www. Sarma Uma & Ramavat Mona. IA’s recurring human resource problems were attributed to its lack of proper manpower planning and underutilization of existing manpower. . www. Jayaram Anup. Rajawat K. 8. the disinvestment plans dragged on endlessly well into mid 2001. I.” .teleworkingindia. February 18.com 12. Carver John. 4.The hottest business opportunity for India. Business Today. Kjellerup Niels.voicendata. Business Today. Call centers attract but disappoint. January 25.com. 1999. 13. 2000. 9. December 1.callcentres. May 28. & Lahiri Jaideep. www. 2001. Tribune India. 6. Chandrashekhar S.The Indian Scenario. Continual losses over the years. Agnihotri Peeyush. During the 1990s. 2000. Economic Times. 10. The Never Ending Search. Kumar Rahul. Yatish & Kulkarni Sangeeta.com. 2001. Amidst strong opposition by the employees.N. Widespread media coverage regarding the frequent strikes by IA pilots not only reflected the adamant attitude of the pilots.callcentres. February 12. June 22. frequent human resource problems and gross mismanagement were just some of the few problems plagued the company. www. the Government took various steps to turn around IA and initiated talks for its disinvestment. but also resulted in increased public resentment towards the airline. Business World. 1999. Myth & Reality about Contact Centers in India. February 20. 5.com. FLYING LOW Indian Airlines (IA) – the name of India’s national carrier conjured up an image of a monopoly gone berserk with the absolute power it had over the market. Singh Shelley & Srinivas Alam.Business India. Business World. Connecting to customers through call centers. January 7. Teleworking . & Dhawan Radha. IA’s employee unions were rather infamous for resorting to industrial action on the slightest pretext and their arm-twisting tactics to get their demands accepted by the management. The recruitment and creation of posts in IA was done without proper scientific analysis of the manpower requirements of the organization. 1999.000 employees. Staff turnover – friend or foe?. The Economic Times. 11. 14. sir?.26 ADDITIONAL READINGS & REFERENCES 1. 2000.indiatimes. November 29. www. 2. Waiting for the call. 2001. Indian Airlines HR Problems “There could scarcely be a more undisciplined bunch of workers than IA’s 22.com. Mukerjea D. 7. Finding the Right Mix.teleworkingindia.

Its international network covered Kuwait. covering 75 destinations (59 within India. A report by the Comptroller and Auditor General of India stated. Many big corporate houses entered the fray and IA saw a mass exodus of its pilots to private airlines. younger. private players such as East West. and Pakistan. These initiatives were soon rewarded in form of 17% increase in passenger revenues during the year 1994. IA and its subsidiary. IA had to operate flights in the North-East at highly subsidized fares to fulfill its social objectives of connecting these regions with the rest of the country. Jet was the only player that was able to sustain itself. a low-capacity and short-haul domestic airline with huge long-term liabilities. go-slow agitations and wage negotiations were common. In 1999. However. Nepal. but it could not deny responsibility for its human resource problems. the share of private airlines reached 53%.99 bn further increased the losses.5 million passengers annually. Qatar and Bahrain in West Asia. Vayudoot. 16 abroad). In 1990. Identification of the qualifications appropriate to all the posts is a basic requirement of efficient human resource management. Bangladesh. Oman. IA’s market share. IA could blame many of its problems on competitive pressures or political interference. These costs were responsible to a great extent for the company’s frequent losses. while IA’s market share was 47%. IA and Alliance Air carried over 7.” ‘FIGHTER’ PILOTS? IA’s eight unions were notorious for their defiant attitude and their use of unscrupulous methods to force the management to agree to all their demands. This interference ranged from deciding on the crew’s quality to major technical decisions in which the Ministry did not even have the necessary expertise. To counter increasing competition IA launched a new image building advertisement campaign. In 1994. Unnecessary interference by the Ministry of Civil Aviation was a major cause of concern for IA. especially in the human resources area. Singapore and Malaysia in South East Asia. By 1999 the losses touched Rs 7. As the carrier’s balance sheet was heavily skewed towards debt with an equity base of Rs 1. BACKGROUND NOTE IA was formed in May 1953 with the nationalization of the airlines industry through the Air Corporations Act. heavy interest outflows of Rs 1. 11 Boeing B737s and 3 Dorniers D0228.05 bn in 1999 as against long term loans of Rs 28 bn. It also improved its services by strictly adhering to flight schedules and providing better in-flight and ground services. While Air India provided international air services. the Air Corporation Act was repealed and air transport was thrown open to private players.5 bn.27 The IA story shows how poor management. provided domestic air services. Indian Airlines Corporation and Air India International were established and the assets of the then existing nine airline companies were transferred to these two entities. optimum utilization of the recruited personnel and abolition of surplus and redundant posts. Alliance Air. . with a new. IA could not sustain these improvements. and more dynamic in flight crew. 30 Airbus A320s.11 Airbus A300s. NEPC. Staff cost increased by an alarming Rs 5. was merged with IA. IA was found grossly deficient in all these aspects. the company had a fleet strength of 55 aircraft . and Damania had to close shop due to huge losses. Between themselves. Competitors like Sahara and Jet Airways (Jet) provided better services and network. need-based recruitment. however continued to drop. Strikes. In 1999. It also launched several other new aircraft. UAE. Sri Lanka and Maldives in the South Asian subcontinent. IA’s network ranged from Kuwait in the west to Singapore in the east. “Manpower planning in any organization should depend on the periodic and realistic assessment of the manpower needs. Myanmar. could spell doom even for a Rs 40 bn monopoly.9 bn during 1994-98. Unable to match the performance of these airlines IA faced severe criticism for its inefficiency and excessive expenditure human resources. Thailand. In the next few years. These flights contributed to the IA’s losses over the years.

he bought the pilot emoluments on par with emoluments other airlines.8 . The extra financial burden on the airline caused by these measures was met by resorting to a 10% annual hike in fares. But recessionary trends in the economy and its mounting wage bill pushed IA back into losses by 1999. Though the strike was called off within a week. government rejected Mody’s plans[2]. there was another agitation. They then refused to fly with people re-employed on a contract basis. During December 1992-January 1993. thereby successfully controlling the exodus.44 8. it again raised questions regarding IA’s vulnerability. The strategies adopted by IA to overcome these problems were severely criticized by analysts over the years. who joined IA as chairman in November 1994. Russy Mody (Mody). This demand was turned down. Medical examiners. this time asking for increased foreign allowances. with many pilots reporting sick at the same time. found that most of these were false claims. others somehow managed to produce medical certificates to corroborate their claims.22 25 36 13. in view of the mounting losses. who were sent to check these pilots. Analysts noted that the people heading the airline were more interested in making peace with the unions than looking at the company’s long-term benefits. April 2000 saw another go-slow agitation by IA’s aircraft engineers who were demanding pay revision and a change in the career progression pattern[1]. made efforts to appease the unions by proposing to bring their salaries on par with those of Air India employees. From November 1989 to June 1992. Impact (%) 16. In January 1997. there was another strike by the pilots. He was also instrumental in effecting substantial wage hikes for the employees. Sen and the entire board of directors was sacked by the government. but every strike it was about pressurizing IA for more money. a subsidiary airline company where the re-employed people were utilized. fixed flying hours. Sen averted a crisis by creating Alliance Air. (Refer Table I) TABLE I IMPACT OF STAFF COST HIKE IN FARE INCREASE (%) Date of fare increase 25/07/1994 1/10/1995 22/09/1996 15/10/1997 1/10/1998 Source: IATA-World Air Transport Statistics Initially. saying that the cabin crew earned higher wages than them and that they would not fly until this issue was addressed. In 1994. Sen’s efforts seemed to have positive effects with an improvement in aircraft utilization figures. free meals and wage parity with Alliance Air. Thereafter they went on a strike. When Probir Sen (Sen) took over as chairman and managing director. there were 13 agitations by different unions. The cavalier attitude of the IA pilots was particularly evident in the agitation in April 1995. there was a 46-day strike by the pilots and yet another one in November 1994. Some of the pilots were completely fit. the IA unions opposed the re-employment of pilots who had left IA to join private carriers and the employment of superannuated fliers on contract. The pilots began the agitation demanding higher allowances for flying in international sectors. In 1996. Due to adamant behaviour of pilots many of the cabin crew and the airhostesses had to be offloaded at the last moment from aircrafts. This was strongly opposed by the board of directors. Mody also proposed to increase the age of retirement from 58 to 60 to control the exodus of pilots.28 For each strike there was a different reason. IA also managed to cut losses during 1996-97 and reported a Rs 140 mn profit in 1997-98. However.

The idea of the productivity linked incentive (PLI) scheme was to persuade pilots to fly more in order to increase aircraft utilization.3. Eventually. According to unofficial reports. IA tried to persuade employees to cut down on PLI and overtime to help the airline weather a difficult period. This number was later reduced to 25 and finally to 23. PLI payments alone amounted to Rs 6.31 15% 19% 25% 26% 27% 28% 54 58 55 40 40 41 1994.29 In the late 1990s.8.37 0.18%)* 1995. either a sweeper or a peon. from 1996-97 to 1998-99.29 32. by paying more money to its employees. It was also found that the payment of OTA always exceeded the budget provisions. the agreement stated that if the engineering department made 28 Airbus A320s available for service every day. while they flew only 63 hours.71 96 (52.39 20. # Excludes 4 aircraft grounded from 1993-94 to 1995-96 as well as 12 aircraft leased to Airline Allied Services Ltd.21 34.8. Though experts agreed that IA had to cut its operation costs.8 bn for IA. however there efforts failed. Though IA incurred losses during 1995-96 and 1996-97 and made only marginal profits during 1997-98 and 1998-99.45 minutes late were shown as being on time for PLI purposes. increased by 109% during 1993-99. .32 0.12%) 22582 22153 21990 21922 Source: IATA-World Air Transport Statistics * Figures in brackets indicate increase over the previous year.03%) 1998. There were also reports that flights leaving 30 . PLI would be paid.66 bn.59%) 1996. during the same period. A net loss of Rs 641.13 0.17 98 (15.85 94 22182 0. IA introduced the productivity-linked scheme. In 1998.16 0. TABLE II INCREASE IN STAFF COSTS Staff cost as Per Total percentage Staff cost No. For instance.75 22. Even the lowest paid employee in the airline. Between 1991-92 and 1995-96. arrears to be paid to employees on account of PLI touched nearly Rs 7 bn by 1999. But the PLI scheme was grossly misused by large sections of the employees to earn more cash. this way they could not work overtime and earn more money.35%) 1997.000 – 10.10 97 (24. heavy payments were made on account of PLI. the PLI schemes raised an additional annual wage bill of Rs 1.59 26 29.74 22683 95 (31.7.8 mn was registered during the period 1995-99. was paid Rs 8.75 99 (7. in yet another effort to appease its employees. Pilots were flying 75 hours a month.5. the increase in pay and allowances of the executive pilots was 842% and that of non-executive pilots was 134%. It was alleged that IA employees did no work during normal office hours. (Refer Table II). To survive the airline continued to add to its costs.000 per month with overtime included.25 0. of employee Effective Year expenditure of total (in Rs bn) employees cost (in fleet size (in Rs bn) operational mn) expenditure 19932. The payment of overtime allowance (OTA) which included holiday pay to staff.

There were 30 full time directors. In 1999. TABLE III A COMPARISON OF VARIOUS AIRLINES Name of Airlines Singapore Airlines Thai Airways International Indian Airlines Gulf Air Jet Airways Number of No.549 24.186 21. were paid to those who were not strictly eligible for these. Various allowances such as out-of-pocket expenses.599 1094. (Refer Table III). IA’s financial woes kept increasing. The posts in non-executive cadres were to be created after the assessment by the Manpower Assessment committee.3 mn per annum in 1994-95 and the number increased to 2. there were 9 directors by 1999 overseeing the same functions.671 1416. pending the assessment of their requirement by the Staff Assessment Committee. This did not augur well for any of the parties involved. by and large. of aircraft in employees fleet 84 76 51 30 19 13.627 2113. All these problems had a negative impact on divestment procedure. and room air-conditioners even after retirement. the number of employees at IA increased steadily.132 270678 398204 245831 92853 49756 Employees per aircraft 161 318 431 177 261 196 Kuwait Airways 22 Source: IATA-World Air Transport Statistics Analysts criticized the way posts were created in IA. Six new posts of directors were created of which three were created by dividing functions of existing directors. Illiterate IA employees drew salaries that were on par with senior civil servants. unproductive deployment of manpower and unwarranted increase in salaries and wages of the employees. There were issues that had been either neglected or mismanaged. Even a matriculate could become a manager. Thus.324 1064161 6546. It was reported that the airline’s monthly wage bill was as high as of Rs 680 mn. which doubled in the next three years. Though at times the airline did put its foot down. Excessive expenditure was incurred on benefits given to senior executives such as retention of company car.109 by 1997-98. in place of 6 directors in departments’ prior April 1998. as privatization was expected to give the IA management an opportunity to make the venture a .308 5. IA had the maximum number of employees per aircraft. the rates of highly subsidized canteen items were not revised even once in three decades and there was no policy on fixing rates. TROUBLED SKIES Frequent agitations was not the only problem that IA faced in the area of human resources.235 345. According to reports. With each strike/go-slow and subsequent wage negotiations. For instance.30 Over the years. 40 posts were introduced in the Southern Region on an ad-hoc basis. simulator allowance etc. who in turn had their retinue of private secretaries. drivers and orderlies. it always acceded to the demands for wage hikes and other perquisites. several employees were re-employed by the airline in an advisory capacity.722 ATKm[3] ATKm per (in Million) Employee 14418. IA employed 132 retired employees as consultants during 1995-96 on contract basis. by acquiring the necessary job-related qualifications & experience.761 3. But analysts pointed that in the case of cabin crew. After superannuation. The Brar committee attributed this abnormal increase in staff costs to inefficient manpower planning. Another problem was that no basic educational qualifications prescribed for senior executive posts. There were 150 employees earning above Rs 0.990 5. experience allowance.

Business Today. May 25. Analyze the developments in the Indian civil aviation industry after the sector was opened up for the private players. Sengupta Snigdha. 10. Business Standard 9. QUESTIONS FOR DISCUSSION: 1. Freed from its political and social obligations. fly low. Business Standard. 1999. was in response to Federation of Indian Chambers of Commerce and Industry’s (FICCI)[1] report on the banking industry. 11. Crasta Jivitha. Do you agree? Give reasons to support your stand. In Air Pocket. Business Standard. The battle for the skies. Indian Airlines pilots call off strike. IA. The report stated that the Indian banking industry was overstaffed by 35%. 1999.” . the Government announced that it would be reducing its manpower. Lahiri Jaideep. IA awaits govt decision on Kelkar committee report. Flying high. January 7. which was approved by SBI board in December 2000.org. the State Bank of India (SBI) faced severe opposition from its employees over a Voluntary Retirement Scheme (VRS). the carrier would be in a much better position to handle its labor problems. 1997. Why do you think IA failed to retain its market share against competitors like Jet Airways? 2. Business Standard. the Indian Banks Association (IBA)[2] formulated a VRS package for . www. 4. India’s largest public sector bank (PSB). Panel seeks further study on airport privatisation. 2. The biggest beneficiaries would be perhaps the passengers.K. January 28. Following this. Will Even Divestment Make Indian Airlines Airworthy?. 1997. Rakhi Mazumdar & Anjan Mitra.V. January 24.Gupta. In order to trim the workforce and reduce staff cost. Hindustan Times. 3. 1995.com. 5. Sanjeev Sharma. Go slow. Bhargava Anjuli.31 commercially viable one. 1998. ADDITIONAL READINGS & REFERENCES: 1.cagindia. The VRS. 8. 1997. August 12. Business Standard 7. April 27. 2000. 1999.The VRS Story “They are propagating the VRS in such a manner that the employees are being compelled to opt for the scheme. Ministry finds Brar report on IA recast too hot to handle.indiainfoline. State Bank of India . April 26. Business Standard. 12. SBI employee’s union leader in December 2000. July 7. IA’s human resource problems can largely be attributed to its poor human resource management policies. VRS TROUBLES In February 2001. Business Standard. 6. www. Business Today. March 27. who would get better services from the airline. Alliance Air wage disparity issue unresolved. Evaluate IA’s performance. February 22. 1997.

5 billion as against Rs 4. TABLE I A COMPARISON BETWEEN SBI & SOME NPBs BANK SBI NPAs/NET ADVANCES 7. revenues and workforce. Though SBI promoted the VRS as a ‘Golden Handshake. The unions argued that the VRS might force the closure of rural branches due to acute manpower shortage. The NPBs had effectively leveraged technology to make up for their size. staff costs in 1999-2000 amounted to Rs 4. It offered a wide range of services for both personal and corporate banking. SBI offered infrastructure finance. This was expected to affect SBI’s aim to improve economic conditions by providing necessary financial assistance to rural areas. BACKGROUND NOTE The SBI was formed through an Act of Parliament in 1955 by taking over the Imperial Bank. Over the years. The SBI group consisted of seven associate banks: • • • • • • • State State State State State State State Bank Bank Bank Bank Bank Bank Bank of of of of of of of Hyderabad Indore Mysore Patiala Saurashtra Travancore Bikaner & Jaipur The SBI was the largest bank in India in terms of network of branches. In February 2001. cash management and loan syndication[4] . They said that the VRS was completely unnecessary. housing loans. As a result of the VRS.000 officers were rejected. By 2000. a mere 22% of those (1935 branches) were connected through Internet. consumer loans.18% PROFIT PER EMPLOYEE (Rs in Million) 0.43 million while HDFC’s was Rs 0. which was approved by the Finance ministry.96 million. SBI’s net profit per employee was Rs 0.65 million and Rs 0. In contrast all of HDFC[5] Bank’s 61 branches were connected. Increased competition from the new private sector banks (NPBs) further added to SBI’s problems.73% (Refer Table I). The unions also alleged that the VRS decision was taken without proper manpower planning. and that the real problem. The average estimated cost per head for implementation of VRS for SBI and its seven associated banks worked out to Rs 0.000 branches. According to reports. which plagued the bank were NPAs[3] . For corporate banking. applications of around 12. Though SBI had 9. The officers who were denied the chance to opt for the VRS formed an association – SBIVRS optee Officers’ Association to oppose this SBI directive. The association claimed that the management was adopting discriminatory policies in granting the VRS.43 . The personal banking services included credit cards. Consequently. SBI’s net profit decreased from Rs 25 billion in 1999-00 to Rs 16 billion in 2000-01.32 the PSBs. the SBI issued a directive altering the eligibility criteria for VRS for the officers by stating that only those officers who had crossed the age of 55 would be granted VRS.’ its employee unions perceived it to be a retrenchment scheme.57 million respectively.1 billion in 1998-99. the bank became saddled with a large workforce and huge NPAs.18% as against HDFC’s 0. and SBI’s NPA level was around 7. and insurance.

They argued that this move would significantly increase workforce burden and.53% 0. leaves availed on a loss of pay . However. Following huge response to the VRS from officer cadre.000 applications for the VRS. The clerical staff was reluctant to go for the VRS due to the low employment opportunities for them in the NPBs. They said that the threat of bringing down the retirement age from 60 years to 58 years was putting a lot of pressure on senior bank officials to opt for the scheme. Moreover. SBI had not anticipated such a huge response to the scheme. The unions questioned the logic behind diversifying the business and cutting down the staff strength.reach. the maximum number of optees turned out to be from the officer cadre. forex dealers and a host of other specialized personnel. adversely affect customer service. 0. While 50% of the payment was to be paid immediately. The VRS package offered 60 days’ salary for every year of service or the salary to be drawn by the employee for the remaining period of service. which meant that over 33 per cent of the total officers in the bank had sought VRS. While the VRS was mainly aimed at reducing the clerical staff and sub-staff. An employee could avail the pension or provident fund as per the option exercised by the employee. They added that the VRS would not be feasible as there was an acute shortage of officers (estimated at about 10000) in the rural and semi-urban areas where the branches were not yet computerized. 2000. the unions alleged that the management was compelling employees to opt for the VRS. customer base and experience . In another circular. The bank also issued a circular barring treasury managers. The package was offered to the permanent staff who had put in 15 years of service or were 40 years old as of March 31.2 1.15 THE PROTESTS The SBI was shocked to see the unprecedented outcry against the VRS from its employees. According to reports. The VRS implementation was a part of an over all cost cutting initiative. To protect its business and remain profitable. despite all the protests.71% 1.bankersindia.e. The unions opined that the VRS could prove to be counterproductive as the increased business might not be handled properly. from seeking VRS. The unions claimed that the move would lead to acute shortage of manpower in the bank and that the bank’s decision was taken in haste with no proper manpower planning undertaken. whichever was less. consequently. the rest could be paid in cash or bonds. SBI issued a circular stating that the management would relieve only those officer cadre applicants who had crossed the age of 55 years. A large portion of the back-office staff had become redundant after the computerization of banks. Chartered Accountants.69 0.78 1. SBI had formed a joint venture with the French insurance company Cardiff.com Analysts remarked that the very factors that were once hailed as the strengths of SBI .295.87% 1. SBI mentioned that any break in service (i. for entering the life insurance business. Technological tools like ATMs and the Internet had changed banking dynamics.had become its problems.96 0. postgraduates in computer applications.95% 0. In December 2000. The VRS was also not open to employees who were doctorates. the number of applications from officers stood at 19. SBI realized that it would have to reduce its cost of operations and increase its revenues from fee-based services.77% 4. In 2000.33 HDFC UTI BANK ICICI BANK GTB IDBI BANK Source: www. SBI received around 35. Cost & Works accountants. Analysts pointed out that many bank employees opted for the VRS due to the better employment prospects with the NPBs. Employees who had not served rural terms were also barred from opting for the scheme. MBA’s. SBI had undertaken a large-scale clientele membership drive in some states to attract more customers.

424 58. After these restrictions were introduced. challenging SBI’s decisions. They also cited the example of Syndicate Bank. but who could not meet the prescribed criteria.993 53. According to the members of the group. 52.63% -9.4% of the officers were left eligible for VRS instead of the earlier 33%. In August 2001.34 basis) would not be taken while calculating the service period. THE POST VRS DAYS According to reports. They alleged that the bank was practicing discrimination in implementation of the scheme and that no other banks had implemented such policies and denied the opportunity of VRS to officers who were willing to avail the scheme.90% -8. The bank also restricted the loan facilities to the personnel who had opted for the VRS.558 103. he was asked to pay interest at the market rate. SBI planned to merge 440 loss-making branches and announced redeploy additional administrative manpower (resulting from the merger of loss-making branches) to frontline banking jobs. It was reported that another 8. They claimed that SBI had violated the guidelines of the Government and the Indian Banks Association.33.com In the post-VRS scenario. SBI also planned to reduce its regional offices from 10 to 1 or 2 in each circle.280 59.000 employees through the VRS.474 115. A delegation of VRS-denied officers even met the Finance Minister and also submitted a memorandum to the SBI management. analysts regarded VRS as an unwise move. By June 2001. Unions argued that if the bank was so particular that only 10% of its staff leave under the VRS.000 clerical staff to officer level. As a result. Analysts felt that this would lead to a tremendous increase in the workload on the existing workforce. it was reported that a single officer had to take charge of 3 or 4 branches as the daily concurrent audit got affected. The conditions laid down by the management faced strong criticism from the officers who had opted for the VRS. the entire SBI staff recruited between mid 1960 and 1980 would retire. With an average of 5000 employees retiring each year. The officers who were denied the VRS formed an action group in March 2001. any shortfall in the number of officers could easily be met by promoting suitable clerks. Media reports also called SBI’s decision to restrict the VRS as arbitrary.729 210.00.433 -11.000 employees were to be relieved after they attained the retirement age by the end of 2001. SBI’s total staff strength was expected to come down to around 2.000 by March 2001 from the pre-VRS level of 2. discriminatory and belying the voluntary character of the scheme. The group filed cases before High Courts in various parts of the country. TABLE II CHANGE IN SBI’s STAFF STRENGTH 31-03-01 31-03-00 % change Officers Clerical Subordinate Total Source: www. which promoted about 1.21% -9. it could have closed the scheme immediately after the required number of applications were received. The unions also argued that 35. where all the applications that were received were also accepted for VRS. According to industry watchers.535 233. by 2010.indiainfoline. SBI had relieved over 21.000 applications (14% of the total workforce) could not be considered high when compared to the response received by other public sector banks such as Syndicate Bank (22%) and Punjab & Sind Bank (19%). SBI would not have sufficient manpower to manage over 9000 of its branches. Another major hurdle was the Government’s proposal to scrap the Banking Service Recruitment Board (BSRB)[6] as the bank lacked expertise in recruitment procedures. only 13.92% .000 (Refer Table III). If an employee wished to continue a housing loan after accepting VRS.

Discuss the various steps to be taken by the SBI in the post VRS scenario? ADDITIONAL READINGS & REFERENCES 1.400 crore if all applications are accepted. December 28. Comment on the above statement and discuss the effects of the VRS on SBI. 2001. January 25. Ray Chaudhuri Sumanta. The results of the SBI VRS were not in line with the management’s expectations. SBI may amend criteria for VRS. 2001. who were reported to be demoralized and de-motivated. Voluntary retirement scheme by September. Ray Chaudhuri Sumanta. Financial Express. inspection of borrowals had hardly any staff. Indian Express. 10. monitoring. December 28. 2000. State Bank’s VRS likely to leave pension fund deep in the red. The arbitrariness and insensitivity at the corporate level had dealt a severe blow to the employees of the organization. The outcome of the SBI VRS has highlighted the need for proper manpower planning and HRD policies in Indian public sector banks. SBI staff wants VRS period extended. Indian Express. SBI to reject 10.V. February 3. 2001. Bankeshwar S Suresh. June 23.000 VRS applications. 2000. 2000. it had lost its experts to its competitors. employees with good track records were frequently sidelined. 3. December 31. The bank’s well-defined promotion policy was systematically flouted by the framers themselves and. India Today 5. Financial Express. 2. blaming the VRS for their problems. according to reports. Economic Times. but due to weak HR policies. 2. SBI had many strong organizational strengths and an excellent training system. 2000. January 23. 2001. 7.000 employees apply for SBI’s VRS. 8. In most of the VRS implementation exercises in Indian PSUs. 3. Indian Express. What remained to be seen was whether SBI would be able to reorganize its HRD policy and retain its talented personnel. VRS to cost SBI Rs 2. Sahad P.000 staff. Hindustan Times. 2000. Indian Express. the largest number of applicants have been from the officer cadre. Financial Express. January 9. January 3. Analysts felt that SBI would have to take serious steps to reorient its HRD policy to restore employee confidence and retain its talented personnel. SBI VRS targets to shed over 25. 12. 11. Was SBI wrong in not anticipating this for its VRS? Also comment whether SBI was justified in altering the eligibility criteria for the officer cadre to restrict their outflow. February 1. 2001. 6. Indian Express 4. QUESTIONS FOR DISCCUSION 1. forex dealers from VRS. Indian Express. January 31. 2001. The employees of almost all the new generation private sector banks were former employees of SBI. 2001. SBI bars treasury managers. Many analysts felt that SBI was not able to realize the critical importance of recognizing inherent merit and rewarding the performers. SBI employees protest over VRS. Ray Chaudhuri Sumanta. Mandal Kohinoor & Mukherjee Arpan. 32. Ray Chaudhuri Sumanta. SBI needs to reorient its HRD policy to counter VRS fallout. . as a result. concurrent audit. SBI unions to seek review of VRS. The above factors were cited as the major reasons for the success of VRS in the officer cadres. 9. November 21.35 Departments like internal audit. It was reported that employees working in branches that had a high workload went on work-to-rule agitation.

SBI faces superannuation kick. Economic Times. Reporter’s Notebook. VRS – denied SBI officers plan action.equitymaster. SBI VRS optees may go to court. 2001. SBI aims to hike advances by Rs 18. June 21. July 20.” . Goswami Nandini. SBI officers allege discrimination in VRS rules. Co-founder. 26. America Online[1] (AOL) announced the acquisition of Netscape Communications (Netscape). February 8. Shetty Mayur.com 28. INTRODUCTION On November 24. 2001. Life after VRS: Nationalized banks facing shortage of staff. 21. 2001. Action plan initiated by SBI officers denied VRS. Economic Times. a leading Internet browser company. both in terms of revenues and the number of employees. 18. for $10 billion in an all-stock .banknetindia.indiainfoline. SBI brass gets circular mania over VRS. 24.com 29. The big bank theory. 23. Hindu Business Line. 17. Business Line. www. 2001.Patrick O’Hare. After VRS jubilation. March 20. Netscape can turn out products in a month. April 23. Business Week.Marc Andreessen. February 20. www.” . 14. Officer optees of VRS criticize SBI move. Manager (Internal Human Resources Web Site). Financial Express. May 4. Netscape.com 15. 2001.36 13. 2001. “Netscape's relaxed work environment drives up productivity and creativity. 2001. 22.bankersindia. Kumar Himendra. 2001. 1998.000 crore. www. Hindustan Times. Economic Times. Economic Times. Economic Times. 16. Kumar Rishi. Shukla Nimish. Business Line. 2001. SBI: Rejected VRS optees may move court. 25. Netscape. 2001. SBI downplaying VRS numbers – Unions. Because there aren't layers of management and policies to work through. expressindia. Ray Chaudhuri Sumanta. March 20. February 28. February 19.com Netscape's Work Culture “It took Microsoft and Oracle 11 years to reach the size Netscape reached in 3 years. 27. March 27. August 18. February 5. 2001. 19. Which is just cosmically fast growth. 2001. July 18. Indian Express. 2001. Business Line. 2001. www. SBI revamp to see loss-making branches merged.com 30. 20.

Navigator accounted for more than 75% of the browser market while Mosaic share was reduced to just 5%. The stock markets reacted positively and AOL’s sharevalue rose by 5% just after the announcement. Steve Case.2 in the next August 1995. Within three months. Netscape allowed users to download the software from the Internet.” Allaying these fears. in the Web browser market. During February-March 1995. In November 1994. the key strength of the company. Netscape’s CEO James Barksdale (Barksdale)[2] was supposed to join AOL’s board.0. In the same month. By March 1995. By late 1999. who had been associated with Netscape for many years. BACKGROUND NOTE Netscape was co-founded by Jim Clark (Clark) and Andreessen. the beta version[8] of Navigator 1.45 share of AOL’s common stock for each share they owned. we will be able to both broaden and deepen our relationships with business partners who need additional level of infrastructure support. a certain section of analysts doubted whether AOL’s management would accept Netscape’s casual and independent culture. By launching new versions of browsers quickly. By mid 1995.” In spite of assurances by AOL CEO. Marc Andreessen (Andreessen) stayed with AOL as Chief Technology Officer till September 1999. This new version could be run on Windows NT[6] and Macintosh Power PC[7]. Case said. Loud cloud. Mike Homer. In December 1994. and with no sales through retail outlets. it was reported that people at Netscape were asked to change the way they worked. Netscape launched Navigator 1. Once shareholders and regulatory authorities approved the deal. Netscape set new productivity . A former Netscape employee commented. We want to run this as an independent culture. they were worried that this deal may lead to a reduction in Netscape’s workforce. We are not changing any of that. In July 1999. With this acquisition. At the same time. Netscape’s shareholders received a 0. Netscape employees were asked to leave if they did not like the new management. In 1993. most of the key employees. the software market leader. had left. which was named as Electric Media (See Exhibit I). its first commercial version of its browser[5] . Andreessen developed the code for a graphical Web browser and named it Mosaic. taking along with him former CFO Peter Currie. left the company while he was on a sabbatical. Mosaic Communications was renamed Netscape Communications. Many analysts felt that this acquisition would help AOL get an edge over Microsoft. The name was changed to Mosaic Communications in May 1994. with a fellow student.2 for Windows 95 was launched. remarked. working with the National Center for Supercomputing Applications[4]. Netscape launched Navigator 1. when he left to start his own company. Moreover. and provide more value and convenience for the Internet consumers. who ran the Netcenter portal.1. “Maybe you joined the company because it was a cool company. This was without any advertising. Netscape introduced Navigator.37 transaction. “By acquiring Netscape. Andreessen was an undergraduate from the University of Illinois. “People at Netscape were nervous about the implications of AOL buying us. in an address to Netscape employees. six million copies of Navigator were in use around the world. AOL got control over Netscape’s three different businesses – Netcenter portal. Barksdale left to set up his own venture capital firm. Clark and Andreessen founded a company. (Case) Chairman and CEO of AOL. Netscape browser software and a B2B e-commerce software development division. According to the terms of the deal. Clark was a Stanford University professor turned entrepreneur[3]. In April 1994.” However. Netscape announced its plans to launch the commercial version of Navigator 1.

The company promoted an environment of equality – everyone was encouraged to contribute his opinions.” Realizing that some experiments do fail. The company believed in letting its staff take up new jobs – whether it was a new project in the same department or a new project in another department. News Server. However. enabled it to adapt quickly to changing market conditions.” The company promoted experimentation and did not require employees to seek anyone’s approval for trying out new ideas. Netscape rolled out 11 new products. worked in a cubicle. This was also evident in the company’s cubicle policy. within the first 15 months of its inception. In August 1997. In November 1998. By doing so. . Netscape’s management reposed a high degree of trust in its employees. They were even allowed to work from home. They were also expected to give sound justifications for their actions. were free to wear whatever they wanted. the world’s largest online services provider. Netscape Communications Server. so employees. There was no dress code at Netscape. The ability to introduce new versions of products in a very short span of time had made the company stand apart from thousands of startup dotcom companies that were set up during that period. Independence and handsoff management[11] were important aspects of Netscape’s culture. and Commerce Server were launched within a year. For example. Netscape also announced its plans to strengthen its presence in the browser market by forming 100 industry partnerships. “Most organizations lose employees because they don’t give them enough opportunities to try new things. Job rotation was another important feature of Netscape’s culture. a software engineer. flexible and independent culture. which translated into empowerment and lack of bureaucracy. without anyone’s approval. Netscape did not punish employees for ideas that did not work out. During 1998. By the fourth quarter of 1998. In 1997. In September 1997. In June 1997. a senior employee said. “You must come to work dressed. Netscape launched its Communicator[9] and in August rolled out Netcaster[10]. Everyone including CEO Barksdale. was allowed to make changes to any page on the site. Analysts remarked that Netscape’s ability to respond quickly to market requirements was one of the main reasons for its success. Netscape made an Initial Public Offering (IPO). Netscape was acquired by AOL. NETSCAPE’S CULTURE Netscape promoted a casual. Patrick O’Hare[12]. Netscape played a proactive role in identifying new positions for its employees inside the company. Tim Kaiser. take risks and make mistakes. Employees were not bound by rigid schedules and policies and were free to come and go as they pleased. People stay here because they have space to operate. which promoted innovation and experimentation.38 standards in the web browser market. For example. Barksdale laid down only one condition. Analysts said that Netscape’s culture. In total. related experience was not a requirement for job rotation. who managed Netscape’s internal human resources website. the company helped its employees learn about new roles and new projects in the company. Netscape therefore entered new businesses like enterprise and e-commerce software development. to maintain discipline at work. Within a year of its inception. the enterprise and e-commerce software business accounted for 75% of Netscape’s earnings. worked on four different projects in his first year of employment. Moreover. which was well received by the investing public. Netscape faced increasing competition from Microsoft in the browser market. Netscape transformed its corporate website into Netcenter website – a site featuring news and chat group services. Netscape broadened its product portfolio by developing Internet content services. Beal[13]. employees were made accountable for their decisions. They also said that the company’s enduring principle ‘Netscape Time’ (See Exhibit II) had enabled it to make so many product innovations very quickly. Numerous Netscape servers were also launched within a short period of time.

com.” But the merger with AOL reduced them to a small part of a big company. “When AOL’s stock went up. An employee remarked. Netscape browser’s marketshare fell from 73% to 36%. They brought with them John Giannandrea. When you see URLs on grocery bags. Tellme Networks. We put the Internet in the hands of normal people. “They really try to keep us informed so we feel like we are involved with the whole company. Once the acquisition was announced. who had joined AOL as chief technology officer. Andreessen. However. the stock of most of the creative people was worth a . We kick-started a new communications medium. left a $4 million salary at AOL to join Epinions. . Within a year of the acquisition. Apogee Venture Group and ITIXS. We changed the world. we were out to change the world. Market watchers were surprised and worried about this exodus of Netscape employees.5 version in Oct. overlapping technologies and organizational red tape slowed down the process of integration. 1998. Some of them felt that the mass exodus might have been caused by monetary considerations. The company created a Netscape Enterprise Group in alliance with Sun Microsystems[18] to develop software products ranging from basic web servers and messaging products to e-commerce applications.” THE SETBACK After the acquisition. on the sides of trucks. one of Netscape’s most senior engineers. Other Netscape employees helped start Responsys. As chief technologist and principal engineer of the browser group. The company also helped employees learn about the functioning of other departments. said. at the end of movie credits just after the studio logos – that was us. But some analysts believed that there were other serious reasons for the exodus.com. the value of those options rose significantly.000.com and others AuctionWatch. Netscape employees always perceived themselves as an aggressive team of revolutionaries who could change the world. “When we started this company. Some employees joined Accept. There were quarterly ‘all-hands’ meetings in which senior managers of different departments gave presentations on their strategies.39 Employees were offered a wide range of training options and an annual tuition reimbursement of US $6.” Most of them encashed their options and left the company. David Yoffie. Spark PR was staffed almost entirely by former Netscape PR employees. Most of the employees at Netscape had stock options. a Harvard Business School professor said.” Another ex-employee said. with slow-moving culture. Jamie Zawinski.. we did that. These efforts created a sense of community among employees. We were the ones who actually did it. on billboards. “We really believed in the vision and had a great feeling about our company.0 in 1994 to the launch of 4. He was soon joined by Lou Montulli and Aleksander Totic. Ramanathan Guha. His departure triggered a mass exodus of software engineering talent from Netscape. Former Netscape vice president of technology Mike McCue and product manager Angus Davis founded Tellme Networks. Before resigning from AOL. John Giannandrea was involved with every Navigator release from the first beta of 1. the 20th person hired at Nescape. Soon after.. AOL planned to integrate Netscape’s web-browser products and Netcenter portal site with its Interactive Services Group[17]. engineers from Netscape joined Silicon Valley start-ups like Accept. resigned only after six months on the job. This opportunity to expand their skills on the job was valued by all employees. two of Netscape’s six founding engineers. fortune.

modified by outside developers. A dedicated internal team and the website guide the open source code to developers. Netscape releases programming source code for its Communicator software. software. Electric Media changes its name to Mosaic Communications Mosaic Communications changes its name to Netscape Communications Netscape Navigator. SuiteSpot 3.0.org launched. Mozilla.0. The US Justice Department and 20 state attorney generals file an 18-May-98 antitrust case accusing Microsoft of abusing its market power to thwart competition. giving Internet Explorer the coveted spot as the service provider's browser. Netscape and Sun Microsystems announce Java Script. Netscape releases Communicator Netscape releases Netcaster. Netscape's IPO is one of the hottest stock-market debuts ever. and Communications Servers ship.40 EXHIBIT I NETSCAPE – CHRONOLOGY OF EVENTS DATE 1-Mar-94 Apr-94 May-94 Nov-94 Dec-94 Aug-95 Dec-95 11-Mar-96 12-Mar-96 May-96 Oct-96 Oct-96 11-Jun-97 Aug-97 EVENT Jim Clark and Marc Andreessen begin talks on forming a new company The company (first named Electric Media) is founded by Clark and Andreessen. Netscape Commerce. Netscape becomes enterprise-software purveyor.0.0 includes Netcaster.0's source code over the Net free. basic email. 3-Sep-97 22-Jan-98 23-Feb-98 31-Mar-98 10-Apr-98 It unveils the Netcenter Web site. and calendar software.and Internet-server software packages. AOL strikes a deal with Microsoft. .com into a site featuring news. Netscape announces Netscape Navigator 3.org posts the first version of its source code.with their products. rolling out intranet. transforming the corporate Netscape. push-media software Netscape announces an initiative to retain its browser share by forming 100 industry partnerships.unbundled from the 18-Aug-97 Communicator suite -. Netscape announces its server product. It offers Communicator 5. The streamlined Navigator 4. America Online agrees to include Netscape in every copy of its Internet-access software. Its new partners agree to package the Navigator browser -. and chat groups. Mozilla. including Netscape 29-Jun-98 Netscape debuts Netcenter 2.

the latest version of its browser software. Andreessen said. “If you over manage software. Even at 1 am. Netscape cedes browser-share lead to Microsoft's Internet Explorer. AOL is involved in negotiations for buying Netscape in an all-s 28-Sep-98 19-Oct-98 22-Nov-98 EXHIBIT II NETSCAPE TIME Netscape Time was Netscape’s most enduring principle. or discuss a problem. The company’s management believed that their role was to instill urgency at all levels. It features Smart Browsing.’ Ever since its inception.’ Netscape’s employees seemed to be habituated to non-stop work.’ Netscape described Netscape Time as “turning out new product releases four times faster than the competition.” In less than nine months. They always potrayed Netscape as a startup which had to compete with industry giants like Microsoft and Oracle. the result is paralysis. Roaming Access. employees worked round-the-clock for eight months. at which the employees worked and delivered new products. Netscape releases Communicator 4. ‘Just enough management’ was the fourth principle. there were employees to give ideas. The company wanted them to get used to Netscape’s code-writing culture. Neither Clark nor Andreessen played major roles in the management.” Another principle of Netscape Time was doing things ‘four times faster. Netscape knew that even a predator could become a prey. talk code. Netscape maintained a lightening speed in whatever it did. Silicon Graphics etc. went home for dinner and then came back to office and worked till late night. Netscape seemed to consciously undermanage. The last and most important aspect of Netscape Time was ‘Web squared. ‘The paranoid predator’ was the second principle. It was about the speed. It hired programmers from the best schools and from companies like Oracle.41 According to a study by a market researcher. Netscape launched three versions of its browser as well as servers. Jim Sha. all the time.’ Netscape placed Web at the heart of its . to launch the company’s first product. Analysts felt that the company could move quickly because it knew what it wanted. and RealNetworks' RealPlayer 5. For example. General Manager. The third principle was ‘all work. Netscape Time had six core principles: The first principle was ‘fast enough never is. worked for 11 hours a day at the office.0.5. It concerned the mind-set of employees than the business model of the company.

There is also coverage for contact lenses.” and released usable software quickly. Employees can also buy additional employee and dependent life insurance at discounted rates. Business Travel Accident Insurance Netscape provides an additional three times your annual earnings in accidental . the plan will pay 80% of covered expenses for basic restorative care. He believed in using the Web to access the source of perfection. If an employee becomes disabled and is unable to work. reduced by any benefits to receive from sources such as Social Security or Workers Compensation. without waiting for perfection. Life Insurance Netscape provides employees with basic life insurance as well as accidental death and dismemberment insurance at no cost to the employee. Choice Plus. Each employee is covered at two times annual salary up to a maximum of $500. Point-of-Service (POS). They receive reimbursements when they incur eligible expenses. Dental Benefits The Dental Plan pays 100% of covered expenses for preventative care such as periodic cleanings with no deductible. After 180 days of total disability. EXHIBIT III BENEFITS FOR NETSCAPE EMPLOYEES Medical Benefits The plan options include the United HealthCare Choice Plan. Andreessen believed that “worse is better. Their feedback was utilized to design the next version. A fully supported version of the software was later sent to interested users. the employee may be eligible for benefits under Netscape's Long Term Disability Plan. he will be covered by a salary continuation plan covering you at 70%-100% of your pay for up to 180 days. Disability Benefits The Long Term Disability Plan assures of a continuing income in the event of an employee is unable to work due to a covered accident or illness. Employees can deposit up to $5. The plan pays up to 60% of pre-disability salary. Interested users could download an ‘evaluation copy’ from the Internet. Income Protection Income protection includes disability. After an annual US $100 deductible.42 operations. Vision Care The vision plan provides reimbursement for services such as annual exams. The company did not use any retail outlets or resellers. Exclusive Provider Option (EPO). This helped increase the company’s interaction with the customers. frames and lenses.000. Employees out-of-pocket cost can be as low as US $20 if you use a participating provider.000 of pre-tax pay into a Health Care FSA and up to $5. 50% for major care and 50% for orthodontia. Flexible Spending Accounts Spending accounts can offer significant tax savings.000 of pre-tax pay in a Dependent Care FSA. sick leave and workers compensation. Preferred Provider Option (PPO) and Kaiser HMO (available in California).

on specified offering period dates. Netscape offers a Tuition Assistance Program to aid those employees who are pursuing job-related degrees or participating in professional development courses. Onsite Services . The Plan offers 16 investment alternatives through Fidelity Investments and includes loan. Subject to IRS guidelines. Employee Assistance Program (EAP) A team of professional master level counselors and experienced registered nurses are available 24 hours a day at a toll-free number. and personal issues that can impact your life and health. work. Vacation Full-time employees earn up to ten days of vacation during their first year of service. With payroll deductions. Hyatt Legal Netscape offers a group legal program through Hyatt Legal Plan on a voluntary basis through payroll deduction. 401(k) Retirement Savings Plan The 401(k) Retirement Savings Plan provides employees an opportunity to save for retirement on a tax-deferred basis. Employee Services Life@Work Programs Netscape has developed a variety of programs to assist employees with a broadrange of work-life issues.000 in 2000) into the savings plan. As part of this commitment. employees can direct up to 15% of their pretax earnings (8% for employees earning $80. and twenty days after six years of service. you may invest up to 15% of your compensation through after-tax payroll deductions.43 death benefits up to $900. Paid Holidays Netscape observes nine scheduled company-designated holidays and up to two employee-designated personal holidays per year. rollover. The program has been designed to assist employees in balancing some of the responsibilities of everyday life. Employees have on-line access to their accounts. Employees may only enroll in the Plan twice a year. EXHIBIT III BENEFITS FOR NETSCAPE EMPLOYEES contd.. and hardship options. The LesConcierges team can save you time and energy through services to support your work and home responsibilities.0000 to employees while traveling on company business (excluding every day travel to and from work). The health and welfare of our employees is of tremendous importance to us.. Tuition Assistance Program Netscape is committed to the short and long-term professional development of its employees. family. financial. This plan gives you and your dependents easy access to professional legal representation at an affordable price. Employee Stock Purchase Plan (ESPP) The Employee Stock Purchase Plan provides employees with the opportunity to purchase shares of AOL common stock at discounted prices through payroll deductions. legal. (Part-time employees accrue one-half that of a fulltime employee). increasing to fifteen days after three years of service. The EAP can help you and your family with medical. Concierge Service LesConcierges puts a team of service professionals at your fingertips to meet any need that will make your life easier.

dry cleaning. softball. (Fitness centers are also available at some Netscape site locations). oil changes and more! ClubNet Programs that help you maximize your health and fitness through a variety of programs ranging from fitness workout and recreational sports to exhilarating outings.netscape.com EXHIBIT IV NETSCAPE CONSOLIDATED STATEMENT OF OPERATIONS (in US$ thousands) Revenues Product Service Total Cost of Revenues: Cost of Pdt Rev Cost of Ser Rev Total Gross Profit Operating Expenses R&D Sales & Mktg. photo processing. dental care. Child & Elder Care Referral Service Assists employees with finding dependent care resources with information from LifeCare. Gen & Admn 4146 7750 3389 26841 83863 11336 30981 500 -2033 --250 -6100 --129928 123238 50356 -5848 23000 -42715 --12000 5088 43679 154545 272110 213004 186 247 433 3705 9177 2530 36943 13124 50232 31557 81789 27313 90717 118030 3337 801 4138 77489 291183 383950 261457 7898 55111 149901 186352 85387 346294 533851 447809 1994 1995 1996 1997 1998 (Oct 31) 11707 50067 73680 296227 452062 329779 Property rights agmt and related 2487 charges Purchased in-process R&D Mergers related charges Restructuring charges Goodwill Amortization Total Operating Income (Loss) Interest Income Interest Expense Net Income (Loss) Source: www.sec.44 Services onsite such as a florist.gov ----- 103087 -- 17772 84389 275739 584329 396045 -14067 -10709 20488 251 -14 4898 -304 --19517 -132267 -66266 --6873 -- -13830 -6613 -115496 -51417 . Sports and recreational activities that include basketball. volleyball. Source: www. much more! Activities vary by location. Some Netscape locations have onsite ATMs for employee banking convenience.com. rock climbing and much. massages. golf. Credit Unions and Banking Select from a variety of different employer-sponsored credit unions for low rates on loans and CDs. inline skating. soccer.

Dr.Dr. The Rise and Fall of Netscape. 11. morale and longevity of the men and women who are any company’s most valuable asset. Birchard Bill. www. www. Zaret Elliot. 10. March 8. AOL-Netscape: One Year Later. 5. All this was done under the Health and Wellness Program (HWP) that the company introduced in 1995. www. Geeks Vs Suits. Can Aol And Netscape Make It Work?. Start-Up-Cum-Goliath Works Hard to Get Help. 2.nua. Netscape through the Ages. Johnson & Johnson. Moreover. “Our research time and time again confirms the benefits of healthier. 1999.forbes. J&J witnessed a decline of 15% in employee absenteeism rate. Schneider Polly. 1999. November 23.com. Director. 8. Johnson & Johnson's Health and Wellness Program “Top management is recognizing physical fitness as a prudent investment in the health.org. www. 1999. Steinert Tom. 1998.com. December 1. www. Hire Great People Fast. The award was decided on the basis of four parameters[6] – Healthy People. 4.com. August 22. J&J explained the rationale behind implementing the program[7] . The company saved $8. Ex-President of the Association for Fitness in Business[1] “We believe our Health & Wellness Program can continue to achieve long-term health improvements in our employee population. www.slashdot. They have fewer and lower long-term medical claims. America Online must prove that East Can Meet West. Healthy Environment.fastcompany. November 30. www. www. Swartz Jon.45 ADDITIONAL READINGS AND REFERENCES 1. November 30.com. Brown Janelle. Inside Netscape.com. 1997. www. 1998. Healthy Company and Overall Management (Refer Exhibit I). 3. J&J was one of the four national winners[5] selected for having the healthiest employees and workplace environment in the US. The company not only offered employee assistance programs and benefits packages but also introduced several family-friendly policies and offered excellent professional development opportunities to its employees. January 5.wired. Peter Soderberg. 7. These parameters were considered crucial for developing and deploying a comprehensive corporate health program. Occupational Medicine.loyaltyfactor. November 25. President.fastcompany.” . November 1995. www. 6. the New Jersey Psychological Association presented J&J with the Psychologically Healthy Workplace Award for its commitment to workplace wellbeing and developing a psychologically healthy work environment for its employees. Kornblum Janet. vigor.com.com. 9.cnn. Fikry Isaac. November 1995. Katz Jon. fitter employees. they are absent less. 1998. Richard Keller.com. In 2000. According to analysts.com.wired. CNET News. Can You Work at Netscape Time?.ie. The Renaissance Company. The program benefited both J&J and its employees. within two years of implementing HWP. The Netscape Tragedy.” . 1998. Health & Productivity[2] INTRODUCTION In 1998. November 23.5 million per annum in the form of reduced employee medical claims and administrative savings. Tsuruoka Doug. their disability costs are . these prestigious awards were given to J&J in recognition for its continuous efforts to create a healthy work environment. 1998. the American College of Occupational and Environmental Medicine conferred Johnson & Johnson (J&J)[3] the Corporate Health Achievement Award (CHAA)[4] .msnbc.

When more people come to work. onsite accidents. when people stay at the job longer. lower productivity and decreased employee morale due to health problems. The survey discovered a close connection between employee wellness programs[14] (which included flexi work options. As a result of these health problems. DW Edington[15]. the US industry expenditure on the medical and disability bills of employees was rising significantly. Vice-President. and fitness programs in particular may be the only employee benefits which pay money back.cornell. you don’t need to pay overtime or temporary help. Work stress led to problems like nervousness.700 in 2002. employee assistance programs) with 16 key result areas including enhanced efficiency.162 in 2001 and around $5.” Ron Z.edu In 1997. which involved about 150 executives. according to the estimates of Mercer[10] . and that rose to $5.46 lower and their perceived personal productivity and job/life satisfaction levels are higher. training costs go down. high morale and reduced health-care costs of employees. TABLE I ANNUAL AVERAGE COST PER EMPLOYEE DUE TO VARIOUS HEALTH PROBLEMS Nature of Health Problem Heart disease Mental health problems High blood pressure Diabetes Low back pain Annual average cost per employee $236 $179 $160 $104 $90 Heart attacks/Acute myocardial $69 blockages Bi-polar disorders/Maniac depression Depression Source: www. Moreover.” $62 $24 . Apart from other health related problems (Refer Table I).news. high employee satisfaction. burn-out and absenteeism.”[9] BACKGROUND NOTE The US industry spent approximately $200 bn per annum on employee health insurance claims. Elaborating the benefits of these programs. companies had paid an estimated $4000 per annum per employee as healthcare costs. tension. inefficiency in work and even chronic diseases like cardiac arrest and hypertension. “Wellness programs in general. lower health care claims cost you less if you’re self-insured and health care insurers as well as some companies are already beginning to create premiums based on fitness levels. low absenteeism. absenteeism increased and productivity of employees declined. the Whirlpool Foundation[11] . employee care. MEDSTAT Group[8] added. stress at workplace was considered to be one of the main reasons for this high expenditure. Consulting and Applied Research. anxiety. the Working Mother magazine[12] and the Work and Family Newsbrief[13] carried out a survey in the US. low turnover. Goetzel (Goetzel). “There’s a growing body of data indicating that corporate wellness programs lower medical costs for employees. Professor at the University of Michigan said[16] . In 1998. loss of patience. This signified that a company which had a good health and wellness program had to offer less in terms of monetary assistance to its employees.

PIL on the other hand claimed that it had been forced to go slow because of the slowdown in the CTV market. The company’s name was changed to Philips India Pvt. PIL decided to modernize its Salt Lake factory located in Kolkata.78 lakh CTVs in three years. Ltd.. the Kalwa factory in Maharashtra began to produce electronics measuring equipment. there were no signs of discord largely due to the unions’ involvement in the overall process. In the wake of the booming consumer goods market in 1992. the unconvinced workers raised voices against the management and asked for a hike in wage as well. After being initially involved only in trading. a subsidiary of Holland based Philips NV was established. The company even expected to win the Philips Worldwide Award for quality and become the source of Philips Exports in Asia. By 1996.70 crores on the plant. PIL set up manufacturing facilities in several product lines. In line with this decision. bitter battle between the company and its two unions Philips Employees Union (PEU) and the Pieco Workers’ Union (PWU) over the factory’s sale. a subsidiary of Videocon. PIL wanted to concentrate its audio and video manufacturing bases of products to different geographic regions. when Philips Electricals Co. The company immediately revealed its plans to take further legal action and complete the sale at any cost. PIL commenced lamp manufacturing in 1938 in Kolkata and followed it up by establishing a radio manufacturing factory in 1948. The resolution was to seek the shareholders’ permission to sell the color television (CTV) factory to Kitchen Appliances Limited. Director. “The company’s top management should now see reason. near Pune. In spite of the move that resulted in the displacement of 600 workers.47 Philips India . These differences resulted in a 20-month long battle over the wage hike issue. the company relocated its audio product line to Pune. SOURING TIES PIL’s operations dates back to 1930. the go-slow tactics of the workers and the declining production resulted in . The unions realized that the management might not be able to complete the task and that their jobs might be in danger.” Philips sources on the other hand refused to accept defeat. in September 1956 and it was converted into a public limited company in October 1957. PIL claimed that the workers were already overpaid and under productive. The company subsequently started manufacturing telecommunication equipment in Kolkata. An electronics components unit was set up in Loni. A judgement of the Kolkata[1] High Court restrained the company from giving effect to the resolution it had passed in the extraordinary general meeting (EGM) held in December 1998. However. Following this.Labor Problems at Salt Lake “They (unions) should realize that they are just one of the stakeholders in the company and have to accept the tyranny of the market place. Ours is a good factory and the sale price agreed upon should be reasonable. The employees retaliated by saying that said that they continued to work in spite of the irregular hike in wages. in 1959. (India) Ltd. Further how come some other company is willing to take over and hopes to run the company profitably when our own management has thrown its hands up after investing Rs. SELLING BLUES The 16th day of March 1999 brought with it a shock for the management of Philips India Limited (PIL).” – Manohar David. PEU president Kiron Mehta said. the plant’s output was to increase from a mere 40000 to 2. PIL’s capacity expansion plans had fallen way behind the targeted level. The judgement came after a long drawn. PIL in 1996. In 1963.

however.” Defending the company’s decision not to carry out the amendments as demanded by the financial institutions.” S. a resolution was passed at PIL’s annual general meeting (AGM) with a 51% vote in favor of the sale. They asked for certain amendments to the resolutions. the FIs demanded a vote on the sale resolution at an EGM. PIL then appointed Hong Kong and Shanghai Banking Corporation (HSBC) to scout for buyers for the factory. The total value of the plant was ascertained to be Rs 28 crore and Videocon agreed to pay Rs 9 crore in addition to taking up the liability of Rs 21 crore. refused to budge from its position and rejected the offer. PIL announced its decision to stop operations at Salt Lake and production was halted in June 1998. Director Ramachandran stated that the company had plans to depend on outsourcing rather than having its own manufacturing base in the future. “The sale will not profit the company in any way. PIL reduced the workforce and modernised the unit. along with the PEU demanded a hike of Rs 2000 per worker and other fringe benefits. and the financial institutions were among the shareholders of the company. and hence they have not been able to make an informed decision. Videocon agreed to buy the factory through its nominee. Out of 750 workers in the Salt Lake division. The workers were surprised and angry at the decision. which were rejected by PIL. spending Rs 7. Kiron Mehta said. Videocon was one of the companies approached. the CTV factory is absolutely state-of-the-art with enough capacity. After a series of negotiations. Following this. In September 1998. In May 1998. the unions and the management came to a reasonable agreement on the issue of the wage structure. The company planned to set up an integrated consumer electronics facility having common manufacturing technology as well as suppliers base. Though initially Videocon seemed to be interested.48 huge losses for the company. In tune with this decision.Roychoudhary of the Independent Employees Federation in Calcutta said. This was a climbdown from its earlier stance when the union. After negotiations and clarifications. it expressed reservations about buying an over staffed and under utilized plant. The company selected Pune as its manufacturing base and decided to get the Salt Lake factory off its hands. Commenting on the FIs opposing the resolution. Kitchen Appliances India Ltd. they eventually voted in favor of the resolution. 391 workers opted for VRS.To make it an attractive buy. The group of FI shareholders comprising LIC. Ramachandran said that this was not logical as the meeting was convened to take the approval of the shareholders. As a manufacturing unit. At that point. PEU. “The management’s decision to sell the factory is a major volte face considering its efforts at promoting it and then adding capacity every year. “it is only that the institutions did not have enough time on their hands to study our proposal in detail. . GIC and UTI initially opposed the offer of sale stating that the terms of the deal were not clearly stated to them. provident fund etc. PWU members agreed to the Rs 1178 wage hike offered by the management. Philips decided to follow Philips NV’s worldwide strategy of having a common manufacturing and integrated technology to reduce costs. company sources said. In December 1998. Videocon agreed to take over the plant along with the employees as a going concern along with the liabilities of VRS. SELLING TROUBLES In the mid-1990s. the employees were appraised and severance packages were declared. Most of the favorable votes came from Philips NV who held a major stake in the company.1 crore in the process. The factory was to continue as a manufacturing center securing a fair value to its shareholders and employees.N.

They followed it up with proofs of Videocon's failure to make payments in time during the course of its transactions with Philips. The unions also claimed that they wrote to the FIs' about their objection. have said that around 200 of the 360 workers at the CTV unit are less than 40 years of age and a similar number have less than 10 years work experience. senior members of the union said. then the union’s offer would be considered along with other interested parties. the union firmly maintained that it had contacts with reputed and capable businessmen who were willing to help them. “There is no way that a VRS at the CTV unit can set Philips by more than Rs 9. Clarifying the point that the employees did not intend to takeover the plant. Mehta said. All options are open.” They explained that PIL officials. It consistently gets ISO 9000 certification and has skilled labor. by their own admission. “We can always enter into an agreement with a third party. In the last week of December 1998. It is close to Kolkata port. Countering this. The unions approached the company with an offer of Rs 10 crore in an attempt to outbid Videocon.2 crore. Videocon refused to change its decision. But PIL rejected this offer claiming that it was legally bound to sell to Videocon and if the offer fell through. The management contended that a VRS offer at the CTV unit would have cost the company Rs 21 crore. PIL officials said that the sale price was arrived at after considering the liabilities that Videocon would have along with the 360 workers of the plant. “If Philips India wants to run the unit again..49 SELLING TROUBLES contd. employees of PIL spoke to several domestic and multinational CTV makers for a joint venture to run the Salt Lake unit. The workers then filed a petition in the Kolkata High Court challenging PIL’s decision to sell the factory to Videocon.” It was added that the union had also talked to several former PIL directors and employees who they felt could run the plant and were willing to lend a helping hand. This makes it incompetent to enter into the deal. The union also pointed out that the deal which was signed by Ramachandran should have been signed by at least two responsible officials of the company. Also.” The unions challenged PIL’s plan of selling the CTV unit at ‘such a low price of Rs 9 crore’ as against a valuation of Rs 30 crore made by Dalal Consultants independent valuers. Refuting this. In view of the rejection of its offer by the management. Do not think that we are intending to take over the plant. making shipping of components from Far Eastern countries easier. Kiron Mehta said. PIL said that it would not let the workers use the Philips brand and that the workers could not sell the CTVs without it. It can be a partnership firm or a joint venture..” . We have already started dialogues with a number of domestic and multinational TV producers. As regards their financial capability to buy out the firm. Moreover the workers were taking a great risk by using their savings to buy out the plant. The workers then approached the Dhoots of Videocon requesting them to withdraw from the deal as they were unwilling to have Videocon as their employer. then we will certainly withdraw the proposal. PIL’s major market is in the eastern region. the workers said that they did not trust Videocon to be a good employer and that it might not be able to pay their wages. cooperative savings and personal savings. This included the gratuity and leave encashment liabilities of workers who would be absorbed under the same service agreements. They claimed that they could pay the amount from their provident funds. the union stated in its letter that one of its objection to the sale was that the objects clause in the memorandum of association of Kitchen Appliances did not contain any reference to production of CTVs.

The company further said that the matter was beyond the trial court’s jurisdiction and its interference was unwarranted. Justice S. General Counsel. Critically comment on PIL’s arguments regarding not accepting the union’s offer to buy the factory. QUESTIONS FOR DISCUSSION: 1. the Kolkata High Court passed an order restraining any further deals on the sale of the factory. The Division bench however did not pass any interim order and PIL moved to the Supreme Court. Highlight the reasons behind PIL’s decision to sell the Salt Lake factory. JUDGEMENT DAY In December 2000. The judge said that though the workers can demand for their rights. 3. said. Comment on the reasons behind the Salt Lake workers resisting the factory’s sale. Could the company have avoided this? . The unrelenting PIL filed a petition in the Division bench challenging the trial court’s decision. The Supreme Court decision seemed to be a typical case of ‘all’s well that ends well.’ Ashok Nambissan.K. Following the transfer of ownership. “The decision taken by the Supreme Court reiterates the position which Philips has maintained all along that the transaction will be to the benefit of Philips’ shareholders. as the price had been a negotiated one. PIL and Videocon decided to extend their agreement by six months to accommodate the court orders and the worker’s agitation. ‘Changes taking place in PIL made workers feel insecure about their jobs. Accordingly. the employment of all workmen of the factory was taken over by Kitchen Appliances with immediate effect. the Supreme Court finally passed judgement on the controversial Philips case. The judgement dismissed the review petition filed by the workers as a last ditch effort. The terms and conditions of employment too were not changed. Kitchen Appliances started functioning from March 2001.’ Do you agree with this statement? Give reasons to support your answer. PIL. It was in favour of the PIL. they had no say in any of the policy decisions of the company. This factory had been designated by Videocon as a major centre to meet the requirements of the eastern region market and export to East Asia countries.” How far the Salt Lake workers agreed with this would perhaps remain unanswered. the services of the workmen were to be treated as continuous and not interrupted by the transfer of ownership. 2.50 In March 1999.Sinha held that the transfer price was too low and PIL had to view it from a more practical perspective. if their interests were not adversely affected.

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