In the 1980’s• Weak companies facing high demand erosion for

their products .

• Competition

• Till the late-1980s, the number of firms that adopted downsizing was limited.

During the early 1990’s

•Mergers and acquisitions . •To optimize resources and cut costs. • To increase productivity and • General Electric(GE) and General Motors (GM) downsized to increase productivity and efficiency, optimize resources and survive competition and eliminate duplication of work after mergers and acquisitions • Downsizing forces re-thinking of Employment Strategy. Lifelong

employment policies not credible after a downsizing. Example: IBM abandoned lifelong policy after several layoffs in early 1990s.The total of IBM Corp.'s downsizings in the nation was nearly 10,000

•Negative effect – Delta Airlines

By the mid-1990’s•Downsizing trend 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.•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.

DOWNSIZING BY MAJOR COMPANIES (1998-2001)YEAR COMPANY INDUSTRY NO. OF EMPLOYEES DOWNSIZED

1998 Boeing Aerospace 20,000

1998 CitiCorp Banking 7,500

1998 Chase Manhattan Bank Banking 2,250

1998 Kellogs FMCG 1,00

1998 BF Goodrich Tyres 1,200

1998 Deere & Company Farm Equipment 2,400

1998 AT&T Telecommunications 18,000

1998 Compaq IT 6,500

1998 Intel IT 3,000

1998 Seagate IT 10,000

1999 Chase Manhattan Bank Banking 2,250

1999 Boeing Aerospace 28,000

1999 Exxon-Mobil Petroleum 9,000

2000 Lucent Technologies IT 68,000

2000 Charles Schwab IT 2,000

2001 Xerox Copiers 4,000

2001 Hewlett Packard IT 3,000

2001 AOL Time Warner Entertainment 2,400

Reasons for the increase use of downsizing during the late 20th century and the early 21st century

• Reducing cost of operations.• Right size resources in relation to demand. • Signal that the company is taking proactive

steps to adjust to changing business needs. • Taking advantages of cost synergies after a

merger.

Case Study - SAIL

• Steel Authority of India Ltd. was formed in 1973 • India’s largest steel manufacturer• Company incurred huge loss in mid 1990• The McKinsey report suggested business-restructuring and

reorganizing plan • Manpower costs alone accounted for 16.69% of the

company's gross sales• the company's 160,000-strong workforce. To reduce

manpower through the voluntary retirement scheme• GOI decision to increase the retirement age to 60 further

delayed the reduction.

• 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.

• 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.

• On March 31, 1999, SAIL introduced a 'sabbatical leave' scheme.• On June 01, 1999, SAIL launched another VRS for its employees. • By September 1999, over 4,000 employees opted for the new scheme.• On December 27, 1999, SAIL initiated a company-wide information dissemination program to

educate the staff on restructuring• The exercise was expected to cover at least 16,000 SAIL employees by the end of March 2000.• In September 2000, SAIL announced yet another round of VRS, in a bid to remove 10,000

employees • 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. • On February 17, 2000, workers at SSP went on a strike against the government's decision to

restructure SAIL.

• Practices adopted by Indian Co.• Traditionally, Indian companies (in all sectors) respond to adverse market conditions by

cutting costs rather than downsizing the workforce. This typically involves cutting perks (like variable pay) and other accruements. Many companies reduce benefits like free lunches, expensive team outings and the like.

• IT companies like TCS, Infosys and Wipro, being home-bred, have adopted these practices in the past (we went through a similar slowdown in the initial years of the new millennium).

• Contrast this to the downsizing of Entry level Trainee Programmers by IBM. Though touted as an exercise in weeding out “poor performers”, it leaves little doubt about how foreign companies (or MNC’s) operating out of India would deal with the situation.

• Some companies typically put all new recruitments on hold until the economic conditions appear favourable.

• Further, it has to be borne in mind that most companies these days have variable pay as a high component of the overall package. This variable pay includes company performance linked pay, group performance linked pay and individual incentives. TCS has reduced the company performance component by 1.5%. This step has to be viewed as a cautious response to the emerging economic scenario.

Case Study – Jet Airways

• Largest Indian Aviation Industry ($6 billion).• Total strength of 19000 employees as on Oct’08.• The case is about the retrenchment drama that

unfolded in one of India’s leading aviation companies, Jet Airways (India) Limited in Oct 2008.

• More than thousand employees were laid off.

• It was a part of major Cost-cutting exercise to tackle Global slowdown and price hike of Aviation fuel.

The retrenchment drama unfolds…..

• Oct 16, 2008, Jet announced that it would lay off nearly 1,100 of its staffs mainly from departments like flight attendant, cockpit crew etc. to streamline operation.

• A day after it had already laid off around 800 of its cabin crew members.

Retrenchment drama unfolds……

• Amidst great furor and opposition by various organizations and political parties, Naresh Goyal , chairman of Jet, reinstated the employees a day later the great emotional drama.

• Protest against management.

• November 2008, Jet decided on a 20% cut in the salaries of its pilots, engineers, and some other staffs.

Ethical issues……

Some most crucial questions unanswered….Where would those 1900 employees go? Why took action only against lower grade staffs? Senior management was very less affected.

Points to ponder No company would know of a risk over night, its built

over a period and there should not be any drastic decision which may endanger its employees.

More accountability from top management. The role of HR executive is important to ascertain that

people’s interests are not left aside in the race for profits

The HR executive to ensure no discrimination in pay cut and lay off.

Before reaching to decision, make environment conducive to acceptance of decision.

Some observations…..

Evaluate the overall impact of Downsizing. The very existence of any company is because of its

employees. Company keeps on focusing on customer satisfaction

when its own people are so highly dissatisfied. Employees are more than just-a-resource.Best practice would be to include union

representatives in the process.communication of a proper planning and downsizing

strategy factors can lead to successful downsizing.