MBA (HRD) III SEMESTER

SUBJECT: PUBLIC RELATIONS

TOPIC: CASE STUDY

FROM: KRATIKA PRADHAN

SOS IN MANAGEMENT JIWAJI

UNIVERSITY GWALIOR

Case study 1:

We give below a situation which many companies often face in today’s

competitive scenario.
 
In a company X, union had given a proposal to the management for a 20
% hike in the wages. The collective bargaining process was still going on.
 
The Industrial relations manager was clever, so he called for an
immediate meeting with the union. He tried to put the sate of affairs in
front of the union and asked them to find a solution. This is what he
presented to the union:
 
 The input prices (cost of raw material, electricity, water etc) have
gone up by 10 %
 Due to competition the company has to reduce the product price by
10%
 At the same time the share holders are also expecting 5 % more
returns from the existing 15 %
 
The IR manager puts forward the above circumstances in front of the
union and asked them to give a solution.
 
Tasks for the participants:
 
 How to develop a strategy to respond this situation?
 What are the areas that you can explore to find an answer?

Case study 2:

State Bank of India - The VRS Story

“They are propagating the VRS in such a manner that the employees are
being compelled to opt for the scheme.”

- V.K.Gupta, SBI employee’s union leader in December 2000.

VRS TROUBLES

In February 2001, India’s largest public sector bank (PSB), the State Bank
of India (SBI) faced severe opposition from its employees over a
Voluntary Retirement Scheme (VRS).

The VRS, which was approved by SBI board in December

2000, was in response to Federation of Indian Chambers of
Commerce and Industry’s (FICCI)[1] report on the banking
industry. The report stated that the Indian banking industry
was overstaffed by 35%. In order to trim the workforce and
reduce staff cost, the Government announced that it would
be reducing its manpower.

Following this, the Indian Banks Association (IBA)[2]

formulated a VRS package for the PSBs, which was
approved by the Finance ministry. Though SBI promoted
the VRS as a ‘Golden Handshake,’ its employee unions
perceived it to be a retrenchment scheme. They said that
the VRS was completely unnecessary, and that the real
problem, which plagued the bank were NPAs[3] .

The unions argued that the VRS might force the closure of rural branches
due to acute manpower shortage. This was expected to affect SBI’s aim
to improve economic conditions by providing necessary financial
assistance to rural areas. The unions also alleged that the VRS decision
was taken without proper manpower planning.

In February 2001, 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. Consequently, applications
of around 12,000 officers were rejected. 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.

The average estimated cost per head for implementation of VRS for SBI
and its seven associated banks worked out to Rs 0.65 million and Rs 0.57
million respectively. As a result of the VRS, SBI’s net profit decreased
from Rs 25 billion in 1999-00 to Rs 16 billion in 2000-01.

BACKGROUND NOTE

The SBI was formed through an Act of Parliament in 1955 by taking over
the Imperial Bank. The SBI group consisted of seven associate banks:

• State Bank of Hyderabad

• State Bank of Indore
• State Bank of Mysore
• State Bank of Patiala
• State Bank of Saurashtra
• State Bank of Travancore
• State Bank of Bikaner & Jaipur

The SBI was the largest bank in India in terms of network of

branches, revenues and workforce. It offered a wide range
of services for both personal and corporate banking. The
personal banking services included credit cards, housing
loans, consumer loans, and insurance. For corporate
banking, SBI offered infrastructure finance, cash
management and loan syndication[4] .

Over the years, the bank became saddled with a large

workforce and huge NPAs. According to reports, staff costs
in 1999-2000 amounted to Rs 4.5 billion as against Rs 4.1
billion in 1998-99. Increased competition from the new
private sector banks (NPBs) further added to SBI’s
problems. The NPBs had effectively leveraged technology
to make up for their size.

Though SBI had 9,000 branches, a mere 22% of those (1935 branches)
were connected through Internet. In contrast all of HDFC [5] Bank’s 61
branches were connected. By 2000, SBI’s net profit per employee was Rs
0.43 million while HDFC’s was Rs 0.96 million, and SBI’s NPA level was
around 7.18% as against HDFC’s 0.73% (Refer Table I).

TABLE I
A COMPARISON BETWEEN SBI & SOME NPBs

PROFIT
PER
NPAs/NET
EMPLOYEE
BANK ADVANCES
(Rs in
Million)

SBI  7.18%  0.43

HDFC  0.77%  0.96

 UTI BANK  4.71%  0.69

ICICI
 1.53%  0.78
BANK

GTB  0.87%  1.2

IDBI
 1.95%  1.15
BANK
Source: www.bankersindia.com

Analysts remarked that the very factors that were once hailed as the
strengths of SBI - reach, customer base and experience - had become its
problems. Technological tools like ATMs and the Internet had changed
banking dynamics. A large portion of the back-office staff had become
redundant after the computerization of banks. To protect its business
and remain profitable, SBI realized that it would have to reduce its cost
of operations and increase its revenues from fee-based services. The VRS
implementation was a part of an over all cost cutting initiative.

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,
whichever was less. While 50% of the payment was to be paid
immediately, the rest could be paid in cash or bonds. An employee could
avail the pension or provident fund as per the option exercised by the
employee. 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, 2000.

THE PROTESTS

The SBI was shocked to see the unprecedented outcry against the VRS
from its employees. 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.

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. Moreover, the unions
alleged that the management was compelling employees to
opt for the VRS. 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.

In December 2000, SBI had formed a joint venture with the

French insurance company Cardiff, for entering the life
insurance business. The unions questioned the logic behind
diversifying the business and cutting down the staff
strength. They argued that this move would significantly
increase workforce burden and, consequently, adversely
affect customer service.

In 2000, SBI had undertaken a large-scale clientele membership drive in

some states to attract more customers. The unions opined that the VRS
could prove to be counterproductive as the increased business might not
be handled properly.

However, despite all the protests, SBI received around 35,000

applications for the VRS. Analysts pointed out that many bank
employees opted for the VRS due to the better employment prospects
with the NPBs. SBI had not anticipated such a huge response to the
scheme. While the VRS was mainly aimed at reducing the clerical staff
and sub-staff, the maximum number of optees turned out to be from the
officer cadre. The clerical staff was reluctant to go for the VRS due to the
low employment opportunities for them in the NPBs. According to
reports, the number of applications from officers stood at 19,295, which
meant that over 33 per cent of the total officers in the bank had sought
VRS.

Following huge response to the VRS from officer cadre, SBI issued a
circular stating that the management would relieve only those officer
cadre applicants who had crossed the age of 55 years. The bank also
issued a circular barring treasury managers, forex dealers and a host of
other specialized personnel, from seeking VRS. Employees who had not
served rural terms were also barred from opting for the scheme. The
VRS was also not open to employees who were doctorates, MBA’s,
Chartered Accountants, Cost & Works accountants, postgraduates in
computer applications. In another circular, SBI mentioned that any break
in service (i.e. leaves availed on a loss of pay basis) would not be taken
while calculating the service period. The bank also restricted the loan
facilities to the personnel who had opted for the VRS. If an employee
wished to continue a housing loan after accepting VRS, he was asked to
pay interest at the market rate. After these restrictions were introduced,
only 13.4% of the officers were left eligible for VRS instead of the earlier
33%.

The conditions laid down by the management faced strong criticism

from the officers who had opted for the VRS, but who could not meet
the prescribed criteria. 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.

Media reports also called SBI’s decision to restrict the VRS as arbitrary,
discriminatory and belying the voluntary character of the scheme.
Unions argued that if the bank was so particular that only 10% of its staff
leave under the VRS, it could have closed the scheme immediately after
the required number of applications were received. The unions also
argued that 35,000 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%), where all the applications that were received were also
accepted for VRS.

The officers who were denied the VRS formed an action group in March
2001. They claimed that SBI had violated the guidelines of the
Government and the Indian Banks Association. According to the
members of the group, any shortfall in the number of officers could
easily be met by promoting suitable clerks. They also cited the example
of Syndicate Bank, which promoted about 1,000 clerical staff to officer
level. The group filed cases before High Courts in various parts of the
country, challenging SBI’s decisions. A delegation of VRS-denied officers
even met the Finance Minister and also submitted a memorandum to
the SBI management.

THE POST VRS DAYS

According to reports, SBI’s total staff strength was expected to come

down to around 2,00,000 by March 2001 from the pre-VRS level of
2,33,000 (Refer Table III). With an average of 5000 employees retiring
each year, analysts regarded VRS as an unwise move.

By June 2001, SBI had relieved over 21,000 employees

through the VRS. It was reported that another 8,000
employees were to be relieved after they attained the
retirement age by the end of 2001. Analysts felt that this
would lead to a tremendous increase in the workload on
the existing workforce.

According to industry watchers, by 2010, the entire SBI staff

recruited between mid 1960 and 1980 would retire. As a
result, 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.

TABLE II
CHANGE IN SBI’s STAFF STRENGTH

31-03-01 31-03-00 % change

 

Officers  52,558  59,474  -11.63%

Clerical  103,993  115,424  -9.90%

Subordinate  53,729  58,535  -8.21%

Total  210,280  233,433  -9.92%

Source: www.indiainfoline.com

In the post-VRS scenario, 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. SBI also planned to reduce its regional offices from 10 to 1 or 2 in
each circle. In August 2001, it was reported that a single officer had to
take charge of 3 or 4 branches as the daily concurrent audit got affected.
Departments like internal audit, concurrent audit, monitoring, inspection
of borrowals had hardly any staff, according to reports. It was reported
that employees working in branches that had a high workload went on
work-to-rule agitation, blaming the VRS for their problems. 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 had
many strong organizational strengths and an excellent training system,
but due to weak HR policies, it had lost its experts to its competitors.

The employees of almost all the new generation private sector banks
were former employees of SBI. The bank’s well-defined promotion policy
was systematically flouted by the framers themselves and, as a result,
employees with good track records were frequently sidelined. Many
analysts felt that SBI was not able to realize the critical importance of
recognizing inherent merit and rewarding the performers.

The above factors were cited as the major reasons for the success of VRS
in the officer cadres, who were reported to be demoralized and de-
motivated. The arbitrariness and insensitivity at the corporate level had
dealt a severe blow to the employees of the organization. What
remained to be seen was whether SBI would be able to reorganize its
HRD policy and retain its talented personnel.

QUESTIONS FOR DISCCUSION

1. The results of the SBI VRS were not in line with the management’s
expectations. Comment on the above statement and discuss the effects
of the VRS on SBI.

2. In most of the VRS implementation exercises in Indian PSUs, the

largest number of applicants have been from the officer cadre. 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.

3. The outcome of the SBI VRS has highlighted the need for proper
manpower planning and HRD policies in Indian public sector banks.
 Discuss the various steps to be taken by the SBI in the post VRS
scenario?

https://www.hrindya.com/hr-managers-toolkit/case-studies-on-industrial-relations/

ALL CASES

Case studies on Industrial Relations:

1. SAIL’s Voluntary Retirement Scheme

2. BATA India’s HR problems
3. The Indian Call Centre Journey
4. State Bank of India – The VRS Story
5. Philips India – Labor Problems at Salt Lake
6. Netscapes Work Culture
7. Johnson & Johnson’s Health and Wellness Program
8. Indian Airlines HR Problems
9. Employee Downsizing
10. Change Management at ICICI

SAIL'S VOLUNTARY RETIREMENT SCHEME

Published in 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:
• 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 non-plant departments like schools, township activities
etc, SAIL could well bring down to less than 10,000.
Reduction of white-collar manpower required a change in the systems of office work
and record keeping, and a very high degree of computerization. Officers across the
organization employed dozens of stenographers and assistants. Signing on note sheets
was a status symbol for SAIL officers.
Another official commented: "Systems have to be result oriented, rather than person
oriented and responsibilities must match rewards and recognition. There is a need to
change the mindset of the management, before specific plans can be drawn out for
reduction of office staff."
From the beginning, SAIL had to contend with political intervention and pressure.
Many officials held that SAIL had to overcome these objectives: “Many employees
do not have sufficient orders or work on hand to justify their continuance, and yet
political pressures keep them going. It is time that the top management takes a tough
stand on such matters. One does not have to call in McKinsey to decide that many
SAIL stockyards and branch offices are redundant.”
THE VOLUNTARY RETIREMENT SCHEME
As a part of the restructuring plan, McKinsey had advised Pande that SAIL needed to
cut the 160,000-strong labor force to 100,000 by the end of 2003, through a voluntary
retirement scheme. Pande was banking on natural attrition to reduce the number by
45,000 within two years, but GOI's decision to increase the retirement age to 60
further delayed the reduction. Subsequently, SAIL had requested GOI to bail it out
with a one-time assistance of Rs 15 billion and another subsidized loan of the same
size for a VRS, to achieve the McKinsey targets.

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

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

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

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

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

On February 08, 2001, SAIL ended its four year recruitment freeze by announcing its
plans to fill up more than 250 posts at its various plant sites in both technical and non-
technical categories. According to a senior SAIL official: "This recruitment is being
done to ease the vacancies created due to natural attrition and those that arose after the
previous VRS."
THE PERSUASION
In mid 1998, in a bid to convince its employees to accept VRS, SAIL highlighted six
'plus' points of VRS, in its internal communique, Varta. They were as follows:
• During the next 4-5 years, SAIL has to reduce its workforce by 60,000 for its
own survival. Employees with chronic ailments, and habitual absentees, who add to
low productivity, have to go first - maybe, with the help of administrative actions.
• The employees may have to be transferred to any other part of the country in
the larger interest of the company.
• For those who started their career as healthy young men 25-30 years ago, the
VRS will take care of their financial worries to a great extent, and they can discharge
their domestic duties more comfortably.
• VRS can be used for special purposes like paying huge sum of money for
getting one's son admitted to a professional course.
• VRS will give many individuals the money and time on pursuing personal
dreams.
• It can be a good opportunity to do social service.
On December 27, 1999, SAIL initiated a company-wide information dissemination
program to educate the staff on restructuring. The company drafted an internal
communication document entitled "Turnaround and Transformation" and a special
team of 66 internal resource persons (IRP) had been assigned the task of preparing a
detailed plan to take this document to a larger number of people within the company.
The 66-member team was constituted in September 1999 and was stationed in Ranchi
to undergo a detailed briefing-cum-training course. A generalized module was
presented to the IRP team during the course, which then summarised the root causes
of SAIL's crisis and the strategies to overcome it.
According to an official involved with the program: "Initiatives like the power plant
hive-off or the Salem Steel joint venture will hinge on employee concurrence,
particularly at the shop floor level, and therefore there has to be an intensive
communication program in place to reassure employees that their interests will be
protected."

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

A generalized module of the recommendations of the turnaround plan focusing on

restoring the financial foundation, reinforcing marketing initiatives and regaining cost
leadership.

A module covering plant-specific or unit-specific issues and strategies for action.

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

The staff education exercise was stressed upon, particularly in view of the power plant
hive-off fiasco, which could not take off as scheduled due to stiff resistance from
central trade unions. The problem, at the time, was that the SAIL top brass had failed
to convince the employees that jobs would not be at risk because of the hive-off.
THE REACTION
The trade unions were on a warpath against the recommendations of McKinsey.
Posters put up by the Centre of Indian Trade Unions (CITU) at SAIL's central
marketing office said that the McKinsey report was meant, not for the revival or
survival of SAIL, but for its burial. A senior TU leader said: "SAIL TUs so far have
been extremely tolerant and exercised utmost restraint. Even in the face of scanty
communication by the management of SAIL, they have not lost patience in these
trying times."
The TU leaders felt that SAIL would try to bolster support for the financial
restructuring proposal based on the recommendations of McKinsey. But being a
government-owned company, SAIL cannot take decisions on such recommendations
as the privatization of SAIL or breaking it up into two product-based companies. Even
in relatively small matters the like hiving off of power plants to a subsidiary company,
with SAIL being the major partner, the government had not cleared SAIL's proposal,
even after months of gestation. Therefore, it was futile to think that SAIL would
secure the permission of the government to sell off Salem Steel Plant (SSP) in Tamil
Nadu or close down Alloy Steels Plant (ASP) at Durgapur in West Bengal.

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

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

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.

BATA INDIA'S HR PROBLEMS

Published in 2003
INTRODUCTION
For right or wrong reasons, Bata India Limited (Bata) always made the headlines in
the financial dailies and business magazines during the late 1990s. The company was
headed by the 60 year old managing director William Keith Weston (Weston). He was
popularly known as a 'turnaround specialist' and had successfully turned around many
sick companies within the Bata Shoe Organization (BSO) group.

By the end of financial year 1999, Bata managed to report rising profits for four
consecutive years after incurring its first ever loss of Rs 420 million in 1995.
However, by the third quarter ended September 30, 2000, Weston was a worried man.
Bata was once again on the downward path. The company's nine months net profits of
Rs 105.5 million in 2000 was substantially lower than the Rs 209.8 million recorded
in 1999. Its staff costs of Rs 1.29 million (23% of net sales) was also higher as
compared to Rs 1.18 million incurred in the previous year. In September 2000, Bata
was heading towards a major labour dispute as Bata Mazdoor Union (BMU) had
requested West Bengal government to intervene in what it considered to be a major
downsizing exercise.
BACKGROUND NOTE
With net revenues of Rs 7.27 billion and net profit of Rs 304.6 million for the
financial year ending December 31, 1999, Bata was India's largest manufacturer and
marketer of footwear products. As on February 08, 2001, the company had a market
valuation of Rs 3.7 billion. For years, Bata's reasonably priced, sturdy footwear had
made it one of India's best known brands. Bata sold over 60 million pairs per annum
in India and also exported its products in overseas markets including the US, the UK,
Europe and Middle East countries. The company was an important operation for its
Toronto, Canada based parent, the BSO group run by Thomas Bata, which owned
51% equity stake.

The company provided employment to over 15,000 people in its manufacturing and
sales operations throughout India. Headquartered in Calcutta, the company
manufactured over 33 million pairs per year in its five plants located in Batanagar
(West Bengal), Faridabad (Haryana), Bangalore (Karnataka), Patna (Bihar) and Hosur
(Tamil Nadu). The company had a distribution network of over 1,500 retail stores and
27 wholesale depots. It outsourced over 23 million pairs per year from various small-
scale manufacturers.
Throughout its history, Bata was plagued by perennial labor problems with frequent
strikes and lockouts at its manufacturing facilities. The company incurred huge
employee expenses (22% of net sales in 1999). Competitors like Liberty Shoes were
far more cost-effective with salaries of its 5,000 strong workforce comprising just 5%
of its turnover.

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

The management team implemented a massive revamping exercise in which more

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

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

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

Company insiders said the recent violence was more a political issue rather than an
industrial relations problem, since the workers had had very little to do with it. Seeing
the seriousness of the issue and the party's involvement, the union, the state
government tried to solve the problem by setting up a tripartite meeting among
company officials, the labor directorate and the union representatives. The workers
feared a closedown as the inquiry proceeded.
INDUSTRIAL RELATIONS
For Bata, labor had always posed major problems. Strikes seemed to be a perennial
problem. Much before the assault case, Bata's chronically restive factory at Batanagar
had always plagued by labor strife. In 1992, the factory was closed for four and a half
months. In 1995, Bata entered into a 3-year bipartite agreement with the workers,
represented by the then 10,000 strong BMU, which also had the West Bengal
government as a signatory.
On July 21, 1998, Weston was severely assaulted by four workers at the company's
factory at Batanagar, while he was attending a business meet. The incident occurred
after a member of BMU, Arup Dutta, met Weston to discuss the issue of the
suspended employees. Dutta reportedly got into a verbal duel with Weston, upon
which the other workers began to shout slogans. When Weston tried to leave the room
the workers turned violent and assaulted him. This was the second attack on an officer
after Weston took charge of the company, the first one being the assault on the chief
welfare officer in 1996.
In February 1999, a lockout was declared in Bata's Faridabad Unit. Middleton
commented that the closure of the unit would not have much impact on the company's
revenues as it was catering to lower-end products such as canvas and Hawaii
chappals. The lock out lasted for eight months. In October 1999, the unit resumed
production when Bata signed a three-year wage agreement.
On March 8, 2000, a lockout was declared at Bata's Peenya factory in Bangalore,
following a strike by its employee union. The new leadership of the union had refused
to abide by the wage agreement, which was to expire in August 2001. Following the
failure of its negotiations with the union, the management decided to go for a lock out.
Bata management was of the view that though it would have to bear the cost of
maintaining an idle plant (Rs. 3 million), the effect of the closures on sales and
production would be minimal as the footwear manufactured in the factory could be
shifted to the company's other factories and associate manufacturers. The factory had
300 workers on its rolls and manufactured canvas and PVC footwear.

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

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

The Indian Call Center Journey

“The call center business appears to be going the dot-com way with a lot of big
names pumping in dough. Ultimately, only the fittest will survive.”
- A Mumbai based call center agent, in 2001.
CALL CENTERS FARE BADLY
In the beginning of 1999, the teleworking industry had been hailed as ‘the
opportunity’ for Indian corporates in the new millennium. In late 2000, a
NASSCOM[1] study forecast that by 2008, the Indian IT enabled services business[2]
was set to reach great heights.
Noted Massachusetts Institute of Technology (MIT) scholar, Michael
Dertouzos remarked that India could boost its GDP by a trillion
dollars through the IT-enabled services sector. Call center (an integral
part of IT-enabled services) revenues were projected to grow from Rs
24 bn in 2000 to Rs 200 bn by 2010.

During 2000-01, over a hundred call centers were established in India

ranging from 5000 sq. ft. to 100,000 sq. ft. in area involving
investments of over Rs 12 bn. However, by early 2001, things seemed
to have taken a totally different turn.
The reality of the Indian call center experience was manifested in rows after rows of
cubicles devoid of personnel in the call centers. There just was no business coming in.
In centers which did retain the employees, they were seen sitting idle, waiting
endlessly for the calls to come.

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

The human resource exodus added to the industry’s misery. Given the large number
of unemployed young people in the country, the attrition rate of over 50% (in some
cases) was rather surprising.
The industry, which was supposed to generate substantial employment for the
country, was literally down in the dumps - much to the chagrin of industry experts, the
Government, the media and above all, the players involved. The future prospects of
the call center business seemed to be rather bleak indeed.
CALL CENTER BASICS
In 2001, the global call center industry was worth $ 800 mn spread across around
100,000 units. It was expected to touch the 300,000 level by 2002 employing
approximately 18 mn people.
Broadly speaking, a call center was a facility handling large volumes
of inbound and outbound telephone calls, manned by ‘agents,’ (the
people working at the center). In certain setups, the caller and the call
center shared costs, while in certain other cases, the clients bore the
call’s cost.

The call center could be situated anywhere in the world, irrespective

of the client company’s customer base. Call centers date back to the
1970s, when the travel/hospitality industry in the US began to
centralize their reservation centers.
With the rise of catalog shopping and outbound telemarketing, call centers became
necessary for many industries. Each industry had its own way of operating these
centers, with its own standards for quality, and its own preferred technologies.

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

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

Call centers began as huge establishments managing large volumes of

communications and traffic. These centers were generally set up as large rooms, with
workstations, interactive voice response systems, an EPABX[3], headsets hooked into
a large telecom switch and one or more supervisor stations. (Refer Table II). The
center was either an independent entity, or was linked with other centers or to a
corporate data network, including mainframes, microcomputers and LANs[4] .
The Indian Call Center Journey
<<Previous
TABLE I
BENEFITS OF A CALL-CENTER
 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.
TABLE II
CALL CENTER CLASSIFICATION
 Voice call center with phones and computers.
 E-mail call center with leased lines and computers.
 Web-based call centers using internet chat facilities
with customers.
 Regional call centers handling calls from local
clients.
 Global call centers handling calls from across the
world.
Source: Compiled from various sources.
Call centers could either be ‘captive/in-house’ or in form of an ‘outsourced bureau.’
Captive call centers were typically used by various segments like insurance,
investments and securities, retail banking, other financial services,
telecommunications, technology, utilities, manufacturing, travel and tourism,
transport, entertainment, healthcare and education etc.

Outsourcing bureaus were outfits with prior experience in running call centers. These
helped the new players in dealing with complex labor issues, assisted in using latest
technologies, helped in lowering the operating expenses and financial risks.
Outsourced bureau operators were utilized by companies at various stages viz. setting
up of the center, internal infrastructure revamps, excess traffic situations etc.
INDIAN CALL CENTERS – MYTHS AND REALITIES
There were many reasons why India was considered an attractive destination to set up
call centers. The boom in the Indian information technology sector in the mid 1990s
led to the country’s IT strengths being recognized all over the world.
Moreover, India had the largest English-speaking population after the
US and had a vast workforce of educated, reasonably tech-savvy
personnel. In a call center, manpower typically accounted for 55-60%
of the total costs in the US and European markets - in India, the
manpower cost was approximately one-tenth of this.

While per agent cost in US worked out to approximately $ 40,000, in

India it was only $ 5,000. This was cited to be the biggest advantage
India could offer to the MNCs. Apart from these, the Government’s
pro call center industry approach and a virtual 12-hour time zone
difference with the US added to India’s advantages.
There were a host of players in the Indian call center industry. Apart from the
pioneers British Airways, GE and Swiss Air, HLL, BPL, Godrej Soaps, Global Tele-
Systems, Wipro, ICICI Banking Corporation, American Express, Bank of America,
Citibank, ABN AMRO, Global Trust, Deutsche Bank, Airtel, and Bharati BT were the
other major players in the call-center business.
After the projections of the NASSCOM-McKinsey report were made public, many
people began thinking of entering the call center business. (Refer Table III). During
this rush to make money from the call center ‘wave,’ NASSCOM received queries
from many people with spare cash and space, including lorry-fleet operators, garment
exporters, leather merchants, tyre distributors and plantation owners among others.
TABLE III
THE INDIAN CALL-CENTER MILESTONES
Mid GE, Swiss Air, British Airways set up captive call
1990s center units for their global needs.
Following increasing interest in the IT-enabled
services sector, NASSCOM held the first IT-
May-99 enabled services meet. Over 600 participant firms
plan to set up medical transcription outfits and
call centers.
A NASSCOM-McKinsey report says that remote
Dec-99 services could generate $ 18 billion of annual
revenues by 2008.
Venture Capitalists rush in. Make huge
May-00
investments in call centers.
More than 1,000 participants flock to the
NASSCOM meet to hear about new opportunities
Sep-00 in remote services. Though the medical
transcription business is not flourishing, call
centers seen as a big opportunity.
NASSCOM report, indicates that a center could
Quarter be set up with $ 1 million. Gold rush begins.
4 2000 Everyone, from plantation owners to lorry-fleet
operators, wanted to set up centers.
Most of the call centers are waiting for customers.
New ventures still coming up: capacity of
between 25 seats and 10,000 seats per company.
Quarter Small operators discover that the business is a
1, 2001 black hole where investments just disappear. They
look for buyers, strategic partnerships and joint
ventures. Brokers and middlemen make an entry
to fix such deals.
INDIAN CALL CENTERS – MYTHS AND REALITIES contd...
However, most of these people entered the field, without having any idea as to what
the business was all about. Their knowledge regarding the technology involved, the
marketing aspects, client servicing issues etc was very poor.
They assumed that by offering cheaper rates, they would be able to
attract clients easily. They did not realize that more than easy access to
capital and real estate, the field required experience and a sound
business background. Once they decided to enter the field, they found
that most of the capital expenditure (in form of building up the
infrastructure[5] ) occurred even before the first client was bagged.

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. The real trouble started when these companies began
soliciting clients.
As call centers were a new line of business in India, the lack of track record forced the
clients to go for much detailed and prolonged studies of the Indian partners. Many US
clients insisted on a strict inspection of the facilities offered, such as work-areas,
cafeterias and even the restrooms. The clients expected to be shown detailed Service
Level Agreements (SLAs)[6] , which a majority of the Indian firms could not manage.

Under these circumstances, no US company was willing to risk giving business to

amateurs at the cost of losing their customers. Because of the inadequate investments
in technology, lack of processes to scale the business[7] and the lack of management
capabilities, most of the Indian players were unable to get international customers.

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

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

Even though attrition rates were very high in this industry worldwide, the same trend
was not expected to emerge in India, as the unemployment levels were much higher.
The reasons were not very hard to understand. In a eight-and-a-half hour shift, the
agents had to attend calls for seven-and-a-half hours.
INDIAN CALL CENTERS – MYTHS AND REALITIES contd...
The work was highly stressful and monotonous with frequent night shifts. A typical
call center agent could be described as being ‘overworked, underpaid, stressed-out
and thoroughly bored.’ The agents were frequently reported to develop an identity
crisis because of the ‘dual personality’ they had to adopt.
They had to take on European/US names or abbreviate their own
names and acquire foreign accents in order to pose as ‘locals.’ The
odd timings took a toll on their health with many agents complaining
of their biological clocks being disturbed. (Especially the ones in night
shifts).

Job security was another major problem, with agents being fired
frequently for not being able to adhere to the strict accuracy standards.
(Not more than one mistake per 100 computer lines.) The industry did
not offer any creative work or growth opportunities to keep the
workers motivated.
The scope for growth was very limited. For instance, in a 426-seat center, there were
400 agents, 20 team leaders, four service delivery leaders, one head of department and
one head of business. Thus, going up the hierarchy was almost impossible for the
agents.

Analysts remarked that the fault was mainly in the recruitment, training, and career
progression policies of the call centers. Organizations that first set up call centers in
India were able to pick and choose the best talent available.

The entry norms established at this point were - a maximum age limit of 25 years, a
minimum qualification of a university degree, English medium school basic education
and a preference to candidates belonging to westernized and well-off upper middle
class families. 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.

However, companies soon realized that people with such backgrounds generally had
much higher aspirations in life. While they were initially excited to work in the
excellent working environment of a multinational company for a few months, they
were not willing to make a career in the call center industry. 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. This was because a new agent normally took a few months
before becoming as proficient as an experienced one. 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. Foremost amongst these was the move to employ people from social and
academic backgrounds different from the norms set earlier.
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.

Such students with a good basic level of English could be trained

easily to improve their accents, pronunciation, grammar, spelling and
diction. They could be trained to become familiar with western culture
and traditions. The housewives and back-to-work mothers’ pool could
also be developed into excellent resources.
This had been successfully tried out in the US and European markets, where call
centers employed a large number of housewives and back-to-work mothers. Another
solution being thought about was to recruit people from non-metros, as people from
these places were deemed to be more likely to stay with the organization, though
being more difficult to recruit and expensive to train. Even as the people and
infrastructure problems were being tackled, a host of other issues had cropped up,
posing threats for the Indian call centers.

The promise of cheap, English speaking and technically aware labor from India was
suddenly not as lucrative in the international markets. A survey of Fortune 1,000
companies on their outsourcing concerns showed that cost-reduction was not the most
important criterion for selecting an outsourcing partner. This did not augur well for a
country banking on its cost competitiveness. Also, China was fast emerging as a
major threat to India, as it had embarked on a massive plan to train people in English
to overcome its handicap in the language. In February 2001, Niels Kjellerup, editor
and publisher of ‘Call Center Managers Forum’ came out strongly against India being
promoted as an ideal place to set up call centers.

He said: “The English spoken by Indians is a very heavy dialect – in fact, in face to
face conversations, I found it very difficult to understand what was said. 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, since such a luxury as service is not part of everyday life in
India. The infrastructure is bad, no, 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.
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, we had on average 7 black-outs a
day where the generators would kick in after 2-3 seconds.

The telephony system is analog and inadequate. It took on average three attempts just
to get a line of out my hotel. The telecom market is not deregulated, and international
calls are very expensive. 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.” Despite the mounting criticisms and worries, hope still existed
for the Indian call center industry. Analysts remarked that the call center business was
in the midst of a transition, wherein only the fundamentally strong players would
remain in the fray after an inevitable ‘shakeout.’

Unlike other industries, 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. In
spite of the downturn, the call center business was considered to hold a lot of potential
by many corporates. With the US economy facing a slowdown, the need for US
companies to outsource was expected to be even higher. The Reliance group was
planning to open call centers in 10 cities across the country. Other companies
including Spectramind and Global Telesystems planned to either enter or enhance
their presence in the business. Whether the dream of call centers contributing to
substantial economic growth for India would turn into reality was something only
time would reveal.
QUESTIONS FOR DISCUSSION
1. Prepare a note on the functioning of a call center and comment on its necessity and
viability in the Indian context.

2. India had certain inherent advantages because of which, it had been identified as
the preferred destination on a global basis for outsourcing IT services. However, these
very advantages were proving to be its drawbacks in the early 21st century. Critically
examine the above statement giving reasons to support your stand.

3. 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, first served basis. The
system answers each call immediately and, if need be, holds it in a
queue till the time an agent is available. When an agent becomes
free, he/she services the first caller in the queue. A system can be
configured to offer different kinds of treatment to different callers.
For example, people calling long distance can be given priority
handling. Or calls from customers placing orders can be taken before
than those seeking technical support. By providing sequencing and
uniform distribution of incoming calls among multiple agents in a
call center, ACDs offer time/labor savings and enhance productivity.

• Interactive Voice Response (IVR): IVR applications support the

automated retrieval of stored data. These usually took the form of
pre-stored messages saying ‘Press 1 for this or Press 2 for that.’ IVR
applications range from basic inquiry to the most sophisticated
speech recognition applications.

• Computer Telephony (CTI): CTI is one of the most common

features of call center environments. They can either be a simple
screen pop-up window, a sophisticated call control algorithm that
can search for the last agent that spoke to the caller, or a predictive
dialing solution that doubles the efficiency of outbound calling. With
a simple click of a mouse, a call center agent can quickly move
between a customer profile, product information, customer history,
order entry, fulfillment request, template cover letters and quote
entry, among other fields.
 
• Web Integration: The integration of Web technology in call
centers offers personalized, time and cost effective customer service.
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.

• Reporting Systems: Different reporting applications are used to

optimize the use of different communications platforms. Depending
upon the firm’s specifications, either simple proprietary tools could
be used or advanced tools that blend information from multiple
communications and information systems platforms can be adopted.

• Workflow Management Tools: Coordinating telephony

applications with information systems applications, workflow
management tools assist call center supervisors to script and manage
employee activity. For example, selecting the best agent for handling
particular types of calls.
 State Bank of India - The VRS Story

“They are propagating the VRS in such a manner that the employees are being compelled to opt
for the scheme.”

- V.K.Gupta, SBI employee’s union leader in December 2000.

VRS TROUBLES

In February 2001, India’s largest public sector bank (PSB), the State Bank of India (SBI) faced
severe opposition from its employees over a Voluntary Retirement Scheme (VRS).

The VRS, which was approved by SBI board in December 2000, was in
response to Federation of Indian Chambers of Commerce and Industry’s
(FICCI)[1] report on the banking industry. The report stated that the Indian
banking industry was overstaffed by 35%. In order to trim the workforce and
reduce staff cost, the Government announced that it would be reducing its
manpower.

Following this, the Indian Banks Association (IBA)[2] formulated a VRS package
for the PSBs, which was approved by the Finance ministry. Though SBI
promoted the VRS as a ‘Golden Handshake,’ its employee unions perceived it
to be a retrenchment scheme. They said that the VRS was completely
unnecessary, and that the real problem, which plagued the bank were NPAs [3] .

The unions argued that the VRS might force the closure of rural branches due to acute
manpower shortage. This was expected to affect SBI’s aim to improve economic conditions by
providing necessary financial assistance to rural areas. The unions also alleged that the VRS
decision was taken without proper manpower planning.

In February 2001, 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.
Consequently, applications of around 12,000 officers were rejected. 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.

The average estimated cost per head for implementation of VRS for SBI and its seven
associated banks worked out to Rs 0.65 million and Rs 0.57 million respectively. As a result of
the VRS, SBI’s net profit decreased from Rs 25 billion in 1999-00 to Rs 16 billion in 2000-01.

BACKGROUND NOTE

The SBI was formed through an Act of Parliament in 1955 by taking over the Imperial Bank. The
SBI group consisted of seven associate banks:

• State Bank of Hyderabad

• State Bank of Indore
• State Bank of Mysore
• State Bank of Patiala
• State Bank of Saurashtra
• State Bank of Travancore
• State Bank of Bikaner & Jaipur

The SBI was the largest bank in India in terms of network of branches,
revenues and workforce. It offered a wide range of services for both personal
and corporate banking. The personal banking services included credit cards,
housing loans, consumer loans, and insurance. For corporate banking, SBI
offered infrastructure finance, cash management and loan syndication [4] .

Over the years, the bank became saddled with a large workforce and huge
NPAs. According to reports, staff costs in 1999-2000 amounted to Rs 4.5
billion as against Rs 4.1 billion in 1998-99. Increased competition from the
new private sector banks (NPBs) further added to SBI’s problems. The NPBs
had effectively leveraged technology to make up for their size.

Though SBI had 9,000 branches, a mere 22% of those (1935 branches) were connected
through Internet. In contrast all of HDFC[5] Bank’s 61 branches were connected. By 2000, SBI’s
net profit per employee was Rs 0.43 million while HDFC’s was Rs 0.96 million, and SBI’s NPA
level was around 7.18% as against HDFC’s 0.73% (Refer Table I).

TABLE I
A COMPARISON BETWEEN SBI & SOME NPBs
PROFIT PER
NPAs/NET EMPLOYEE
BANK ADVANCES (Rs in
Million)

SBI  7.18%  0.43

HDFC  0.77%  0.96

UTI BANK  4.71%  0.69

ICICI BANK  1.53%  0.78

GTB  0.87%  1.2

IDBI BANK  1.95%  1.15

Source: www.bankersindia.com

Analysts remarked that the very factors that were once hailed as the strengths of SBI - reach,
customer base and experience - had become its problems. Technological tools like ATMs and the
Internet had changed banking dynamics. A large portion of the back-office staff had become
redundant after the computerization of banks. To protect its business and remain profitable, SBI
realized that it would have to reduce its cost of operations and increase its revenues from fee-
based services. The VRS implementation was a part of an over all cost cutting initiative.

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, whichever was less. While 50% of the
payment was to be paid immediately, the rest could be paid in cash or bonds. An employee
could avail the pension or provident fund as per the option exercised by the employee. 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, 2000.

THE PROTESTS

The SBI was shocked to see the unprecedented outcry against the VRS from its employees. 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.

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. Moreover, the unions alleged that the
management was compelling employees to opt for the VRS. 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.

In December 2000, SBI had formed a joint venture with the French insurance
company Cardiff, for entering the life insurance business. The unions
questioned the logic behind diversifying the business and cutting down the
staff strength. They argued that this move would significantly increase
workforce burden and, consequently, adversely affect customer service.

In 2000, SBI had undertaken a large-scale clientele membership drive in some states to attract
more customers. The unions opined that the VRS could prove to be counterproductive as the
increased business might not be handled properly.

However, despite all the protests, SBI received around 35,000 applications for the VRS. Analysts
pointed out that many bank employees opted for the VRS due to the better employment
prospects with the NPBs. SBI had not anticipated such a huge response to the scheme. While
the VRS was mainly aimed at reducing the clerical staff and sub-staff, the maximum number of
optees turned out to be from the officer cadre. The clerical staff was reluctant to go for the VRS
due to the low employment opportunities for them in the NPBs. According to reports, the
number of applications from officers stood at 19,295, which meant that over 33 per cent of the
total officers in the bank had sought VRS.

Following huge response to the VRS from officer cadre, SBI issued a circular stating that the
management would relieve only those officer cadre applicants who had crossed the age of 55
years. The bank also issued a circular barring treasury managers, forex dealers and a host of
other specialized personnel, from seeking VRS. Employees who had not served rural terms were
also barred from opting for the scheme. The VRS was also not open to employees who were
doctorates, MBA’s, Chartered Accountants, Cost & Works accountants, postgraduates in
computer applications. In another circular, SBI mentioned that any break in service (i.e. leaves
availed on a loss of pay basis) would not be taken while calculating the service period. The bank
also restricted the loan facilities to the personnel who had opted for the VRS. If an employee
wished to continue a housing loan after accepting VRS, he was asked to pay interest at the
market rate. After these restrictions were introduced, only 13.4% of the officers were left
eligible for VRS instead of the earlier 33%.

The conditions laid down by the management faced strong criticism from the officers who had
opted for the VRS, but who could not meet the prescribed criteria. 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.

Media reports also called SBI’s decision to restrict the VRS as arbitrary, discriminatory and
belying the voluntary character of the scheme. Unions argued that if the bank was so particular
that only 10% of its staff leave under the VRS, it could have closed the scheme immediately
after the required number of applications were received. The unions also argued that 35,000
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%), where all the applications that were received were also accepted for VRS.

The officers who were denied the VRS formed an action group in March 2001. They claimed that
SBI had violated the guidelines of the Government and the Indian Banks Association. According
to the members of the group, any shortfall in the number of officers could easily be met by
promoting suitable clerks. They also cited the example of Syndicate Bank, which promoted
about 1,000 clerical staff to officer level. The group filed cases before High Courts in various
parts of the country, challenging SBI’s decisions. A delegation of VRS-denied officers even met
the Finance Minister and also submitted a memorandum to the SBI management.

THE POST VRS DAYS

According to reports, SBI’s total staff strength was expected to come down to around 2,00,000
by March 2001 from the pre-VRS level of 2,33,000 (Refer Table III). With an average of 5000
employees retiring each year, analysts regarded VRS as an unwise move.
By June 2001, SBI had relieved over 21,000 employees through the VRS. It
was reported that another 8,000 employees were to be relieved after they
attained the retirement age by the end of 2001. Analysts felt that this would
lead to a tremendous increase in the workload on the existing workforce.

According to industry watchers, by 2010, the entire SBI staff recruited

between mid 1960 and 1980 would retire. As a result, 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.

TABLE II
CHANGE IN SBI’s STAFF STRENGTH

31-03-01 31-03-00 % change

 

Officers  52,558  59,474  -11.63%

Clerical  103,993  115,424  -9.90%

Subordinate  53,729  58,535  -8.21%

Total  210,280  233,433  -9.92%

Source: www.indiainfoline.com

In the post-VRS scenario, 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. SBI also planned to reduce its regional offices from 10 to 1
or 2 in each circle. In August 2001, it was reported that a single officer had to take charge of 3
or 4 branches as the daily concurrent audit got affected.

Departments like internal audit, concurrent audit, monitoring, inspection of borrowals had hardly
any staff, according to reports. It was reported that employees working in branches that had a
high workload went on work-to-rule agitation, blaming the VRS for their problems. 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 had many strong organizational strengths and
an excellent training system, but due to weak HR policies, it had lost its experts to its
competitors.

The employees of almost all the new generation private sector banks were former employees of
SBI. The bank’s well-defined promotion policy was systematically flouted by the framers
themselves and, as a result, employees with good track records were frequently sidelined. Many
analysts felt that SBI was not able to realize the critical importance of recognizing inherent
merit and rewarding the performers.

The above factors were cited as the major reasons for the success of VRS in the officer cadres,
who were reported to be demoralized and de-motivated. The arbitrariness and insensitivity at
the corporate level had dealt a severe blow to the employees of the organization. What
remained to be seen was whether SBI would be able to reorganize its HRD policy and retain its
talented personnel.

QUESTIONS FOR DISCCUSION

1. The results of the SBI VRS were not in line with the management’s expectations. Comment
on the above statement and discuss the effects of the VRS on SBI.

2. In most of the VRS implementation exercises in Indian PSUs, the largest number of
applicants have been from the officer cadre. 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.

3. The outcome of the SBI VRS has highlighted the need for proper manpower planning and
HRD policies in Indian public sector banks. Discuss the various steps to be taken by the SBI in
the post VRS scenario?

Philips India - 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.”

 – Manohar David, Director, PIL in 1996.

SELLING BLUES

The 16th day of March 1999 brought with it a shock for the management of Philips India Limited
(PIL). 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.

The resolution was to seek the shareholders’ permission to sell the color
television (CTV) factory to Kitchen Appliances Limited, a subsidiary of
Videocon. The judgement came after a long drawn, bitter battle between the
company and its two unions Philips Employees Union (PEU) and the Pieco
Workers’ Union (PWU) over the factory’s sale.

PEU president Kiron Mehta said, “The company’s top management should now
see reason. Ours is a good factory and the sale price agreed upon should be
reasonable. 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.70 crores on the plant.”

Philips sources on the other hand refused to accept defeat. The company immediately revealed
its plans to take further legal action and complete the sale at any cost.

SOURING TIES

PIL’s operations dates back to 1930, when Philips Electricals Co. (India) Ltd., a subsidiary of
Holland based Philips NV was established. The company’s name was changed to Philips India
Pvt. Ltd. in September 1956 and it was converted into a public limited company in October
1957. After being initially involved only in trading, PIL set up manufacturing facilities in several
product lines. PIL commenced lamp manufacturing in 1938 in Kolkata and followed it up by
establishing a radio manufacturing factory in 1948. An electronics components unit was set up
in Loni, near Pune, in 1959. In 1963, the Kalwa factory in Maharashtra began to produce
electronics measuring equipment. The company subsequently started manufacturing
telecommunication equipment in Kolkata.

In the wake of the booming consumer goods market in 1992, PIL decided to modernize its Salt
Lake factory located in Kolkata. Following this, the plant’s output was to increase from a mere
40000 to 2.78 lakh CTVs in three years. The company even expected to win the Philips
Worldwide Award for quality and become the source of Philips Exports in Asia. PIL wanted to
concentrate its audio and video manufacturing bases of products to different geographic
regions. In line with this decision, the company relocated its audio product line to Pune. In spite
of the move that resulted in the displacement of 600 workers, there were no signs of discord
largely due to the unions’ involvement in the overall process.

By 1996, PIL’s capacity expansion plans had fallen way behind the targeted level. The unions
realized that the management might not be able to complete the task and that their jobs might
be in danger. PIL on the other hand claimed that it had been forced to go slow because of the
slowdown in the CTV market. However, the unconvinced workers raised voices against the
management and asked for a hike in wage as well. PIL claimed that the workers were already
overpaid and under productive. The employees retaliated by saying that said that they
continued to work in spite of the irregular hike in wages. These differences resulted in a 20-
month long battle over the wage hike issue; the go-slow tactics of the workers and the declining
production resulted in huge losses for the company.

In May 1998, PIL announced its decision to stop operations at Salt Lake and production was
halted in June 1998. At that point, PWU members agreed to the Rs 1178 wage hike offered by
the management. This was a climbdown from its earlier stance when the union, along with the
PEU demanded a hike of Rs 2000 per worker and other fringe benefits. PEU, however, refused to
budge from its position and rejected the offer. After a series of negotiations, the unions and the
management came to a reasonable agreement on the issue of the wage structure.

SELLING TROUBLES

In the mid-1990s, Philips decided to follow Philips NV’s worldwide strategy of having a common
manufacturing and integrated technology to reduce costs. The company planned to set up an
integrated consumer electronics facility having common manufacturing technology as well as
suppliers base.

Director Ramachandran stated that the company had plans to depend on

outsourcing rather than having its own manufacturing base in the future. The
company selected Pune as its manufacturing base and decided to get the Salt
Lake factory off its hands.

In tune with this decision, the employees were appraised and severance
packages were declared. Out of 750 workers in the Salt Lake division, 391
workers opted for VRS. PIL then appointed Hong Kong and Shanghai Banking
Corporation (HSBC) to scout for buyers for the factory. Videocon was one of
the companies approached.

Though initially Videocon seemed to be interested, it expressed reservations about buying an

over staffed and under utilized plant.To make it an attractive buy, PIL reduced the workforce
and modernised the unit, spending Rs 7.1 crore in the process. In September 1998, Videocon
agreed to buy the factory through its nominee, Kitchen Appliances India Ltd.

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. Videocon agreed to take over the plant
along with the employees as a going concern along with the liabilities of VRS, provident fund
etc. The factory was to continue as a manufacturing center securing a fair value to its
shareholders and employees.

In December 1998, a resolution was passed at PIL’s annual general meeting (AGM) with a 51%
vote in favor of the sale. Most of the favorable votes came from Philips NV who held a major
stake in the company. The group of FI shareholders comprising LIC, GIC and UTI initially
opposed the offer of sale stating that the terms of the deal were not clearly stated to them.

They asked for certain amendments to the resolutions, which were rejected by PIL. Commenting
on the FIs opposing the resolution, company sources said, “it is only that the institutions did not
have enough time on their hands to study our proposal in detail, and hence they have not been
able to make an informed decision.”

Defending the company’s decision not to carry out the amendments as demanded by the
financial institutions, Ramachandran said that this was not logical as the meeting was convened
to take the approval of the shareholders, and the financial institutions were among the
shareholders of the company. Following this, the FIs demanded a vote on the sale resolution at
an EGM. After negotiations and clarifications, they eventually voted in favor of the resolution.
The workers were surprised and angry at the decision. Kiron Mehta said, “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.” S.N.Roychoudhary of the Independent Employees Federation in
Calcutta said, “The sale will not profit the company in any way. As a manufacturing unit, the
CTV factory is absolutely state-of-the-art with enough capacity.

SELLING TROUBLES contd...

It is close to Kolkata port, making shipping of components from Far Eastern countries easier. It
consistently gets ISO 9000 certification and has skilled labor. Also, PIL’s major market is in the
eastern region.”

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. 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.

This included the gratuity and leave encashment liabilities of workers who
would be absorbed under the same service agreements. The management
contended that a VRS offer at the CTV unit would have cost the company Rs
21 crore. Refuting this, senior members of the union said, “There is no way
that a VRS at the CTV unit can set Philips by more than Rs 9.2 crore.”

They explained that PIL officials, by their own admission, 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. The unions also claimed that they wrote to the FIs' about their
objection.

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. Videocon refused to change its
decision. The workers then filed a petition in the Kolkata High Court challenging PIL’s decision to
sell the factory to Videocon.

The unions approached the company with an offer of Rs 10 crore in an attempt to outbid
Videocon. They claimed that they could pay the amount from their provident funds, cooperative
savings and personal savings. But PIL rejected this offer claiming that it was legally bound to
sell to Videocon and if the offer fell through, then the union’s offer would be considered along
with other interested parties.

PIL said that it would not let the workers use the Philips brand and that the workers could not
sell the CTVs without it. Moreover the workers were taking a great risk by using their savings to
buy out the plant. Countering this, 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.

They followed it up with proofs of Videocon's failure to make payments in time during the course
of its transactions with Philips. In view of the rejection of its offer by the management, 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.

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. As regards their financial capability to buy out the firm, the union firmly
maintained that it had contacts with reputed and capable businessmen who were willing to help
them.

In the last week of December 1998, employees of PIL spoke to several domestic and
multinational CTV makers for a joint venture to run the Salt Lake unit. Kiron Mehta said, “We
can always enter into an agreement with a third party. It can be a partnership firm or a joint
venture. All options are open. We have already started dialogues with a number of domestic and
multinational TV producers.”

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. Clarifying the point that
the employees did not intend to takeover the plant, Mehta said, “If Philips India wants to run
the unit again, then we will certainly withdraw the proposal. Do not think that we are intending
to take over the plant.”

In March 1999, the Kolkata High Court passed an order restraining any further deals on the sale
of the factory. Justice S.K.Sinha held that the transfer price was too low and PIL had to view it
from a more practical perspective. The unrelenting PIL filed a petition in the Division bench
challenging the trial court’s decision.

The company further said that the matter was beyond the trial court’s jurisdiction and its
interference was unwarranted, as the price had been a negotiated one. The Division bench
however did not pass any interim order and PIL moved to the Supreme Court. PIL and Videocon
decided to extend their agreement by six months to accommodate the court orders and the
worker’s agitation.

JUDGEMENT DAY

In December 2000, the Supreme Court finally passed judgement on the controversial Philips
case. It was in favour of the PIL. The judgement dismissed the review petition filed by the
workers as a last ditch effort.

The judge said that though the workers can demand for their rights, they had
no say in any of the policy decisions of the company, if their interests were not
adversely affected. Following the transfer of ownership, the employment of all
workmen of the factory was taken over by Kitchen Appliances with immediate
effect.

Accordingly, the services of the workmen were to be treated as continuous and

not interrupted by the transfer of ownership. The terms and conditions of
employment too were not changed. Kitchen Appliances started functioning
from March 2001.

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.

The Supreme Court decision seemed to be a typical case of ‘all’s well that ends well.’ Ashok
Nambissan, General Counsel, PIL, said, “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.”

How far the Salt Lake workers agreed with this would perhaps remain unanswered.

QUESTIONS FOR DISCUSSION:

1. ‘Changes taking place in PIL made workers feel insecure about their jobs.’ Do you agree with
this statement? Give reasons to support your answer.

2. Highlight the reasons behind PIL’s decision to sell the Salt Lake factory. Critically comment on
PIL’s arguments regarding not accepting the union’s offer to buy the factory.

3. Comment on the reasons behind the Salt Lake workers resisting the factory’s sale. Could the
company have avoided this?
Netscape's Work Culture
“It took Microsoft and Oracle 11 years to reach the size Netscape reached in 3 years,
both in terms of revenues and the number of employees. Which is just cosmically fast
growth.”
- Marc Andreessen, Co-founder, Netscape.
“Netscape's relaxed work environment drives up productivity and creativity. Because
there aren't layers of management and policies to work through, Netscape can turn
out products in a month.”
- Patrick O’Hare, Manager (Internal Human Resources Web Site), Netscape.
INTRODUCTION
On November 24, 1998, America Online[1] (AOL) announced the acquisition of
Netscape Communications (Netscape), a leading Internet browser company, for $10
billion in an all-stock transaction. With this acquisition, AOL got control over
Netscape’s three different businesses – Netcenter portal, Netscape browser software
and a B2B e-commerce software development division.
According to the terms of the deal, Netscape’s shareholders received a
0.45 share of AOL’s common stock for each share they owned. The
stock markets reacted positively and AOL’s sharevalue rose by 5%
just after the announcement. Once shareholders and regulatory
authorities approved the deal, Netscape’s CEO James Barksdale
(Barksdale)[2] was supposed to join AOL’s board.

Many analysts felt that this acquisition would help AOL get an edge
over Microsoft, the software market leader, in the Web browser
market. Steve Case, (Case) Chairman and CEO of AOL, remarked,
“By acquiring Netscape, we will be able to both broaden and deepen
our relationships with business partners who need additional level of
infrastructure support, and provide more value and convenience for
the Internet consumers.”
However, a certain section of analysts doubted whether AOL’s management would
accept Netscape’s casual and independent culture. Moreover, they were worried that
this deal may lead to a reduction in Netscape’s workforce, the key strength of the
company. A former Netscape employee commented, “People at Netscape were
nervous about the implications of AOL buying us.”

Allaying these fears, in an address to Netscape employees, Case said, “Maybe you
joined the company because it was a cool company. We are not changing any of that.
We want to run this as an independent culture.” In spite of assurances by AOL CEO,
it was reported that people at Netscape were asked to change the way they worked. In
July 1999, Netscape employees were asked to leave if they did not like the new
management.

By late 1999, most of the key employees, who had been associated with Netscape for
many years, had left. Barksdale left to set up his own venture capital firm, taking
along with him former CFO Peter Currie. Marc Andreessen (Andreessen) stayed with
AOL as Chief Technology Officer till September 1999, when he left to start his own
company, Loud cloud. Mike Homer, who ran the Netcenter portal, left the company
while he was on a sabbatical.

BACKGROUND NOTE
Netscape was co-founded by Jim Clark (Clark) and Andreessen. Clark was a Stanford
University professor turned entrepreneur[3]. Andreessen was an undergraduate from
the University of Illinois, working with the National Center for Supercomputing
Applications[4]. In 1993, with a fellow student, Andreessen developed the code for a
graphical Web browser and named it Mosaic.
In April 1994, Clark and Andreessen founded a company, which was
named as Electric Media (See Exhibit I). The name was changed to
Mosaic Communications in May 1994. In November 1994, Mosaic
Communications was renamed Netscape Communications. In
December 1994, Netscape introduced Navigator, its first commercial
version of its browser[5] .

By March 1995, six million copies of Navigator were in use around

the world. This was without any advertising, and with no sales through
retail outlets. Netscape allowed users to download the software from
the Internet. By mid 1995, Navigator accounted for more than 75% of
the browser market while Mosaic share was reduced to just 5%.
In the same month, Netscape launched Navigator 1.0. During February-March 1995,
Netscape launched Navigator 1.1. This new version could be run on Windows NT[6]
and Macintosh Power PC[7]. Within three months, the beta version[8] of Navigator 1.2
for Windows 95 was launched. At the same time, Netscape announced its plans to
launch the commercial version of Navigator 1.2 in the next August 1995. By
launching new versions of browsers quickly, Netscape set new productivity standards
in the web browser market.

Numerous Netscape servers were also launched within a short period of time.
Netscape Communications Server, News Server, and Commerce Server were
launched within a year. In total, within the first 15 months of its inception, Netscape
rolled out 11 new products. Within a year of its inception, Netscape made an Initial
Public Offering (IPO), which was well received by the investing public.

In 1997, Netscape broadened its product portfolio by developing Internet content

services. In June 1997, Netscape launched its Communicator[9] and in August rolled
out Netcaster[10]. In August 1997, Netscape also announced its plans to strengthen its
presence in the browser market by forming 100 industry partnerships. In September
1997, Netscape transformed its corporate website into Netcenter website – a site
featuring news and chat group services.

During 1998, Netscape faced increasing competition from Microsoft in the browser
market. Netscape therefore entered new businesses like enterprise and e-commerce
software development. By the fourth quarter of 1998, the enterprise and e-commerce
software business accounted for 75% of Netscape’s earnings. In November 1998,
Netscape was acquired by AOL, the world’s largest online services provider.

Analysts remarked that Netscape’s ability to respond quickly to market requirements

was one of the main reasons for its success. 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. Analysts
said that Netscape’s culture, which promoted innovation and experimentation, enabled
it to adapt quickly to changing market conditions. 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.
NETSCAPE’S CULTURE
Netscape promoted a casual, flexible and independent culture. Employees were not
bound by rigid schedules and policies and were free to come and go as they pleased.
They were even allowed to work from home.
The company promoted an environment of equality – everyone was
encouraged to contribute his opinions. This was also evident in the
company’s cubicle policy. Everyone including CEO Barksdale,
worked in a cubicle. Independence and hands-off management[11] were
important aspects of Netscape’s culture. There was no dress code at
Netscape, so employees, were free to wear whatever they wanted.

Barksdale laid down only one condition, “You must come to work
dressed.” The company promoted experimentation and did not require
employees to seek anyone’s approval for trying out new ideas. For
example, Patrick O’Hare[12], who managed Netscape’s internal human
resources website, was allowed to make changes to any page on the
site, without anyone’s approval.
Netscape’s management reposed a high degree of trust in its employees, which
translated into empowerment and lack of bureaucracy. Beal[13], a senior employee
said, “Most organizations lose employees because they don’t give them enough
opportunities to try new things, take risks and make mistakes. People stay here
because they have space to operate.” Realizing that some experiments do fail,
Netscape did not punish employees for ideas that did not work out. However, to
maintain discipline at work, employees were made accountable for their decisions.
They were also expected to give sound justifications for their actions.

Job rotation was another important feature of Netscape’s culture. By doing so, the
company helped its employees learn about new roles and new projects in the
company. For example, Tim Kaiser, a software engineer, worked on four different
projects in his first year of employment. 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. Moreover, related experience was not a requirement for job
rotation. Netscape played a proactive role in identifying new positions for its
employees inside the company.

Employees were offered a wide range of training options and an annual tuition
reimbursement of US $6,000. This opportunity to expand their skills on the job was
valued by all employees. The company also helped employees learn about the
functioning of other departments. There were quarterly ‘all-hands’ meetings in which
senior managers of different departments gave presentations on their strategies. These
efforts created a sense of community among employees. An employee remarked,
“They really try to keep us informed so we feel like we are involved with the whole
company.”
THE SETBACK
After the acquisition, AOL planned to integrate Netscape’s web-browser products and
Netcenter portal site with its Interactive Services Group[17]. 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.
However, overlapping technologies and organizational red tape
slowed down the process of integration. Within a year of the
acquisition, Netscape browser’s marketshare fell from 73% to 36%.
Andreessen, who had joined AOL as chief technology officer,
resigned only after six months on the job.

His departure triggered a mass exodus of software engineering talent

from Netscape. Soon after, engineers from Netscape joined Silicon
Valley start-ups like Accept.com, Tellme Networks, Apogee Venture
Group and ITIXS. Former Netscape vice president of technology Mike
McCue and product manager Angus Davis founded Tellme Networks.
They brought with them John Giannandrea. As chief technologist and principal
engineer of the browser group, John Giannandrea was involved with every Navigator
release from the first beta of 1.0 in 1994 to the launch of 4.5 version in Oct. 1998.
Ramanathan Guha, one of Netscape’s most senior engineers, left a $4 million salary at
AOL to join Epinions.com.

He was soon joined by Lou Montulli and Aleksander Totic, two of Netscape’s six
founding engineers. Other Netscape employees helped start Responsys. Some
employees joined Accept.com and others AuctionWatch. Spark PR was staffed almost
entirely by former Netscape PR employees.

Market watchers were surprised and worried about this exodus of Netscape
employees. Some of them felt that the mass exodus might have been caused by
monetary considerations. Most of the employees at Netscape had stock options. Once
the acquisition was announced, the value of those options rose significantly.

David Yoffie, a Harvard Business School professor said, “When AOL’s stock went
up, the stock of most of the creative people was worth a ... fortune.” Most of them
encashed their options and left the company. But some analysts believed that there
were other serious reasons for the exodus.

Netscape employees always perceived themselves as an aggressive team of

revolutionaries who could change the world. Before resigning from AOL, Jamie
Zawinski, the 20th person hired at Nescape, said, “When we started this company, we
were out to change the world. We were the ones who actually did it.

When you see URLs on grocery bags, on billboards, on the sides of trucks, at the end
of movie credits just after the studio logos – that was us, we did that. We put the
Internet in the hands of normal people. We kick-started a new communications
medium. We changed the world.” Another ex-employee said, “We really believed in
the vision and had a great feeling about our company.” But the merger with AOL
reduced them to a small part of a big company, with slow-moving culture.
EXHIBIT I
NETSCAPE – CHRONOLOGY OF EVENTS
DATE  EVENT
1-Mar-  Jim Clark and Marc Andreessen begin talks on forming a
94 new company
 The company (first named Electric Media) is founded by
Apr-94
Clark and Andreessen.
 Electric Media changes its name to Mosaic
May-94
Communications
 Mosaic Communications changes its name to Netscape
Nov-94
Communications
 Netscape Navigator, Netscape Commerce, and
Dec-94
Communications Servers ship.
 Netscape's IPO is one of the hottest stock-market debuts
Aug-95
ever.
Dec-95  Netscape and Sun Microsystems announce Java Script.
11-Mar-  America Online agrees to include Netscape in every
96 copy of its Internet-access software.
 AOL strikes a deal with Microsoft, giving Internet
12-Mar-
Explorer the coveted spot as the service provider's
96
browser.
May-96  Netscape announces Netscape Navigator 3.0.
Oct-96  Netscape announces its server product, SuiteSpot 3.0.
 Netscape becomes enterprise-software purveyor, rolling
Oct-96
out intranet- and Internet-server software packages.
11-Jun-
 Netscape releases Communicator
97
Aug-97  Netscape releases Netcaster, push-media software
 Netscape announces an initiative to retain its browser
share by forming 100 industry partnerships. Its new
18-Aug- partners agree to package the Navigator browser --
97 unbundled from the Communicator suite -- with their
products. The streamlined Navigator 4.0 includes
Netcaster, basic email, and calendar software.
 It unveils the Netcenter Web site, transforming the
3-Sep-97 corporate Netscape.com into a site featuring news,
software, and chat groups.
22-Jan-  It offers Communicator 5.0's source code over the Net
98 free.
 23-Feb-  Mozilla.org launched. A dedicated internal team and the
98 website guide the open source code to developers.
31-Mar-  Netscape releases programming source code for its
98 Communicator software.
10-Apr-  Mozilla.org posts the first version of its source code,
98 modified by outside developers.
 The US Justice Department and 20 state attorney
18-May- generals file an antitrust case accusing Microsoft of
98 abusing its market power to thwart competition,
including Netscape
29-Jun-
 Netscape debuts Netcenter 2.0.
98
 According to a study by a market researcher, Netscape
28-Sep-
cedes browser-share lead to Microsoft's Internet
98
Explorer.
 Netscape releases Communicator 4.5, the latest version
19-Oct-
of its browser software. It features Smart Browsing,
98
Roaming Access, and RealNetworks' RealPlayer 5.0.
22-Nov-  AOL is involved in negotiations for buying Netscape in
98 an all-s

EXHIBIT II
NETSCAPE TIME
Netscape Time was Netscape’s most enduring
principle. It was about the speed, at which the
employees worked and delivered new products. It
concerned the mind-set of employees than the
business model of the company. Netscape Time
had six core principles:

The first principle was ‘fast enough never is.’ Ever

since its inception, Netscape maintained a
lightening speed in whatever it did. Analysts felt
that the company could move quickly because it
knew what it wanted. It hired programmers from
the best schools and from companies like Oracle,
Silicon Graphics etc. The company wanted them to
get used to Netscape’s code-writing culture.

‘The paranoid predator’ was the second principle.

Netscape knew that even a predator could become a
prey. The company’s management believed that
their role was to instill urgency at all levels. They
always potrayed Netscape as a startup which had to
 compete with industry giants like Microsoft and
Oracle.

The third principle was ‘all work, all the time.’

Netscape’s employees seemed to be habituated to
non-stop work. For example, to launch the
company’s first product, employees worked round-
the-clock for eight months. Even at 1 am, there
were employees to give ideas, talk code, or discuss
a problem. Jim Sha, General Manager, worked for
11 hours a day at the office, went home for dinner
and then came back to office and worked till late
night.

‘Just enough management’ was the fourth

principle. Netscape seemed to consciously
undermanage. Neither Clark nor Andreessen played
major roles in the management. Andreessen said,
“If you over manage software, the result is
paralysis.”

Another principle of Netscape Time was doing

things ‘four times faster.’ Netscape described
Netscape Time as “turning out new product
releases four times faster than the competition.” In
less than nine months, Netscape launched three
versions of its browser as well as servers.

The last and most important aspect of Netscape

Time was ‘Web squared.’ Netscape placed Web at
the heart of its operations. Andreessen believed that
“worse is better,” and released usable software
quickly, without waiting for perfection. He
believed in using the Web to access the source of
perfection. The company did not use any retail
outlets or resellers. Interested users could download
an ‘evaluation copy’ from the Internet. A fully
supported version of the software was later sent to
interested users. This helped increase the
company’s interaction with the customers. Their
feedback was utilized to design the next version.

EXHIBIT III
BENEFITS FOR NETSCAPE EMPLOYEES
Medical Benefits
The plan options include the United HealthCare Choice Plan, Choice
Plus, Exclusive Provider Option (EPO), Point-of-Service (POS),
Preferred Provider Option (PPO) and Kaiser HMO (available in
California).
Dental Benefits
The Dental Plan pays 100% of covered expenses for preventative
care such as periodic cleanings with no deductible. After an annual
US $100 deductible, the plan will pay 80% of covered expenses for
basic restorative care, 50% for major care and 50% for orthodontia.

Flexible Spending Accounts

Spending accounts can offer significant tax savings. Employees can
deposit up to $5,000 of pre-tax pay into a Health Care FSA and up to
$5,000 of pre-tax pay in a Dependent Care FSA. They receive
reimbursements when they incur eligible expenses.

Vision Care
The vision plan provides reimbursement for services such as annual
exams, frames and lenses. Employees out-of-pocket cost can be as
low as US $20 if you use a participating provider. There is also
coverage for contact lenses.

Life Insurance
Netscape provides employees with basic life insurance as well as
accidental death and dismemberment insurance at no cost to the
employee. Each employee is covered at two times annual salary up
to a maximum of $500,000. Employees can also buy additional
employee and dependent life insurance at discounted rates.

Income Protection
Income protection includes disability, sick leave and workers
compensation. If an employee becomes disabled and is unable to
work, he will be covered by a salary continuation plan covering you
at 70%-100% of your pay for up to 180 days. After 180 days of total
disability, the employee may be eligible for benefits under
Netscape's Long Term Disability Plan.

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. The plan pays up to 60% of pre-disability salary, reduced by
any benefits to receive from sources such as Social Security or
Workers Compensation.

Business Travel Accident Insurance

Netscape provides an additional three times your annual earnings in
accidental death benefits up to $900,0000 to employees while
traveling on company business (excluding every day travel to and
from work).

Vacation
Full-time employees earn up to ten days of vacation during their first
year of service, increasing to fifteen days after three years of service,
 and twenty days after six years of service. (Part-time employees
accrue one-half that of a full-time employee).

Paid Holidays
Netscape observes nine scheduled company-designated holidays and
up to two employee-designated personal holidays per year.

401(k) Retirement Savings Plan

The 401(k) Retirement Savings Plan provides employees an
opportunity to save for retirement on a tax-deferred basis. With
payroll deductions, employees can direct up to 15% of their pretax
earnings (8% for employees earning $80,000 in 2000) into the
savings plan. The Plan offers 16 investment alternatives through
Fidelity Investments and includes loan, rollover, and hardship
options. Employees have on-line access to their accounts.
EXHIBIT III
BENEFITS FOR NETSCAPE EMPLOYEES contd...
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. Subject to IRS guidelines, you
may invest up to 15% of your compensation through after-tax
payroll deductions. Employees may only enroll in the Plan twice a
year, on specified offering period dates.

Tuition Assistance Program

Netscape is committed to the short and long-term professional
development of its employees. As part of this commitment, Netscape
offers a Tuition Assistance Program to aid those employees who are
pursuing job-related degrees or participating in professional
development courses.

Hyatt Legal
Netscape offers a group legal program through Hyatt Legal Plan on a
voluntary basis through payroll deduction. This plan gives you and
your dependents easy access to professional legal representation at
an affordable price.

Employee Services
Life@Work Programs
Netscape has developed a variety of programs to assist employees
with a broad-range of work-life issues. The health and welfare of our
employees is of tremendous importance to us. The program has been
designed to assist employees in balancing some of the
responsibilities of everyday life.

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.
 The EAP can help you and your family with medical, work, family,
financial, legal, and personal issues that can impact your life and
health.

Concierge Service
LesConcierges puts a team of service professionals at your fingertips
to meet any need that will make your life easier. The LesConcierges
team can save you time and energy through services to support your
work and home responsibilities.

Onsite Services
Services onsite such as a florist, massages, dental care, photo
processing, dry cleaning, 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. Sports and recreational activities that
include basketball, volleyball, in-line skating, golf, soccer, softball,
rock climbing and much, much more! Activities vary by location.
(Fitness centers are also available at some Netscape site locations).

Child & Elder Care Referral Service

Assists employees with finding dependent care resources with
information from LifeCare.com.

Credit Unions and Banking

Select from a variety of different employer-sponsored credit unions
for low rates on loans and CDs. Some Netscape locations have
onsite ATMs for employee banking convenience.
Source: www.netscape.com

EXHIBIT IV
NETSCAPE CONSOLIDATED STATEMENT OF OPERATIONS
 1998 (Oct
(in US$ thousands)  1994  1995  1996  1997
31)
Revenues
Product  3337  77489  291183  383950  261457
Service  801  7898  55111  149901  186352
Total  4138  85387  346294  533851  447809
Cost of Revenues:
Cost of Pdt Rev  186  9177  36943  50232  27313
Cost of Ser Rev  247  2530  13124  31557  90717
Total  433  11707  50067  81789  118030
Gross Profit  3705  73680  296227  452062  329779
Operating Expenses
R&D  4146  26841  83863  129928  123238
 Sales & Mktg.  7750  43679  154545  272110  213004
Gen & Admn  3389  11336  30981  50356  42715
Property rights agmt and
 2487  500  250  --  --
related charges
Purchased in-process
 --  --  --  103087  --
R&D
Mergers related charges  --  2033  6100  5848  --
Restructuring charges  --  --  --  23000  12000
Goodwill Amortization  --  --  --  --  5088
Total  17772  84389  275739  584329  396045
 -  -  -
Operating Income (Loss)  20488  -66266
14067 10709 132267
Interest Income  251  4898  --  --  6873
Interest Expense  -14  -304  --  --  --
 -  -
Net Income (Loss)  -6613  19517  -51417
13830 115496

Johnson & Johnson's Health and Wellness Program

“Top management is recognizing physical fitness as a prudent investment in the
health, vigor, morale and longevity of the men and women who are any company’s
most valuable asset.”
- Dr. Richard Keller, 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.”
- Dr. Fikry Isaac, Director, Johnson & Johnson, Occupational Medicine, Health &
Productivity[2]
INTRODUCTION
In 1998, the American College of Occupational and Environmental Medicine
conferred Johnson & Johnson (J&J)[3] the Corporate Health Achievement Award
(CHAA)[4] . J&J was one of the four national winners[5] selected for having the
healthiest employees and workplace environment in the US.
The award was decided on the basis of four parameters[6] – Healthy
People, Healthy Environment, Healthy Company and Overall
Management (Refer Exhibit I). These parameters were considered
crucial for developing and deploying a comprehensive corporate
health program.

In 2000, the New Jersey Psychological Association presented J&J

with the Psychologically Healthy Workplace Award for its
commitment to workplace well-being and developing a
psychologically healthy work environment for its employees.
According to analysts, these prestigious awards were given to J&J in
recognition for its continuous efforts to create a healthy work
environment.
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. All this was done under the Health and
Wellness Program (HWP) that the company introduced in 1995.

The program benefited both J&J and its employees. The company saved $8.5 million
per annum in the form of reduced employee medical claims and administrative
savings. Moreover, within two years of implementing HWP, J&J witnessed a decline
of 15% in employee absenteeism rate. Peter Soderberg, President, J&J explained the
rationale behind implementing the program[7] , “Our research time and time again
confirms the benefits of healthier, fitter employees.

They have fewer and lower long-term medical claims, they are absent less, their
disability costs are lower and their perceived personal productivity and job/life
satisfaction levels are higher.” Ron Z. Goetzel (Goetzel), Vice-President, Consulting
and Applied Research, MEDSTAT Group[8] added, “There’s a growing body of data
indicating that corporate wellness programs lower medical costs for employees.”[9]
BACKGROUND NOTE
The US industry spent approximately $200 bn per annum on employee health
insurance claims, on-site accidents, burn-out and absenteeism, lower productivity and
decreased employee morale due to health problems.
Moreover, according to the estimates of Mercer[10] , the US industry
expenditure on the medical and disability bills of employees was
rising significantly. In 1998, companies had paid an estimated $4000
per annum per employee as healthcare costs, and that rose to $5,162 in
2001 and around $5,700 in 2002. Apart from other health related
problems (Refer Table I), stress at workplace was considered to be one
of the main reasons for this high expenditure.

Work stress led to problems like nervousness, tension, anxiety, loss of

patience, inefficiency in work and even chronic diseases like cardiac
arrest and hypertension. As a result of these health problems,
absenteeism increased and productivity of employees declined.
TABLE I
ANNUAL AVERAGE COST PER EMPLOYEE DUE TO
VARIOUS HEALTH PROBLEMS
Annual average cost
Nature of Health Problem
per employee
Heart disease  $236
Mental health problems  $179
High blood pressure  $160
Diabetes  $104
Low back pain  $90
Heart attacks/Acute
 $69
myocardial blockages
Bi-polar disorders/Maniac
 $62
depression
 Depression  $24
Source: www.news.cornell.edu
In 1997, the Whirlpool Foundation[11] , the Working Mother magazine[12] and the
Work and Family Newsbrief[13] carried out a survey in the US, which involved about
150 executives. The survey discovered a close connection between employee wellness
programs[14] (which included flexi work options, employee care, employee assistance
programs) with 16 key result areas including enhanced efficiency, low absenteeism,
low turnover, high employee satisfaction, high morale and reduced health-care costs
of employees.

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. Elaborating the benefits of
these programs, DW Edington[15], Professor at the University of Michigan said[16] ,
“Wellness programs in general, and fitness programs in particular may be the only
employee benefits which pay money back. When more people come to work, you
don’t need to pay overtime or temporary help; when people stay at the job longer,
training costs go down; 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.”

Indian Airlines HR Problems

“There could scarcely be a more undisciplined bunch of workers than IA’s 22,000
employees.”
- Business India, January 25, 1999.
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. Continual
losses over the years, frequent human resource problems and gross mismanagement
were just some of the few problems plagued the company.
Widespread media coverage regarding the frequent strikes by IA pilots
not only reflected the adamant attitude of the pilots, but also resulted
in increased public resentment towards the airline. IA’s recurring
human resource problems were attributed to its lack of proper
manpower planning and underutilization of existing manpower.

The recruitment and creation of posts in IA was done without proper

scientific analysis of the manpower requirements of the organization.
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.
During the 1990s, the Government took various steps to turn around IA and initiated
talks for its disinvestment. Amidst strong opposition by the employees, the
disinvestment plans dragged on endlessly well into mid 2001.

The IA story shows how poor management, especially in the human resources area,
could spell doom even for a Rs 40 bn monopoly.
BACKGROUND NOTE
IA was formed in May 1953 with the nationalization of the airlines industry through
the Air Corporations Act. 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. While Air India provided international air services,
IA and its subsidiary, Alliance Air, provided domestic air services. In 1990,
Vayudoot, a low-capacity and short-haul domestic airline with huge long-term
liabilities, was merged with IA.

IA’s network ranged from Kuwait in the west to Singapore in the east, covering 75
destinations (59 within India, 16 abroad). Its international network covered Kuwait,
Oman, UAE, Qatar and Bahrain in West Asia; Thailand, Singapore and Malaysia in
South East Asia; and Pakistan, Nepal, Bangladesh, Myanmar, Sri Lanka and Maldives
in the South Asian subcontinent. Between themselves, IA and Alliance Air carried
over 7.5 million passengers annually. In 1999, the company had a fleet strength of 55
aircraft - 11 Airbus A300s, 30 Airbus A320s, 11 Boeing B737s and 3 Dorniers
D0228.

In 1994, the Air Corporation Act was repealed and air transport was thrown open to
private players. Many big corporate houses entered the fray and IA saw a mass exodus
of its pilots to private airlines. To counter increasing competition IA launched a new
image building advertisement campaign. It also improved its services by strictly
adhering to flight schedules and providing better in-flight and ground services. It also
launched several other new aircraft, with a new, younger, and more dynamic in flight
crew. These initiatives were soon rewarded in form of 17% increase in passenger
revenues during the year 1994.

However, IA could not sustain these improvements. Competitors like Sahara and Jet
Airways (Jet) provided better services and network. Unable to match the performance
of these airlines IA faced severe criticism for its inefficiency and excessive
expenditure human resources. Staff cost increased by an alarming Rs 5.9 bn during
1994-98. These costs were responsible to a great extent for the company’s frequent
losses. By 1999 the losses touched Rs 7.5 bn.

In the next few years, private players such as East West, NEPC, and Damania had to
close shop due to huge losses. Jet was the only player that was able to sustain itself.
IA’s market share, however continued to drop. In 1999, while IA’s market share was
47%, the share of private airlines reached 53%.

Unnecessary interference by the Ministry of Civil Aviation was a major cause of

concern for IA. 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.
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. These flights
contributed to the IA’s losses over the years. As the carrier’s balance sheet was
heavily skewed towards debt with an equity base of Rs 1.05 bn in 1999 as against
long term loans of Rs 28 bn, heavy interest outflows of Rs 1.99 bn further increased
the losses.

IA could blame many of its problems on competitive pressures or political

interference; but it could not deny responsibility for its human resource problems. A
report by the Comptroller and Auditor General of India stated, “Manpower planning
in any organization should depend on the periodic and realistic assessment of the
manpower needs, need-based recruitment, optimum utilization of the recruited
personnel and abolition of surplus and redundant posts. Identification of the
qualifications appropriate to all the posts is a basic requirement of efficient human
resource management. IA was found grossly deficient in all these aspects.”
‘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. Strikes,
go-slow agitations and wage negotiations were common.
For each strike there was a different reason, but every strike it was
about pressurizing IA for more money. From November 1989 to June
1992, there were 13 agitations by different unions. During December
1992-January 1993, there was a 46-day strike by the pilots and yet
another one in November 1994. The cavalier attitude of the IA pilots
was particularly evident in the agitation in April 1995.

The pilots began the agitation demanding higher allowances for flying
in international sectors. This demand was turned down. They then
refused to fly with people re-employed on a contract basis. Thereafter
they went on a strike, saying that the cabin crew earned higher wages
than them and that they would not fly until this issue was addressed.
Due to adamant behaviour of pilots many of the cabin crew and the airhostesses had
to be off-loaded at the last moment from aircrafts. In 1996, there was another
agitation, with many pilots reporting sick at the same time. Medical examiners, who
were sent to check these pilots, found that most of these were false claims.

Some of the pilots were completely fit; others somehow managed to produce medical
certificates to corroborate their claims. In January 1997, there was another strike by
the pilots, this time asking for increased foreign allowances, fixed flying hours, free
meals and wage parity with Alliance Air.

Though the strike was called off within a week, it again raised questions regarding
IA’s vulnerability. 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]. The strategies adopted by IA to overcome these problems were severely
criticized by analysts over the years. 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.

Russy Mody (Mody), who joined IA as chairman in November 1994, made efforts to
appease the unions by proposing to bring their salaries on par with those of Air India
employees. This was strongly opposed by the board of directors, in view of the
mounting losses. Mody also proposed to increase the age of retirement from 58 to 60
to control the exodus of pilots.

However, government rejected Mody’s plans[2]. When Probir Sen (Sen) took over as
chairman and managing director, he bought the pilot emoluments on par with
emoluments other airlines, thereby successfully controlling the exodus. In 1994, 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.

Sen averted a crisis by creating Alliance Air, a subsidiary airline company where the
re-employed people were utilized. He was also instrumental in effecting substantial
wage hikes for the employees. The extra financial burden on the airline caused by
these measures was met by resorting to a 10% annual hike in fares. (Refer Table I)
TABLE I
IMPACT OF STAFF COST HIKE IN FARE INCREASE (%)
Date of fare increase Impact (%)
25/07/1994  16.22
1/10/1995  25
22/09/1996  36
15/10/1997  13.44
1/10/1998  8.8
Source: IATA-World Air Transport Statistics
 
Initially, Sen’s efforts seemed to have positive effects with an
improvement in aircraft utilization figures. IA also managed to cut
losses during 1996-97 and reported a Rs 140 mn profit in 1997-98.
But recessionary trends in the economy and its mounting wage bill
pushed IA back into losses by 1999. Sen and the entire board of
directors was sacked by the government.

In the late 1990s, in yet another effort to appease its employees, IA

introduced the productivity-linked scheme. The idea of the
productivity linked incentive (PLI) scheme was to persuade pilots to
fly more in order to increase aircraft utilization. But the PLI scheme
was grossly misused by large sections of the employees to earn more
cash. For instance, the agreement stated that if the engineering
department made 28 Airbus A320s available for service every day,
PLI would be paid.
This number was later reduced to 25 and finally to 23. There were also reports that
flights leaving 30 - 45 minutes late were shown as being on time for PLI purposes.
Pilots were flying 75 hours a month, while they flew only 63 hours. Eventually, the
PLI schemes raised an additional annual wage bill of Rs 1.8 bn for IA. It was alleged
that IA employees did no work during normal office hours; this way they could not
work overtime and earn more money.

Though experts agreed that IA had to cut its operation costs. To survive the airline
continued to add to its costs, by paying more money to its employees. (Refer Table
II). The payment of overtime allowance (OTA) which included holiday pay to staff,
increased by 109% during 1993-99. It was also found that the payment of OTA
always exceeded the budget provisions.

Between 1991-92 and 1995-96, the increase in pay and allowances of the executive
pilots was 842% and that of non-executive pilots was 134%. Even the lowest paid
employee in the airline, either a sweeper or a peon, was paid Rs 8,000 – 10,000 per
month with overtime included.
TABLE II
INCREASE IN STAFF COSTS
Staff cost
as
Per Total percentag
Staff No. of Effecti
Yea employ expenditue of total
cost (in employe ve fleet
r ee cost re (in Rs operation
Rs bn) es size
(in mn) bn) al
expenditu
re
199
 2.85  22182  0.13  20.75  15%  54
3-94
 3.74
199
(31.18%  22683  0.16  22.59  19%  58
4-95
)*
 5.71
199
(52.59%  22582  0.25  26  25%  55
5-96
)
 7.10
199
(24.35%  22153  0.32  29.29  26%  40
6-97
)
 8.17
199
(15.03%  21990  0.37  32.21  27%  40
7-98
)
199  8.75
 21922  0.39  34.31  28%  41
8-99 (7.12%)
Source: IATA-World Air Transport Statistics
* Figures in brackets indicate increase over the previous year.
# Excludes 4 aircraft grounded from 1993-94 to 1995-96 as well as 12 aircraft leased
to Airline Allied Services Ltd. from 1996-97 to 1998-99.
In 1998, IA tried to persuade employees to cut down on PLI and overtime to help the
airline weather a difficult period; 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, heavy payments
were made on account of PLI. A net loss of Rs 641.8 mn was
registered during the period 1995-99. PLI payments alone amounted to
Rs 6.66 bn, during the same period. According to unofficial reports,
arrears to be paid to employees on account of PLI touched nearly Rs 7
bn by 1999.

Over the years, the number of employees at IA increased steadily. IA

had the maximum number of employees per aircraft. (Refer Table III).
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. There were 150
employees earning above Rs 0.3 mn per annum in 1994-95 and the
number increased to 2,109 by 1997-98. The Brar committee attributed
this abnormal increase in staff costs to inefficient manpower planning,
unproductive deployment of manpower and unwarranted increase in
salaries and wages of the employees.
TABLE III
A COMPARISON OF VARIOUS AIRLINES
 Number
 ATKm[3]  ATKm
Name of of  No. of  Employees
(in per
Airlines aircraft employees per aircraft
Million) Employee
in fleet
Singapore
 84  13,549 14418.324  1064161  161
Airlines
Thai
Airways  76  24,186  6546.627  270678  318
International
Indian
 51  21,990  2113.671  398204  431
Airlines
Gulf Air  30  5,308  1416.235  245831  177
Kuwait
 22  5,761  345.599  92853  261
Airways
Jet Airways  19  3,722  1094.132  49756  196
Source: IATA-World Air Transport Statistics
Analysts criticized the way posts were created in IA. In 1999, Six new posts of
directors were created of which three were created by dividing functions of existing
directors. Thus, in place of 6 directors in departments’ prior April 1998, there were 9
directors by 1999 overseeing the same functions. There were 30 full time directors,
who in turn had their retinue of private secretaries, drivers and orderlies. The posts in
non-executive cadres were to be created after the assessment by the Manpower
Assessment committee. But analysts pointed that in the case of cabin crew, 40 posts
were introduced in the Southern Region on an ad-hoc basis, pending the assessment of
their requirement by the Staff Assessment Committee.

Another problem was that no basic educational qualifications prescribed for senior
executive posts. Even a matriculate could become a manager, by acquiring the
necessary job-related qualifications & experience. Illiterate IA employees drew
salaries that were on par with senior civil servants. After superannuation, several
employees were re-employed by the airline in an advisory capacity. According to
reports, IA employed 132 retired employees as consultants during 1995-96 on
contract basis. With each strike/go-slow and subsequent wage negotiations, IA’s
financial woes kept increasing. Though at times the airline did put its foot down, by
and large, it always acceded to the demands for wage hikes and other perquisites.
TROUBLED SKIES
Frequent agitations was not the only problem that IA faced in the area of human
resources. There were issues that had been either neglected or mismanaged.
For instance, the rates of highly subsidized canteen items were not
revised even once in three decades and there was no policy on fixing
rates. Various allowances such as out-of-pocket expenses, experience
allowance, simulator allowance etc. were paid to those who were not
strictly eligible for these. Excessive expenditure was incurred on
benefits given to senior executives such as retention of company car,
and room air-conditioners even after retirement. All these problems
had a negative impact on divestment procedure.

This did not augur well for any of the parties involved, as privatization
was expected to give the IA management an opportunity to make the
venture a commercially viable one. Freed from its political and social
obligations, the carrier would be in a much better position to handle its
labor problems. The biggest beneficiaries would be perhaps the
passengers, who would get better services from the airline.
QUESTIONS FOR DISCUSSION:
1. Analyze the developments in the Indian civil aviation industry after the sector was
opened up for the private players. Evaluate IA’s performance. Why do you think IA
failed to retain its market share against competitors like Jet Airways?

2. IA’s human resource problems can largely be attributed to its poor human resource
management policies. Do you agree? Give reasons to support your stand.

-==========================================

EMPLOYEE DOWNSIZING
Publication Date -2002
"Next to the death of a relative or friend, there's nothing more traumatic than losing a
job. Corporate cutbacks threaten the security and self-esteem of survivors and victims
alike. They cause turmoil and shatter morale inside organizations and they confirm the
view that profits always come before people."
 - Laura Rubach, Industry Analyst, in 1994.
"The market is going to determine where we stop with the layoffs."
- Tom Ryan, a Boeing spokesman, in August 2002
DOWNSIZING BLUES ALL OVER THE WORLD
The job markets across the world looked very gloomy in the early 21st century, with
many companies having downsized a considerable part of their employee base and
many more revealing plans to do so in the near future. Companies on the Forbes 500
and Forbes International 800 lists had laid off over 460,000 employees' altogether,
during early 2001 itself.
This trend created havoc in the lives of millions of employees across the world, Many
people lost their jobs at a very short or no advance notice, and many others lived in a
state of uncertainty regarding their jobs. Companies claimed that worldwide
economic slowdown during the late-1990s had had forced them to downsize, cut
costs, optimize resources and survive the slump. Though the concept of downsizing
had existed for a long time, its use had increased only recently, since the late-1990s.
(Refer Table I for information on downsizing by major companies).

Analysts commented that downsizing did more damage than good to the companies
as it resulted in low morale of retained employees, loss of employee loyalty and loss
of expertise as key personnel/experts left to find more secure jobs. Moreover, the
uncertain job environment created by downsizing negatively effected the quality of
the work produced. Analysts also felt that most companies adopted downsizing just as
a 'me-too' strategy even when it was not required.
However, despite these concerns, the number of companies that chose to downsize
their employee base increased in the early 21st century. Downsizing strategy was
adopted by almost all major industries such as banking, automobiles, chemical,
information technology, fabrics, FMCG, air transportation and petroleum. In mid-
2002, some of the major companies that announced downsizing plans involving a
large number of employees included Jaguar (UK), Boeing (US), Charles Schwab
(US), Alactel (France), Dresdner (Germany), Lucent Technologies (US), Ciena Corp.
(US) and Goldman Sachs Group (US). Even in companies' developing countries such
as India, Indonesia, Thailand, Malaysia and South Korea were going in for
downsizing.
TABLE I
DOWNSIZING BY MAJOR COMPANIES (1998-2001)
 No. of
YEAR COMPANY INDUSTRY Employees
Downsized
1998  Boeing  Aerospace  20,000
1998  CitiCorp  Banking  7,500
1998  Chase Manhattan Bank  Banking  2,250
1998  Kellogs  FMCG  1,00
1998  BF Goodrich  Tyres  1,200
1998  Deere & Company  Farm Equipment  2,400
1998  AT&T  Telecommunications  18,000
1998  Compaq  IT  6,500
1998  Intel  IT  3,000
1998  Seagate  IT  10,000
1999  Chase Manhattan Bank  Banking  2,250
1999  Boeing  Aerospace  28,000
1999  Exxon-Mobil  Petroleum  9,000
2000  Lucent Technologies  IT  68,000
2000  Charles Schwab  IT  2,000
2001  Xerox  Copiers  4,000
2001  Hewlett Packard  IT  3,000
2001  AOL Time Warner  Entertainment  2,400

THE FIRST PHASE 

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

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

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

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

As investors seemed to be flocking to downsizing companies, many companies saw

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

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

However, the downsizing tax caused more problems than it solved. As this policy
restrained a company from downsizing, it damaged the chances of potential job
seekers to get into the company. This tax was mainly responsible for the low rate of
job creation and high rates of unemployment in many European countries, including
France.
THE SECOND PHASE
By the mid-1990s, factors such as increased investor awareness, stronger economies,
fall in inflation, increasing national incomes, decrease in level of unemployment, and
high profits, reduced the need for downsizing across the globe. However, just as the
downsizing trend seemed to be on a decline, it picked up momentum again in the late-
1990s, this time spreading to developing countries as well.
This change was attributed to factors such as worldwide economic recession, increase
in global competition, the slump in the IT industry, dynamic changes in technologies,
and increase in the availability of a temporary employee base. Rationalization of the
labor force and wage reduction took place at an alarming rate during the late 1990s
and early 21st century, with increased strategic alliances and growing popularity of
concepts such as lean manufacturing and outsourcing .

Criticism of downsizing and its ill-effects soon began resurfacing. Many companies
suffered from negative effects of downsizing and lost some of their best employees.
Other problems such as the uneven distribution of employees (too many employees in
a certain division and inadequate employees in another), excess workload on the
survivors, resistance to change from the survivors, reduced productivity and fall in
quality levels also cropped up. As in the early 1990s, many organizations downsized
even though it was not necessary, because it appeared to be the popular thing to do.
Due to the loss of experienced workers, companies incurred expenditure on overtime
pay and employment of temporary and contract workers. It was reported that about
half of the companies that downsized their workforce ended up recruiting new or
former staff within a few years after downsizing because of insufficient workers or
lack of experienced people. The US-based global telecom giant AT&T was one such
company, which earned the dubious reputation of frequently rehiring its former
employees because the retained employees were unable to handle the work load.

AT&T frequently rehired former employees until it absorbed the 'shock' of

downsizing. It was also reported that in some cases, AT&T even paid recruitment
firms twice the salaries of laid-off workers to bring them back to AT&T. A former
AT&T manager commented, "It seemed like they would fire someone and [the
worker] would be right back at their desk the next day." Justifying the above, Frank
Carrubba, Former Operations Director, AT&T, said, "It does not happen that much,
but who better to bring back than someone who knows the ropes?" Very few people
bought this argument, and the rationale behind downsizing and then rehiring former
employees/recruiting new staff began to be questioned by the media as well as the
regulatory authorities in various parts of the world.
Meanwhile, allegations that downsizing was being adopted by companies to support
the increasingly fat pay-checks of their senior executives increased. AT&T was again
in the news in this regard. In 1996, the company doubled the remuneration of its
Chairman, even as over 40,000 employees were downsized. Leading Internet start-up
AOL was also criticized for the same reasons. The increase in salary and bonuses of
AOL's six highest paid executive officers was between 8.9% to 25.2% during 2000.
The average increase in salary and bonus of each officer was about 16%, with the
remuneration of the CEO exceeding $73 million during the period. Shortly after this
raise, AOL downsized 2,400 employees in January 2001.

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

TACKLING THE EVILS OF DOWNSIZING

During the early 21st century, many companies began offering flexible work
arrangements to their employees in an attempt to avoid the negative impact of
downsizing. Such an arrangement was reported to be beneficial for both employees as
well as the organization. A flexible working arrangement resulted in increased morale
and productivity; decreased absenteeism and employee turnover, reduced stress on
employees; increased ability to recruit and retain superior quality employees
improved service to clients in various time zones; and better use of office equipment
and space. This type of arrangement also gave more time to pursue their education,
hobbies, and professional development, and handle personal responsibilities.
The concept of contingent employment also became highly popular and the number
of organizations adopting this concept increased substantially during the early 21st
century. According to the Bureau of Labor Statistics (BLS), US, contingent
employees were those who had no explicit or implicit contract and expected their jobs
to last no more than one year. They were hired directly by the company or through an
external agency on a contract basis for a specific work for a limited period of time.

Companies did not have to pay unemployment taxes, retirement or health benefits for
contingent employees. Though these employees appeared on the payroll, they were
not covered by the employee handbook (which includes the rights and duties of
employers and employees and employment rules and regulations). In many cases, the
salaries paid to them were less than these given to regular employees performing
similar jobs. Thus, these employees offered flexibility without long-term
commitments and enabled organizations to downsize them, when not required,
without much difficulty or guilt. Analysts commented that in many cases HR
managers opted for contingent employees as they offered the least resistance when
downsized.
However, analysts also commented that while contingent employment had its
advantages, it posed many problems in the long run. In the initial years, when
contingent employment was introduced, such employees were asked to perform non-
critical jobs that had no relation to an organization's core business. But during the
early 2000s, contingent employees were employed in core areas of organizations. This
resulted in increased costs as they had to be framed for the job. Not only was training
time consuming, its costs were recurring in nature as contingent employees stayed
only for their specified contract period and were soon replaced by a new batch of
contingent employees. Productivity suffered considerably during the period when
contingent employees were being trained. The fact that such employees were not very
loyal to the organization also led to problems.

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

According to some analysts, the contingent employment arrangement was not

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

Though contingent employment seemed to have emerged as one of the solutions to the
ills of downsizing, it attracted criticism similar to those that downsizing did. As a
result, issues regarding employee welfare and the plight of employees, who were
subject to constant uncertainty and insecurity regarding their future, remained
unaddressed. Given these circumstances, the best option for companies seemed to be
to learn from those organizations that had been comparatively successful at
downsizing.
LESSONS FROM THE 'DOWNSIZING BEST PRACTICES' COMPANIES
In the late 1990s, the US government conducted a study on the downsizing practices
of firms (including major companies in the country). The study provided many
interesting insights into the practice and the associated problems. It was found that the
formulation and communication of a proper planning and downsizing strategy, the
support of senior leaders, incentive and compensation planning and effective
monitoring systems were the key factors for successful downsizing.
In many organizations where downsizing was successfully implemented and yielded
positive results, it was found that senior leaders had been actively involved in the
downsizing process. Though the downsizing methods used varied from organization
to organization, the active involvement of senior employees helped achieve
downsizing goals and objectives with little loss in quality or quantity of service. The
presence and accessibility of senior leaders had a positive impact on employees -
those who were downsized as well as the survivors. According to a best practice
company source, "Managers at all levels need to be held accountable for - and need to
be committed to - managing their surplus employees in a humane, objective, and
appropriate manner. While HR is perceived to have provided outstanding service, it is
the managers' behavior that will have the most impact." In many companies,
consistent and committed leadership helped employees overcome organizational
change caused by downsizing.
HR managers in these companies participated actively in the overall downsizing
exercise. They developed a employee plan for downsizing, which covered issues such
as attrition management and workforce distribution in the organization. The plan also
included the identification of skills needed by employees to take new responsibilities
and the development of training and reskilling programs for employees. Since it may
be necessary to acquire other skills in the future, the plan also addressed the issue of
recruitment planning.

Communication was found to be a primary success factor of effective downsizing

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

The survey report suggested that face-to-face communication (such as briefings by

managers and small group meetings) was a more appropriate technique for dealing
with a subject as traumatic (to employees) as downsizing. According to best practice
companies, employees expected senior leaders to communicate openly and honestly
about the circumstances the company was facing (which led to downsizing).

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

Many organizations encouraged employees to voice their ideas, concerns or

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

Advance planning for downsizing also contributed to the success of a downsizing

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

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

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

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

Some techniques considered by organizations in lieu of downsizing included overtime

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

According to best practice companies, periodic review of the implementation process

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

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

QUESTIONS FOR DISCUSSION

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

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

3. As part of an organization's HR team responsible for carrying it through a

downsizing exercise, discuss the measures you would adopt to ensure the exercise's
success. Given the uncertainty in the job market, what do you think employees should
do to survive the trauma caused by downsizing and prepare themselves for it?

CHANGE MANAGEMENT@ICICI

Published-2002
"What role am I supposed to play in this ever-changing entity? Has anyone worked
out the basis on which roles are being allocated today?"
- A middle level ICICI manager, in 1998.
"We do put people under stress by raising the bar constantly. That is the only way to
ensure that performers lead the change process."
- K. V. Kamath, MD & CEO, ICICI, in 1998.
THE CHANGE LEADER
In May 1996, K.V. Kamath (Kamath) replaced Narayan Vaghul (Vaghul), CEO of
India's leading financial services company Industrial Credit and Investment
Corporation of India (ICICI). Immediately after taking charge, Kamath introduced
massive changes in the organizational structure and the emphasis of the organization
changed - from a development bank [1]mode to that of a market-driven financial
conglomerate.
Kamath's moves were prompted by his decision to create new divisions to tap new
markets and to introduce flexibility in the organization to increase its ability to
respond to market changes. Necessitated because of the organization's new-found aim
of becoming a financial powerhouse, the large-scale changes caused enormous
tension within the organization. The systems within the company soon were in a state
of stress. Employees were finding the changes unacceptable as learning new skills
and adapting to the process orientation was proving difficult.
The changes also brought in a lot of confusion among the employees, with media
reports frequently carrying quotes from disgruntled ICICI employees. According to
analysts, a large section of employees began feeling alienated.
The discontentment among employees further increased, when Kamath formed
specialist groups within ICICI like the 'structured projects' and 'infrastructure' group.
Doubts were soon raised regarding whether Kamath had gone 'too fast too soon,' and
more importantly, whether he would be able to steer the employees and the
organization through the changes he had initiated.
BACKGROUND NOTE
ICICI was established by the Government of India in 1955 as a public limited
company to promote industrial development in India. The major institutional
shareholders were the Unit Trust of India (UTI), the Life Insurance Corporation of
India (LIC) and the General Insurance Corporation of India (GIC) and its subsidiaries.
The equity of the corporation was supplemented by borrowings from the Government
of India, the World Bank, the Development Loan Fund (now merged with the Agency
for International Development), Kreditanstalt fur Wiederaufbau (an agency of the
Government of Germany), the UK government and the Industrial Development Bank
of India (IDBI).

The basic objectives of the ICICI were to

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

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

CHANGE CHALLENGES - PART II

ICICI had to face change resistance once again in December 2000, when ICICI Bank
was merged with Bank of Madura (BoM)[1] . Though ICICI Bank was nearly three
times the size of BoM, its staff strength was only 1,400 as against BoM's 2,500. Half
of BoM's personnel were clerks and around 350 were subordinate staff.
            
There were large differences in profiles, grades, designations and salaries of personnel
in the two entities. It was also reported that there was uneasiness among the staff of
BoM as they felt that ICICI would push up the productivity per employee, to match
the levels of ICICI [2]. BoM employees feared that their positions would come in for
a closer scrutiny. They were not sure whether the rural branches would continue or
not as ICICI's business was largely urban-oriented.
The apprehensions of the BoM employees seemed to be justified as the working
culture at ICICI and BoM were quite different and the emphasis of the respective
management was also different. While BoM management concentrated on the overall
profitability of the Bank, ICICI management turned all its departments into individual
profit centers and bonus for employees was given on the performance of individual
profit center rather than profits of whole organization.
ICICI not only put in place a host of measures to technologically upgrade the BoM
branches to ICICI's standards, but also paid special attention to facilitate a smooth
cultural integration. The company appointed consultants Hewitt Associates[3]to help
in working out a uniform compensation and work culture and to take care of any
change management problems.
ICICI conducted an employee behavioral pattern study to assess the various fears and
apprehensions that employees typically went through during a merger. (Refer Table
I).
TABLE I
'POST-MERGER' EMPLOYEE BEHAVIORAL PATTERN
PERIOD  EMPLOYEE BEHAVIOR
Day 1 Denial, fear, no improvement
After a month Sadness, slight improvement
After a Year Acceptance, significant improvement
After 2 Years Relief, liking, enjoyment, business development activities

Source:www.sibm.edu

Based on the above findings, ICICI established systems to take care of the employee
resistance with action rather than words. The 'fear of the unknown' was tackled with
adept communication and the 'fear of inability to function' was addressed by adequate
training. The company also formulated a 'HR blue print' to ensure smooth integration
of the human resources. (Refer Table II).
TABLE II
MANAGING HR DURING THE ICICI-BoM MERGER
 
AREAS OF HR INTEGRATION
THE HR BLUEPRINT
FOCUSSED ON
  A data base of the entire HR structure   Employee communication
  Road map of career   Cultural integration
  Determining the blue print of HR   Organization structuring
moves   Recruitment & Compensation
  Communication of milestones   Performance management
  IT Integration - People Integration -         Training
Business Integration.   Employee relations