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SAIL'S VOLUNTARY RETIREMENT SCHEME


Case Code-HROB002 Published-2003

INTRODUCTION
At a meeting of the board of directors in June 1999, the CEOs of Steel Authority of India s !SAI"# four $lants - %& 'u(ral !)hilai#, S& )& Singh !*urga$ur#, )&+& Singh !)o,aro#, and A&+& Singh !-our,ela# made their usual $resentations on their $erformance $ro(ections& One after the other, they got u$ to describe ho. these units .ere going to $ost huge losses, once again, in the first /uarter011 of 1999-2333& After incurring a huge loss of -s 14&56 billion in the financial year 1997-99 !the first in the last 12 years#, the morale in the com$any .as e8tremely lo.& 9he (o,e at SAI" s head/uarters in *elhi .as that the com$any s fortunes .ould change only if a %-S .as offered to its CEOs - not (ust the .or,ers&

BACKGROUND NOTE
SAI" .as the .orld s 13th largest and India s largest steel manufacturer .ith a ::; share in the domestic mar,et& In the financial year 1999-2333, the com$any generated re<enues of -s& 1=2&4 billion and incurred a net loss of -s 15&2 billion& >et, as on ?ebruary 2:, 2331, SAI" had a mar,et <aluation of (ust -s& :63&7 billion, a meager amount considering the fact that the com$any o.ned four integrated and t.o s$ecial steel $lants& SAI" .as formed in 195: as a holding com$any of the go<ernment o.ned steel and associated in$ut com$anies& In 1957, the subsidiary com$anies including *urga$ur @ishra Is$at "td, )o,aro Steels "td, Aindustan Steel Bor,s "td, Salem Steel "td&, SAI" International "td .ere all dissol<ed and merged .ith SAI"& In 1959, the 'o<ernment transferred to it the o.nershi$ of Indian Iron and Steel Com$any "td& !IISCO# .hich became a .holly o.ned subsidiary of SAI"& SAI" o$erated four integrated steel $lants, located at *urga$ur !B)#, )hilai !@P#, -our,ela !Orissa# and )o,aro !)ihar#& 9he com$any also o$erated t.o alloyCs$ecial steel $lants located at *urga$ur !B)# and Salem !9amil Dadu#& 9he *urga$ur and )hilai $lants .ere $re-dominantly1ong $roducts021 $lants, .hereas the -our,ela and )o,aro $lants had facilities for manufacturing flat $roducts0:1 & THE JOLT In ?ebruary 2333, the SAI" management recei<ed a financial and business-restructuring $lan $ro$osed by @c+insey E Co, a leading global management-consulting firm, and a$$ro<ed by the go<ernment of India !held 74&72; e/uity sta,e#& 9he @c+insey re$ort suggested that SAI" be reorganiFed into t.o strategic business units !S)Gs# a flat $roducts com$any and a long $roducts com$any& 9he SAI" management board too .as to be restructured, so that it should consisted of t.o S)G chiefs and directors of finance, A-*, commercial and technical& 9o increase share <alue, @c+insey suggested a $hased di<estment schedule& 9he $lan en<isaged $utting the flat $roducts com$any on the bloc, first, as intense com$etition .as e8$ected in this area, and the long $roducts com$any at a later date& ?inancial restructuring en<isaged .ai<er of Steel *e<elo$ment ?und061!S*?# loans .orth -s 43&5: billion and -s :&7 billion lent to IISCO& 9he go<ernment also agreed to $ro<ide guarantee for raising loans of -s 14 billion .ith a 43; interest subsidy for the amount raised& 9his amount had to be utiliFed for reducing man$o.er through the <oluntary retirement scheme& Another guarantee .as gi<en for further raising of -s 14 billion, for re$aying $ast loans& )usiness restructuring $ro$osals included di<estment of the follo.ing non-core assetsH

Po.er $lants at -our,ela, *urga$ur E )o,aro, o8ygen $lant-2 of the )hilai steel $lant and the fertiliFer $lant at -our,ela&

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Salem Steel Plant !SSP#, Salem& Alloy Steel Plant !ASP#, *urga$ur& %is<es<araya Iron and Steel Plant !%IS"#, )hadra<ati& Con<ersion of IISCO into a (oint <enture .ith SAI" ha<ing only minority shareholding&

THE DILEMMA
9he ma(or .orry for SAI" s CEO Ar<ind Pande .as the com$any s 1=3,333-strong .or,force& @an$o.er costs alone accounted for 1=&=9; of the com$any s gross sales in 1999-2333& 9his .as the largest $ercentage, as com$ared .ith other steel $roducers such as Essar Steel !1&65;# and Is$at Industries !1&:6;#& An analysis of man$o.er costs as a $ercentage of the turno<er for <arious units of SAI" sho.ed that its ra. materials di<ision !-@*#, central mar,eting organisation !C@O#, -esearch E *e<elo$ment Centre at -anchi and the SAI" cor$orate office in *elhi .ere the .ea, s$ots& 9here .as considerable e8cess man$o.er in the non-$lant de$artments& Around :3; of SAI" s man$o.er, including e8ecuti<es, .ere in the non-$lant de$artments, merely adding to the su$erfluous $a$er.or,& Aindustan Steel, SAI" s $redecessor, .as modelled on go<ernment secretariats, .ith thousands of IbabusI and messengers adding to the glory of feudal-oriented de$artmental heads& SAI" had yet to ma,e any <isible effort to reduce sur$lus man$o.er& A senior official at SAI" remar,edH IIf you .al, into any SAI" office any.here, you .ill find $eo$le chatting, reading no<els, ,nitting and so on& 9housands of them (ust do not ha<e any .or,& 9his area has not e<en been considered as a focus area for the $resent %-S, $ossibly because all orders emanate from and through such su$erfluous offices and no one .ants to thin, of himself as sur$lus&I Bith a man$o.er of around =3,333 in these offices and non$lant de$artments li,e schools, to.nshi$ acti<ities etc, SAI" could .ell bring do.n to less than 13,333& -eduction of .hite-collar man$o.er re/uired a change in the systems of office .or, and record ,ee$ing, and a <ery high degree of com$uteriFation& Officers across the organiFation em$loyed doFens of stenogra$hers and assistants& Signing on note sheets .as a status symbol for SAI" officers& Another official commentedH ISystems ha<e to be result oriented, rather than $erson oriented and res$onsibilities must match re.ards and recognition& 9here is a need to change the mindset of the management, before s$ecific $lans can be dra.n out for reduction of office staff&I ?rom the beginning, SAI" had to contend .ith $olitical inter<ention and $ressure& @any officials held that SAI" had to o<ercome these ob(ecti<esH J@any em$loyees do not ha<e sufficient orders or .or, on hand to (ustify their continuance, and yet $olitical $ressures ,ee$ them going& It is time that the to$ management ta,es a tough stand on such matters& One does not ha<e to call in @c+insey to decide that many SAI" stoc,yards and branch offices are redundant&K

THE VOLUNTARY RETIREMENT SCHEME


As a $art of the restructuring $lan, @c+insey had ad<ised Pande that SAI" needed to cut the 1=3,333-strong labor force to 133,333 by the end of 233:, through a <oluntary retirement scheme& Pande .as ban,ing on natural attrition to reduce the number by 64,333 .ithin t.o years, but 'OI s decision to increase the retirement age to =3 further delayed the reduction& Subse/uently, SAI" had re/uested 'OI to bail it out .ith a one-time assistance of -s 14 billion and another subsidiFed loan of the same siFe for a %-S, to achie<e the @c+insey targets& In a bid to rationaliFe its huge .or,force, SAI" launched a %-S in mid 1997, for em$loyees .ho had $ut in a minimum ser<ice of 23 years or .ere 43 years in age or abo<e& 9he scheme $ro<ided an income that .as e/ual to 133 $er cent of the $re<ailing basic $ay and *A to the eligible em$loyees& About 4,954 em$loyees o$ted for the scheme& Of them, 4,:15 .ere e8ecuti<es and =47

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non-e8ecuti<es& @ost of those .ho o$ted .ere abo<e 44 years& On @arch :1, 1999, SAI" introduced a sabbatical lea<e scheme, under .hich em$loyees could ta,e a brea, from the com$any for t.o years for studiesCem$loyment else.here, .ith the o$tion of re(oining the com$any !if they .anted to# at the end of the $eriod& 9he sabbatical allo.ed the younger members of the SAI" staff to lea<e .ithout $ay for Iself-rene.al, enhancement of e8$ertiseC,no.ledge and e8$erimentation,I .hich broadly translated into higher studies or e<en ne. em$loyment& On June 31, 1999, SAI" launched another %-S for its em$loyees& Em$loyees .ho had com$leted a minimum of 14 years of ser<ice or .ere 63 years or abo<e could o$t for the scheme& 9he ne. %-S, .hich .as o$ened to all regular, $ermanent em$loyees of the com$any, .ould be o$erational till :1st January 2333& Its target grou$s includedH

9hose .ho .ere habitual absentees, regularly ill and those .ho had become sur$lus because of the closure of $lants and minesL Poor $erformers&

Gnder the ne. $ac,age, em$loyees .ho o$ted for the scheme, de$ending on their age, .ould get a monthly income as a $ercentage of their $re<ailing basic salary and dearness allo.ance !*A# for the remaining years of their ser<ices, till su$erannuation& Em$loyees abo<e 44 years of age .ould be gi<en 134 $er cent of the basic $ay and dearness allo.ance !*A# e<ery month& 9hose em$loyees .ho .ere bet.een the age of 42 and 44 years .ould recei<e 94 $er cent of the basic $ay and *A .hile those belo. 42 years .ould get 74 $er cent of the basic $ay and *A& 9he ne. scheme, li,e the old one .as a deferred $ayment scheme, .ith e8tra carrots li,e a 4; increase in monthly benefits for each of the three age grou$s& )y Se$tember 1999, o<er 6,333 em$loyees o$ted for the ne. scheme& About 1,533 em$loyees o$ted for %-S in the *urga$ur steel $lant .hile in the )hilai, )o,aro and -our,ela steel $lants& 9he number <aried bet.een 633 and 533& In Se$tember 2333, SAI" announced yet another round of %-S, in a bid to remo<e 13,333 em$loyees by the end of @arch 2331& 9he com$any $lanned to a$$roach financial institutions for a credit of -s 4 billion& Pande saidH IBe are a.aiting the go<ernment nod for the %-S scheme, dra.n on the $attern of the standard %-S by de$artment of $ublic enter$rises& Be e8$ect to get the clearance by the end of the month&I On ?ebruary 37, 2331, SAI" ended its four year recruitment freeFe by announcing its $lans to fill u$ more than 243 $osts at its <arious $lant sites in both technical and non-technical categories& According to a senior SAI" officialH I9his recruitment is being done to ease the <acancies created due to natural attrition and those that arose after the $re<ious %-S&I

THE PERSUASION
In mid 1997, in a bid to con<ince its em$loyees to acce$t %-S, SAI" highlighted si8 $lus $oints of %-S, in its internal communi/ue, %arta& 9hey .ere as follo.sH

*uring the ne8t 6-4 years, SAI" has to reduce its .or,force by =3,333 for its o.n sur<i<al& Em$loyees .ith chronic ailments, and habitual absentees, .ho add to lo. $roducti<ity, ha<e to go first - maybe, .ith the hel$ of administrati<e actions& 9he em$loyees may ha<e to be transferred to any other $art of the country in the larger interest of the com$any& ?or those .ho started their career as healthy young men 24-:3 years ago, the %-S .ill ta,e care of their financial .orries to a great e8tent, and they can discharge their domestic duties more comfortably& %-S can be used for s$ecial $ur$oses li,e $aying huge sum of money for getting one s son admitted to a $rofessional course&

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%-S .ill gi<e many indi<iduals the money and time on $ursuing $ersonal dreams& It can be a good o$$ortunity to do social ser<ice&

On *ecember 25, 1999, SAI" initiated a com$any-.ide information dissemination $rogram to educate the staff on restructuring& 9he com$any drafted an internal communication document entitled I9urnaround and 9ransformationI and a s$ecial team of == internal resource $ersons !I-P# had been assigned the tas, of $re$aring a detailed $lan to ta,e this document to a larger number of $eo$le .ithin the com$any& 9he ==-member team .as constituted in Se$tember 1999 and .as stationed in -anchi to undergo a detailed briefing-cum-training course& A generaliFed module .as $resented to the I-P team during the course, .hich then summarised the root causes of SAI" s crisis and the strategies to o<ercome it& According to an official in<ol<ed .ith the $rogramH IInitiati<es li,e the $o.er $lant hi<e-off or the Salem Steel (oint <enture .ill hinge on em$loyee concurrence, $articularly at the sho$ floor le<el, and therefore there has to be an intensi<e communication $rogram in $lace to reassure em$loyees that their interests .ill be $rotected&I 9he ==-member I-P team conducted half-day .or,sho$s across $lants and other units based on three s$ecific modulesH A <ideo film con<eying a message from the chairman of the com$any& A generaliFed module of the recommendations of the turnaround $lan focusing on restoring the financial foundation, reinforcing mar,eting initiati<es and regaining cost leadershi$& A module co<ering $lant-s$ecific or unit-s$ecific issues and strategies for action& 9he e8ercise .as e8$ected to co<er at least 1=,333 SAI" em$loyees by the end of @arch 2333& A senior official at SAI" saidH I9he idea is that the em$loyees co<ered in this $hase .ould ta,e the communication $rocess for.ard to their $eer grou$ and fello. colleagues&I 9he staff education e8ercise .as stressed u$on, $articularly in <ie. of the $o.er $lant hi<e-off fiasco, .hich could not ta,e off as scheduled due to stiff resistance from central trade unions& 9he $roblem, at the time, .as that the SAI" to$ brass had failed to con<ince the em$loyees that (obs .ould not be at ris, because of the hi<e-off&

THE REACTION
9he trade unions .ere on a .ar$ath against the recommendations of @c+insey& Posters $ut u$ by the Centre of Indian 9rade Gnions !CI9G# at SAI" s central mar,eting office said that the @c+insey re$ort .as meant, not for the re<i<al or sur<i<al of SAI", but for its burial& A senior 9G leader saidH ISAI" 9Gs so far ha<e been e8tremely tolerant and e8ercised utmost restraint& E<en in the face of scanty communication by the management of SAI", they ha<e not lost $atience in these trying times&I 9he 9G leaders felt that SAI" .ould try to bolster su$$ort for the financial restructuring $ro$osal based on the recommendations of @c+insey& )ut being a go<ernment-o.ned com$any, SAI" cannot ta,e decisions on such recommendations as the $ri<atiFation of SAI" or brea,ing it u$ into t.o $roduct-based com$anies& E<en in relati<ely small matters the li,e hi<ing off of $o.er $lants to a subsidiary com$any, .ith SAI" being the ma(or $artner, the go<ernment had not cleared SAI" s $ro$osal, e<en after months of gestation& 9herefore, it .as futile to thin, that SAI" .ould secure the $ermission of the go<ernment to sell off Salem Steel Plant !SSP# in 9amil Dadu or close do.n Alloy Steels Plant !ASP# at *urga$ur in Best )engal& At SSP, all the 9Gs had (oined hands to form a Sa<e Salem Steel Committee and obser<ed a day s to,en stri,e on June 26, 1999, demanding in<estment in SSP by SAI", rather than by a $ri<ate $artner& 9hough 9Gs had no ob(ection to <oluntary retirements, they .ere not <ery ha$$y about the situation& 9hey .ere .orried that em$loyment o$$ortunities .ere shrin,ing in the steel industry and that reduction of man$o.er .ould mean increasing the number of contractors and their .or,force&

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After the -our,ela Steel Plant in Orissa absorbed contractors .or,ers on Su$reme Court orders, fresh contractors had been a$$ointed to fill u$ the <acancies&

SAIL'S VOLUNTARY RETIREMENT SCHEME

THE PERSUASION & THE RELATION

SAI" 9G leaders .ere em$hatic that the @c+insey recommendations .ere not the last .ord on SAI"& 9hey felt that foreign consultancy firms .ere unable to a$$reciate the role $layed by ma(or $ublic sector units li,e SAI" or Indian Oil in the gro.th of the Indian economy& 9hey alleged that since large $ublic sector units had sho.n they could .ithstand the onslaught of the multinationals, efforts .ere being made to .ea,en them, brea, them into $ieces and e<entually $ri<atiFe them& On ?ebruary 15, 2333, .or,ers at SSP .ent on a stri,e against the go<ernment s decision to restructure SAI"& 9he stri,e .as called by eight unions affiliated to CI9G, ID9GC, A*@+ and P@+& CI9G secretary 9a$an Sen saidH I9he unions are going to ser<e the ultimatum to the go<ernment for indefinite action in the days to come if this retrograde decision is not re<ersed& *emonstrations .ere held against the go<ernment s decision in all steel $lants and .or,ers of *urga$ur .ould hold a daylong dharna& Steel .or,ers all o<er the country, irres$ecti<e of affiliations ha<e reacted shar$ly to the disastrous and dece$ti<e decision of the go<ernment on the so-called restructuring of SAI"&I

QUESTIONS FOR DISCUSSION


1& @c+insey s recommendation is that SAI" cut its .or,force to 133,333 by the end of 233:& SAI" has launched <arious %- schemes to meet this target& 9hough e<ery time the com$any is comes out .ith im$ro<ed schemes there are still not many ta,ers& Bhat according to you could be the reasonsM 2& 9he staff education e8ercise on %-S at SAI" seems to be more of a reaction to the $o.er $lant hi<e-off fiasco than a $roacti<e measure& Bhat other ste$s can SAI" ta,e to educate em$loyees about %-SM E8$lain& :& According to @c+insey $ro$osals, offering %-S to em$loyees .as the $art of the restructuring $lan& *o you thin, %-S is sufficient .ithout restructuring or <ice-<ersaM Comment& 6& In ?ebruary 2331, SAI" ended its four-year recruitment freeFe by announcing its $lans to fill u$ more than 243 $osts& *o you thin, this is the right mo<e es$ecially .hen a %-S is being offered to its em$loyeesM E8$lain&

ADDITIONAL READING & REFERENCES:

1. 2. 3.

)handari )hu$esh, SAI" sill has an a$$etite for e/uity, )usiness Borld, ?ebruary 5, 199=& Sar,ar -an(u, Aas SAI" recast its bottomlineM, )usiness 9oday, July 22, 1995& @aitra *ili$, *id SAI" smelt its $rofits in its furnacesM, )usiness 9oday, Do<ember 5,

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1997& Sar,ar -an(u, Can SAI" ra$idly !-e#Steel its futureM, )usiness 9oday, July 22, 1999& Pannu SPS, *ebate on AI contract labour case reo$ened, 9he Aindustan 9imes, August 14, 1999& 'hosh Indranil, In cho$$y .aters, )usiness India, August 9, 1999& @aFumdar -a,hi, 9he 9AO of to$, )usiness 9oday, Se$tember 22, 1999& Chandrashe,har -& 9he case of the <oluntary %-S, )usiness 9oday, Se$tember 22, 1999& SAI"H 9he ne. CEO centre, )usiness 9oday, Do<ember 22, 1999& Srini<as Alam, SAI" restructuringH the other guy blin,ed, )usiness 9oday, A$ril 22, 2333&

6&

5.
=&

7. 8. 9. 10. 11. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23.

'hosh Indranil, On the road to reco<ery, )usiness India, June 12, 2333& 12& Chandrashe,har -& 9he case of effecti<e do.nsiFing, )usiness 9oday, June 22, 2333& SAI" to ,ic, off retirement scheme ne8t month, India 9oday Online, Se$tember 34, 2333& SAI" ends 6-year recruitment freeFe, 9he Economic 9imes, ?ebruary 9, 2331& Srini<asan @%, %oluntary retirement and .or,ers .elfare, ...&e$.&org&in& ...&indiainfoline&com& S.eet *&A&, *erecruitment E Out$lacement& )oller -&, Bhat Colour Is >our ParachuteM -& "& *i$boye, 9he Older Bor,force& +aye )&, G$ Is Dot 9he Only Bay& S.eet *& A&, A @anager s 'uide 9o 9ermination& S$urgeon A& E Ao.bert P&A&, -eady, ?ireN Bal,er J&B& E "aFar A&"&, 9he End Of @andatory -etirement&

BATA INDIA'S HR PROBLEMS


Case code- HROB001 Published-2003

INTRODUCTION
?or right or .rong reasons, )ata India "imited !)ata# al.ays made the headlines in the financial dailies and business magaFines during the late 1993s& 9he com$any .as headed by the =3 year old managing director Billiam +eith Beston !Beston#& Ae .as $o$ularly ,no.n as a turnaround s$ecialist and had successfully turned around many sic, com$anies .ithin the )ata Shoe OrganiFation !)SO# grou$& )y the end of financial year 1999, )ata managed to re$ort rising $rofits for four consecuti<e years after incurring its first e<er loss of -s 623 million in 1994& Ao.e<er, by the third /uarter ended Se$tember :3, 2333, Beston .as a .orried man& )ata .as once again on the do.n.ard $ath& 9he com$any s nine months net $rofits of -s 134&4 million in 2333 .as substantially lo.er than the -s 239&7 million recorded in 1999& Its staff costs of -s 1&29 million !2:; of net sales# .as also higher as com$ared to -s 1&17 million incurred in the $re<ious year& In Se$tember 2333, )ata .as heading to.ards a ma(or labour dis$ute as )ata @aFdoor Gnion !)@G# had re/uested Best )engal go<ernment to inter<ene in .hat it considered to be a ma(or do.nsiFing e8ercise&

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BACKGROUND NOTE

Bith net re<enues of -s 5&25 billion and net $rofit of -s :36&= million for the financial year ending *ecember :1, 1999, )ata .as India s largest manufacturer and mar,eter of foot.ear $roducts& As on ?ebruary 37, 2331, the com$any had a mar,et <aluation of -s :&5 billion& ?or years, )ata s reasonably $riced, sturdy foot.ear had made it one of India s best ,no.n brands& )ata sold o<er =3 million $airs $er annum in India and also e8$orted its $roducts in o<erseas mar,ets including the GS, the G+, Euro$e and @iddle East countries& 9he com$any .as an im$ortant o$eration for its 9oronto, Canada based $arent, the )SO grou$ run by 9homas )ata, .hich o.ned 41; e/uity sta,e& 9he com$any $ro<ided em$loyment to o<er 14,333 $eo$le in its manufacturing and sales o$erations throughout India& Aead/uartered in Calcutta, the com$any manufactured o<er :: million $airs $er year in its fi<e $lants located in )atanagar !Best )engal#, ?aridabad !Aaryana#, )angalore !+arnata,a#, Patna !)ihar# and Aosur !9amil Dadu#& 9he com$any had a distribution net.or, of o<er 1,433 retail stores and 25 .holesale de$ots& It outsourced o<er 2: million $airs $er year from <arious small-scale manufacturers&

9hroughout its history, )ata .as $lagued by $erennial labor $roblems .ith fre/uent stri,es and loc,outs at its manufacturing facilities& 9he com$any incurred huge em$loyee e8$enses !22; of net sales in 1999#& Com$etitors li,e "iberty Shoes .ere far more cost-effecti<e .ith salaries of its 4,333 strong .or,force com$rising (ust 4; of its turno<er& Bhen the com$any .as in the red in 1994 for the first time, )SO restructured the entire board and sent in a team headed by Beston& Soon after he ste$$ed in se<eral changes .ere made in the management& Indians .ho held ,ey $ositions in to$ management, .ere re$laced .ith e8$atriate Beston ta,ing o<er as managing director& @i,e @iddleton .as a$$ointed as de$uty managing director and -& Senonner headed the mar,eting di<ision& 9hey made se<eral ,ey changes, including a com$lete o<erhaul of the com$any s o$erations and ,ey de$artments& Bithin t.o months of Beston ta,ing o<er, )ata decided to sell its head/uarter building in Calcutta for -s 194 million, in a bid to stem losses& 9he com$any shifted .holesale, $lanning E distribution, and the commercial de$artment to )atanagar, des$ite o$$osition from the trade unions& -obin @a(umdar, $resident, coordination committee, )ata 9rade Gnion, criticiFed the mo<e, sayingH IProfits may return, but honor is difficult to regain&I 9he management team im$lemented a massi<e re<am$ing e8ercise in .hich more than 243 managers and their (uniors .ere as,ed to /uit& )ata decided to sto$ further recruitment, and allo.ed only the redundant staff to fill the ga$s created by su$erannuation and retirements& 9he management offered its staff an em$loyment $olicy that .as lin,ed to sales-gro.th $erformance&

ASSAULT CASE
@ore than half of )ata s $roduction came from the )atanagar factory in Best )engal, a state notorious for its militant trade unions, .ho deri<ed their strength from the dominant $olitical $arties, es$ecially the left $arties& Dot.ithstanding the giant conglomerate s gri$ on the shoe mar,et in India, )ata s e/ually large re$utation for corru$tion .ithin, created the $erce$tion that Beston .ould ha<e a difficult time& Bhen the ne. management team .eeded out irregularities and turned the com$any around .ithin a cou$le of years, tac,ling the $oliticiFed trade unions $ro<ed to be the hardest of all tas,s& On July 21, 1997, Beston .as se<erely assaulted by four .or,ers at the com$any s factory at )atanagar, .hile he .as attending a business meet& 9he incident occurred after a member of )@G, Aru$ *utta, met Beston to discuss the issue of the sus$ended em$loyees& *utta

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re$ortedly got into a <erbal duel .ith Beston, u$on .hich the other .or,ers began to shout slogans& Bhen Beston tried to lea<e the room the .or,ers turned <iolent and assaulted him& 9his .as the second attac, on an officer after Beston too, charge of the com$any, the first one being the assault on the chief .elfare officer in 199=& Soon after the incident, the management dismissed the three em$loyees .ho .ere in<ol<ed in the <iolence& 9he em$loyees in<ol<ed acce$ted their dismissal letters but subse/uently $ro<o,ed other .or,ers to go in for a stri,e to $rotest the management s mo<e& Bor,ers at )atanagar .ent on a stri,e for t.o days follo.ing the incident& Commenting on the stri,e, @a(umdar saidH I9he issue of )ata .as much .ider than that of the dismissal of three em$loyees on grounds of indisci$line& Sto$$age of recruitment and continuous farming out of (obs had been causing .ides$read resentment among em$loyees for a long time&I

?ollo.ing the incident, )SO decided to reconsider its in<estment $lans at )atanagar& Senior <ice$resident and member of the e8ecuti<e committee, @JO @o.la, said011H IBe had chal,ed out a significant in<estment $rogramme at )atanagar this year .hich .as more than .hat .as in<ested last year& Ao.e<er, that .ill all be $ost$oned&I 9he incident had o$ened a can of .orms, said the com$any insiders& 9he three men .ho .ere charge-sheeted, .ere members of the 61-member committee of )@G, .hich had strong $olitical connections .ith the ruling Communist Party of India !@ar8ist#& 9he trio it .as alleged, had in the $ast a good ra$$ort .ith the senior managers, .ho .ere no longer .ith the organiFation& 9hese managers had re$ortedly farmed out a large chun, of the contract o$erations to this trio& Com$any insiders said the recent <iolence .as more a $olitical issue rather than an industrial relations $roblem, since the .or,ers had had <ery little to do .ith it& Seeing the seriousness of the issue and the $arty s in<ol<ement, the union, the state go<ernment tried to sol<e the $roblem by setting u$ a tri$artite meeting among com$any officials, the labor directorate and the union re$resentati<es& 9he .or,ers feared a closedo.n as the in/uiry $roceeded&

INDUSTRIAL RELATIONS
?or )ata, labor had al.ays $osed ma(or $roblems& Stri,es seemed to be a $erennial $roblem& @uch before the assault case, )ata s chronically resti<e factory at )atanagar had al.ays $lagued by labor strife& In 1992, the factory .as closed for four and a half months& In 1994, )ata entered into a :year bi$artite agreement .ith the .or,ers, re$resented by the then 13,333 strong )@G, .hich also had the Best )engal go<ernment as a signatory& On July 21, 1997, Beston .as se<erely assaulted by four .or,ers at the com$any s factory at )atanagar, .hile he .as attending a business meet& 9he incident occurred after a member of )@G, Aru$ *utta, met Beston to discuss the issue of the sus$ended em$loyees& *utta re$ortedly got into a <erbal duel .ith Beston, u$on .hich the other .or,ers began to shout slogans& Bhen Beston tried to lea<e the room the .or,ers turned <iolent and assaulted him& 9his .as the second attac, on an officer after Beston too, charge of the com$any, the first one being the assault on the chief .elfare officer in 199=& In ?ebruary 1999, a loc,out .as declared in )ata s ?aridabad Gnit& @iddleton commented that the closure of the unit .ould not ha<e much im$act on the com$any s re<enues as it .as catering to lo.er-end $roducts such as can<as and Aa.aii cha$$als& 9he loc, out lasted for eight months& In October 1999, the unit resumed $roduction .hen )ata signed a three-year .age agreement& On @arch 7, 2333, a loc,out .as declared at )ata s Peenya factory in )angalore, follo.ing a stri,e by its em$loyee union& 9he ne. leadershi$ of the union had refused to abide by the .age agreement, .hich .as to e8$ire in August 2331& ?ollo.ing the failure of its negotiations .ith the union, the management decided to go for a loc, out& )ata management .as of the <ie. that though it .ould ha<e to bear the cost of maintaining an idle $lant !-s& : million#, the effect of the closures on sales and $roduction .ould be minimal as the foot.ear manufactured in the factory could be shifted to the com$any s other factories and associate manufacturers& 9he factory had :33 .or,ers on its rolls and manufactured can<as and P%C foot.ear&

9
In July 2333, )ata lifted the loc,out at the Peenya factory& Ao.e<er, some of the .or,ers o$$osed the com$any s mo<e to get an underta,ing from the factory em$loyees to resume .or,& 9he em$loyees demanded re<ocation of sus$ension against 23 of their fello. em$loyees& 9hey also demanded that conditions such as maintaining normal $roduction schedule, conforming to standing orders and the settlement in force should not be insisted u$on& In Se$tember 2333, )ata .as again headed for a labour dis$ute .hen the )@G as,ed the Best )engal go<ernment to inter<ene in .hat it $ercei<ed to be a do.nsiFing e8ercise being underta,en by the management& )@G (ustified this mo<e by alleging that the management has increased outsourcing of $roducts and also due to $ercei<ed declining im$ortance of the )atanagar unit& 9he union said that )ata has started outsourcing the Po.er range of fully manufactured shoes from China, com$ared to the earlier outsourcing of only assembly and se.ing line (ob& 9he com$any s $roduction of Aa.ai cha$$als at the )atanagar unit too had come do.n by 47; from the .ee,ly ca$acity of 3&166 million $airs& 9hese ste$s had resulted in lo.er income for the .or,ers forcing them to a$$roach the go<ernment for sa<ing their interests&

CHANGE MANAGEMENT@ICICI

Case Code-HROB008 Published-2002

"What role am I supposed to play in this ever-chan in entity! Has anyone "or#ed out the basis on "hich roles are bein allocated today!" -A !""#$ #$%$# ICICI &'&($)* !' +,,-.

"Be do $ut $eo$le under stress by raising the bar constantly& 9hat is the only .ay to ensure that
$erformers lead the change $rocess&I - K. V. K& &/0* MD & CEO* ICICI* !' +,,-.

THE CHANGE LEADER


In @ay 199=, +&%& +amath !+amath# re$laced Darayan %aghul !%aghul#, CEO of India s leading financial ser<ices com$any Industrial Credit and In<estment Cor$oration of India !ICICI#& Immediately after ta,ing charge, +amath introduced massi<e changes in the organiFational structure and the em$hasis of the organiFation changed - from a de<elo$ment ban, 011mode to that of a mar,et-dri<en financial conglomerate& +amath s mo<es .ere $rom$ted by his decision to create ne. di<isions to ta$ ne. mar,ets and to introduce fle8ibility in the organiFation to increase its ability to res$ond to mar,et changes& Decessitated because of the organiFation s ne.-found aim of becoming a financial $o.erhouse, the large-scale changes caused enormous tension .ithin the organiFation& 9he systems .ithin the com$any soon .ere in a state of stress& Em$loyees .ere finding the changes unacce$table as learning ne. s,ills and ada$ting to the $rocess orientation .as $ro<ing difficult& 9he changes also brought in a lot of confusion among the em$loyees, .ith media re$orts fre/uently carrying /uotes from disgruntled ICICI em$loyees& According to analysts, a large section of em$loyees began feeling alienated& 9he discontentment among em$loyees further increased, .hen +amath formed s$ecialist grou$s .ithin ICICI li,e the structured $ro(ects and infrastructure grou$&

10
*oubts .ere soon raised regarding .hether +amath had gone too fast too soon, and more im$ortantly, .hether he .ould be able to steer the em$loyees and the organiFation through the changes he had initiated&

BACKGROUND NOTE
ICICI .as established by the 'o<ernment of India in 1944 as a $ublic limited com$any to $romote industrial de<elo$ment in India& 9he ma(or institutional shareholders .ere the Gnit 9rust of India !G9I#, the "ife Insurance Cor$oration of India !"IC# and the 'eneral Insurance Cor$oration of India !'IC# and its subsidiaries& 9he e/uity of the cor$oration .as su$$lemented by borro.ings from the 'o<ernment of India, the Borld )an,, the *e<elo$ment "oan ?und !no. merged .ith the Agency for International *e<elo$ment#, +reditanstalt fur Biederaufbau !an agency of the 'o<ernment of 'ermany#, the G+ go<ernment and the Industrial *e<elo$ment )an, of India !I*)I#& 9he basic ob(ecti<es of the ICICI .ere to

assist in creation, e8$ansion and moderniFation of enter$rises encourage and $romote the $artici$ation of $ri<ate ca$ital, both internal and e8ternal ta,e u$ the o.nershi$ of industrial in<estmentL and e8$and the in<estment mar,ets&

Since the mid 1973s, ICICI di<ersified ra$idly into areas li,e merchant ban,ing and retailing& In 1975, ICICI co-$romoted India s first credit rating agency, Credit -ating and Information Ser<ices of India "imited !C-ISI"#, to rate debt obligations of Indian com$anies& In 1977, ICICI $romoted India s first <enture ca$ital com$any - 9echnology *e<elo$ment and Information Com$any of India "imited !9*ICI# - to $ro<ide <enture ca$ital for indigenous technology-oriented <entures& In the 1993s, ICICI di<ersified into different forms of asset financing such as leasing, asset credit and deferred credit, as .ell as financing for non-$ro(ect acti<ities& In 1991, ICICI and the Gnit 9rust of India set u$ India s first screen-based securities mar,et, the o<er-the-counter E8change of India !OC9EI#& In 1992 ICICI tied u$ .ith J P @organ of the GS to form an in<estment ban,ing com$any, ICICI Securities "imited& In line .ith its <ision of becoming a uni<ersal ban,, ICICI restructured its business based on the recommendations of consultants @c+insey E Co in 1997& In the late 1993s, ICICI concentrated on building u$ its retail business through ac/uisitions and mergers& It too, o<er I9C Classic, Anagram ?inance and merged the Shi$$ing Credit In<estment Cor$oration of India !SCICI# .ith itself& ICICI also entered the insurance business .ith Prudential $lc of G+& ICICI .as re$orted to be one of the fe. Indian com$anies ,no.n for its /uic, res$onsi<eness to the changing circumstances& Bhile its de<elo$ment ban, counter$art I*)I .as re$ortedly not doing <ery .ell in late 2331, ICICI had ma(or $lans of e8$anding on the an<il& 9his .as e8$ected to bring .ith it further challenges as .ell as $otential change management issues& Ao.e<er, the organiFation did not seem to much $erturbed by this, considering that it had successfully managed to handle the em$loyee unrest follo.ing +amath s a$$ointment&

CHANGE CHALLENGES - PART II ICICI had to face change resistance once again in *ecember 2333, .hen ICICI )an, .as merged .ith )an, of @adura !)o@#011 & 9hough ICICI )an, .as nearly three times the siFe of )o@, its staff strength .as only 1,633 as against )o@ s 2,433& Aalf of )o@ s $ersonnel .ere cler,s and around :43 .ere subordinate staff& 9here .ere large differences in $rofiles, grades, designations and salaries of $ersonnel in the t.o entities& It .as also re$orted that there .as uneasiness among the staff of )o@ as they felt that ICICI .ould $ush u$ the $roducti<ity $er em$loyee, to match the le<els of ICICI 021& )o@

11
em$loyees feared that their $ositions .ould come in for a closer scrutiny& 9hey .ere not sure .hether the rural branches .ould continue or not as ICICI s business .as largely urban-oriented& 9he a$$rehensions of the )o@ em$loyees seemed to be (ustified as the .or,ing culture at ICICI and )o@ .ere /uite different and the em$hasis of the res$ecti<e management .as also different& Bhile )o@ management concentrated on the o<erall $rofitability of the )an,, ICICI management turned all its de$artments into indi<idual $rofit centers and bonus for em$loyees .as gi<en on the $erformance of indi<idual $rofit center rather than $rofits of .hole organiFation& ICICI not only $ut in $lace a host of measures to technologically u$grade the )o@ branches to ICICI s standards, but also $aid s$ecial attention to facilitate a smooth cultural integration& 9he com$any a$$ointed consultants Ae.itt Associates0:1to hel$ in .or,ing out a uniform com$ensation and .or, culture and to ta,e care of any change management $roblems& ICICI conducted an em$loyee beha<ioral $attern study to assess the <arious fears and a$$rehensions that em$loyees ty$ically .ent through during a merger& !-efer 9able I#& TABLE I 'POST-MERGER' EMPLOYEE BEHAVIORAL PATTERN PE-IO* *ay 1 After a month After a >ear After 2 >ears $ource%"""&sibm&edu )ased on the abo<e findings, ICICI established systems to ta,e care of the em$loyee resistance .ith action rather than .ords& 9he fear of the un,no.n .as tac,led .ith ade$t communication and the fear of inability to function .as addressed by ade/uate training& 9he com$any also formulated a A- blue $rint to ensure smooth integration of the human resources& !-efer 9able II#& TABLE II MANAGING HR DURING THE ICICI-B1M MERGER A-EAS O? A- ID9E'-A9IOD ?OCGSSE* OD E@P"O>EE )EAA%IO*enial, fear, no im$ro<ement Sadness, slight im$ro<ement Acce$tance, significant im$ro<ement -elief, li,ing, en(oyment, business de<elo$ment acti<ities

9AE A- )"GEP-ID9

A data base of the entire A- structure -oad ma$ of career *etermining the blue $rint of A- mo<es Communication of milestones I9 Integration - Peo$le Integration )usiness Integration&

Em$loyee communication Cultural integration OrganiFation structuring -ecruitment E Com$ensation Performance management 9raining Em$loyee relations

$ource%"""&sibm&edu

12

EMPLOYEE DO2NSI3ING
Case Code- HROB016 Publication 'ate -2002 IDe8t to the death of a relati<e or friend, there s nothing more traumatic than losing a (ob& Cor$orate cutbac,s threaten the security and self-esteem of sur<i<ors and <ictims ali,e& 9hey cause turmoil and shatter morale inside organiFations and they confirm the <ie. that $rofits al.ays come before $eo$le&I - Laura Rubach, Industry Analyst, in 1994. I9he mar,et is going to determine .here .e sto$ .ith the layoffs&I - T1 R4&'* & B1$!'( 5617$5 &'* !' A8(85/ 2002

DO2NSI3ING BLUES ALL OVER THE 2ORLD


9he (ob mar,ets across the .orld loo,ed <ery gloomy in the early 21st century, .ith many com$anies ha<ing do.nsiFed a considerable $art of their em$loyee base and many more re<ealing $lans to do so in the near future& Com$anies on the ?orbes 433 and ?orbes International 733 lists had laid off o<er 6=3,333 em$loyees altogether, during early 2331 itself& 9his trend created ha<oc in the li<es of millions of em$loyees across the .orld, @any $eo$le lost their (obs at a <ery short or no ad<ance notice, and many others li<ed in a state of uncertainty regarding their (obs& Com$anies claimed that .orld.ide economic slo.do.n during the late-1993s had had forced them to do.nsiFe, cut costs, o$timiFe resources and sur<i<e the slum$& 9hough the conce$t of do.nsiFing had e8isted for a long time, its use had increased only recently, since the late-1993s& !-efer 9able I for information on do.nsiFing by ma(or com$anies#& Analysts commented that do.nsiFing did more damage than good to the com$anies as it resulted in lo. morale of retained em$loyees, loss of em$loyee loyalty and loss of e8$ertise as ,ey $ersonnelCe8$erts left to find more secure (obs& @oreo<er, the uncertain (ob en<ironment created by do.nsiFing negati<ely effected the /uality of the .or, $roduced& Analysts also felt that most com$anies ado$ted do.nsiFing (ust as a me-too strategy e<en .hen it .as not re/uired& Ao.e<er, des$ite these concerns, the number of com$anies that chose to do.nsiFe their em$loyee base increased in the early 21st century& *o.nsiFing strategy .as ado$ted by almost all ma(or industries such as ban,ing, automobiles, chemical, information technology, fabrics, ?@C', air trans$ortation and $etroleum& In mid-2332, some of the ma(or com$anies that announced do.nsiFing $lans in<ol<ing a large number of em$loyees included Jaguar !G+#, )oeing !GS#, Charles Sch.ab !GS#, Alactel !?rance#, *resdner !'ermany#, "ucent 9echnologies !GS#, Ciena Cor$& !GS# and 'oldman Sachs 'rou$ !GS#& E<en in com$anies de<elo$ing countries such as India, Indonesia, 9hailand, @alaysia and South +orea .ere going in for do.nsiFing&

TABLE I DOWNSIZING BY MAJOR COMPANIES (1998-2001)


YEAR 1997 1997 COMPANY )oeing CitiCor$ INDUSTRY Aeros$ace )an,ing N1. 19 E 6#14$$5 D1:'5!;$" 23,333 5,433

13
1997 1997 1997 1997 1997 1997 1997 1997 1999 1999 1999 2333 2333 2331 2331 2331 Chase @anhattan )an, +ellogs )? 'oodrich *eere E Com$any A9E9 Com$a/ Intel Seagate Chase @anhattan )an, )oeing E88on-@obil "ucent 9echnologies Charles Sch.ab Pero8 Ae.lett Pac,ard AO" 9ime Barner )an,ing ?@C' 9yres ?arm E/ui$ment 9elecommunications I9 I9 I9 )an,ing Aeros$ace Petroleum I9 I9 Co$iers I9 Entertainment 2,243 1,33 1,233 2,633 17,333 =,433 :,333 13,333 2,243 27,333 9,333 =7,333 2,333 6,333 :,333 2,633

THE FIRST PHASE


9ill the late-1973s, the number of firms that ado$ted do.nsiFing .as rather limited, but the situation changed in the early-1993s& Com$anies such as 'eneral Electric !'E# and 'eneral @otors !'@# do.nsiFed to increase $roducti<ity and efficiency, o$timiFe resources and sur<i<e com$etition and eliminate du$lication of .or, after @EAs& Some other organiFations that made ma(or (ob cuts during this $eriod .ere )oeing !due to its merger .ith @c*onnell *ouglas#, @obil !due to the ac/uisition of E88on#, *eutsche )an, !due to its merger .ith )an,ers 9rust# and Aoechst A' !due to its merger .ith -hone-Poulenc SA#& According to analysts, most of these successful com$anies undertoo, do.nsiFing as a $ur$oseful and $roacti<e strategy& 9hese com$anies not only reduced their .or,force, they also redesigned their organiFations and im$lemented /uality im$ro<ement $rograms& *uring the early and mid-1993s, com$anies across the .orld !and es$ecially in the GS#, began focusing on enhancing the <alue of the organiFation as a .hole& According to Jac, Belch, the then 'E CEO, I9he ultimate test of leadershi$ is enhancing the long-term <alue of the organiFation& ?or leaders of a $ublicly held cor$oration, this means long-term shareholder <alue&I In line .ith this a$$roach to leadershi$, 'E abandoned $olicy of lifetime em$loyment and introduced the conce$t of contingent em$loyment& Simultaneously, it began offering em$loyees the best training and de<elo$ment o$$ortunities to constantly enhance their s,ills and $erformance and ,ee$ $ace .ith the changing needs of the .or,$lace& *uring this $eriod, many com$anies started do.nsiFing their .or,force to im$ro<e the image of the firm among the stoc,holders or in<estors and to become more com$etiti<e& 9he chemical industry came out strongly in fa<or of the do.nsiFing conce$t in the early 1993s& @ost chemical and drug com$anies restricted their organiFations and cut do.n their em$loyee base to reduce costs and o$timiFe resources& As the $ercei<ed <alue of the do.nsiFed com$any .as more than its actual <alue, managers ado$ted do.nsiFing e<en though it .as not .arranted by the situation& A fe. analysts blamed the changes in the com$ensation system for e8ecuti<e management for the increase in the number of com$anies do.nsiFing their .or,force in 1993s& In the ne. com$ensation system, managers .ere com$ensated in stoc, o$tions instead of cash& Since do.nsiFing increased the e/uity <alue !in<estors buy the do.nsiFing com$any s stoc,s in ho$e of future $rofitability# of the com$any, managers sought to increase their .ealth through do.nsiFing& 9hus, des$ite $ositi<e economic gro.th during the early 1993s, o<er =33,333 em$loyees .ere do.nsiFed in the GS in 199:&

14
Ao.e<er, most com$anies did not achie<e their ob(ecti<es and, instead, suffered the negati<e effects of do.nsiFing& A sur<ey conducted by the American @anagement Association re<ealed that less than half of the com$anies that do.nsiFed in the 1993s sa. an increase in $rofits during that $eriod& 9he sur<ey also re<ealed that a ma(ority of these com$anies failed to re$ort any im$ro<ements in $roducti<ity& One com$any that suffered greatly .as *elta Airlines, .hich had laid off o<er 17,333 em$loyees during the early 1993s& *elta Airlines realiFed in a <ery short time that it .as running short of $eo$le for its baggage handling, maintenance and customer ser<ice de$artments& 9hough *elta succeeded in ma,ing some money in the short run, it ended u$ losing e8$erienced and s,illed .or,ers, as a result of .hich it had to in<est hea<ily in rehiring many .or,ers& As in<estors seemed to be floc,ing to do.nsiFing com$anies, many com$anies sa. do.nsiFing as a tool for increasing their share <alue& 9he abo<e, cou$led .ith the fact that senior e8ecuti<e salaries had increased by o<er 1333; bet.een 1973 and 1994, e<en as the layoff $ercentage reached its ma8imum during the same $eriod, led to criticism of do.nsiFing& In light of the negati<e influence that do.nsiFing .as ha<ing on both the do.nsiFed and the sur<i<ing em$loyees, some economists ad<ocated the im$osition of a do.nsiFing ta8 !on do.nsiFing organiFations# by the go<ernment to discourage com$anies from do.nsiFing& 9his ty$e of ta8 already e8isted in ?rance, .here com$anies do.nsiFing more than 63 .or,ers had to re$ort the same in .riting to the labor de$artment& Also, such com$anies had liable to $ay high se<erance fees, contribute to an unem$loyment fund, and submit a $lan to the go<ernment regarding the retraining $rogram of its dis$laced em$loyees !for their future em$loyment#& 9he ta8 burden of such com$anies increased because they .ere no longer e8em$t from <arious $ayroll ta8es& Ao.e<er, the do.nsiFing ta8 caused more $roblems than it sol<ed& As this $olicy restrained a com$any from do.nsiFing, it damaged the chances of $otential (ob see,ers to get into the com$any& 9his ta8 .as mainly res$onsible for the lo. rate of (ob creation and high rates of unem$loyment in many Euro$ean countries, including ?rance&

THE SECOND PHASE


)y the mid-1993s, factors such as increased in<estor a.areness, stronger economies, fall in inflation, increasing national incomes, decrease in le<el of unem$loyment, and high $rofits, reduced the need for do.nsiFing across the globe& Ao.e<er, (ust as the do.nsiFing trend seemed to be on a decline, it $ic,ed u$ momentum again in the late-1993s, this time s$reading to de<elo$ing countries as .ell& 9his change .as attributed to factors such as .orld.ide economic recession, increase in global com$etition, the slum$ in the I9 industry, dynamic changes in technologies, and increase in the a<ailability of a tem$orary em$loyee base& -ationaliFation of the labor force and .age reduction too, $lace at an alarming rate during the late 1993s and early 21st century, .ith increased strategic alliances and gro.ing $o$ularity of conce$ts such as lean manufacturing and outsourcing & Criticism of do.nsiFing and its ill-effects soon began resurfacing& @any com$anies suffered from negati<e effects of do.nsiFing and lost some of their best em$loyees& Other $roblems such as the une<en distribution of em$loyees !too many em$loyees in a certain di<ision and inade/uate em$loyees in another#, e8cess .or,load on the sur<i<ors, resistance to change from the sur<i<ors, reduced $roducti<ity and fall in /uality le<els also cro$$ed u$& As in the early 1993s, many organiFations do.nsiFed e<en though it .as not necessary, because it a$$eared to be the $o$ular thing to do& *ue to the loss of e8$erienced .or,ers, com$anies incurred e8$enditure on o<ertime $ay and em$loyment of tem$orary and contract .or,ers& It .as re$orted that about half of the com$anies that do.nsiFed their .or,force ended u$ recruiting ne. or former staff .ithin a fe. years after do.nsiFing because of insufficient .or,ers or lac, of e8$erienced $eo$le& 9he GS-based global telecom giant A9E9 .as one such com$any, .hich earned the dubious re$utation of fre/uently rehiring its former em$loyees because the retained em$loyees .ere unable to handle the .or, load&

15

A9E9 fre/uently rehired former em$loyees until it absorbed the shoc, of do.nsiFing& It .as also re$orted that in some cases, A9E9 e<en $aid recruitment firms t.ice the salaries of laid-off .or,ers to bring them bac, to A9E9& A former A9E9 manager commented, IIt seemed li,e they .ould fire someone and 0the .or,er1 .ould be right bac, at their des, the ne8t day&I Justifying the abo<e, ?ran, Carrubba, ?ormer O$erations *irector, A9E9, said, IIt does not ha$$en that much, but .ho better to bring bac, than someone .ho ,no.s the ro$esMI %ery fe. $eo$le bought this argument, and the rationale behind do.nsiFing and then rehiring former em$loyeesCrecruiting ne. staff began to be /uestioned by the media as .ell as the regulatory authorities in <arious $arts of the .orld& @ean.hile, allegations that do.nsiFing .as being ado$ted by com$anies to su$$ort the increasingly fat $ay-chec,s of their senior e8ecuti<es increased& A9E9 .as again in the ne.s in this regard& In 199=, the com$any doubled the remuneration of its Chairman, e<en as o<er 63,333 em$loyees .ere do.nsiFed& "eading Internet start-u$ AO" .as also criticiFed for the same reasons& 9he increase in salary and bonuses of AO" s si8 highest $aid e8ecuti<e officers .as bet.een 7&9; to 24&2; during 2333& 9he a<erage increase in salary and bonus of each officer .as about 1=;, .ith the remuneration of the CEO e8ceeding Q5: million during the $eriod& Shortly after this raise, AO" do.nsiFed 2,633 em$loyees in January 2331& ?ollo.ing the demand that the e8ecuti<e officers should also share in the sacrifice associated .ith do.nsiFing, some com$anies <oluntarily announced that they .ould cut do.n on the remuneration and bonuses of their to$ e8ecuti<es in case of massi<e layoffs& ?ord .as one of the first com$anies to announce such an initiati<e& It announced that o<er =,333 of its to$ e8ecuti<es, including its CEO, .ould forgo their bonus in 2331& Other ma(or com$anies that announced that their to$ e8ecuti<es .ould forgo cash com$ensations .hen a large number of .or,ers .ere laid off .ere A@- Cor$&, *elta, Continental and South.est Airlines& In addition to the abo<e, com$anies ado$ted many strategies to deal .ith the criticisms they .ere facing because of do.nsiFing&

TACKLING THE EVILS OF DO2NSI3ING


*uring the early 21st century, many com$anies began offering fle8ible .or, arrangements to their em$loyees in an attem$t to a<oid the negati<e im$act of do.nsiFing& Such an arrangement .as re$orted to be beneficial for both em$loyees as .ell as the organiFation& A fle8ible .or,ing arrangement resulted in increased morale and $roducti<ityL decreased absenteeism and em$loyee turno<er, reduced stress on em$loyeesL increased ability to recruit and retain su$erior /uality em$loyees im$ro<ed ser<ice to clients in <arious time FonesL and better use of office e/ui$ment and s$ace& 9his ty$e of arrangement also ga<e more time to $ursue their education, hobbies, and $rofessional de<elo$ment, and handle $ersonal res$onsibilities& 9he conce$t of contingent em$loyment also became highly $o$ular and the number of organiFations ado$ting this conce$t increased substantially during the early 21st century& According to the )ureau of "abor Statistics !)"S#, GS, contingent em$loyees .ere those .ho had no e8$licit or im$licit contract and e8$ected their (obs to last no more than one year& 9hey .ere hired directly by the com$any or through an e8ternal agency on a contract basis for a s$ecific .or, for a limited $eriod of time& Com$anies did not ha<e to $ay unem$loyment ta8es, retirement or health benefits for contingent em$loyees& 9hough these em$loyees a$$eared on the $ayroll, they .ere not co<ered by the em$loyee handboo, !.hich includes the rights and duties of em$loyers and em$loyees and em$loyment rules and regulations#& In many cases, the salaries $aid to them .ere less than these gi<en to regular em$loyees $erforming similar (obs& 9hus, these em$loyees offered fle8ibility .ithout long-term commitments and enabled organiFations to do.nsiFe them, .hen not re/uired, .ithout much difficulty or guilt& Analysts commented that in many cases A- managers o$ted for contingent em$loyees as they offered the least resistance .hen do.nsiFed&

16
Ao.e<er, analysts also commented that .hile contingent em$loyment had its ad<antages, it $osed many $roblems in the long run& In the initial years, .hen contingent em$loyment .as introduced, such em$loyees .ere as,ed to $erform non-critical (obs that had no relation to an organiFation s core business& )ut during the early 2333s, contingent em$loyees .ere em$loyed in core areas of organiFations& 9his resulted in increased costs as they had to be framed for the (ob& Dot only .as training time consuming, its costs .ere recurring in nature as contingent em$loyees stayed only for their s$ecified contract $eriod and .ere soon re$laced by a ne. batch of contingent em$loyees& Producti<ity suffered considerably during the $eriod .hen contingent em$loyees .ere being trained& 9he fact that such em$loyees .ere not <ery loyal to the organiFation also led to $roblems& Analysts also found that most contingent em$loyees $referred their fle8ible .or, arrangements and .ere not e<en lured by the carrot !carrot and stic, theory of moti<ation# of $ermanent em$loyment offered for outstanding $erformance& In the .ords of Paul Cash, Senior %ice President, 9eam America !a leasing com$any#, IIt used to be that you .or,ed as a tem$ to $osition yourself for a full-time (ob& 9hat carrot is not there any more for substantial numbers of tem$s .ho $refer their tem$orary status& 9hey do not understand your rules, and if they are only going to be on board for a month, they may ne<er understand&I Bith such an attitude to remain outside the ambit of com$any rules and regulations, contingent em$loyees re$ortedly failed to de<elo$ a sense of loyalty to.ard the organiFation& Conse/uently, they failed to com$letely commit themsel<es to the goals of the organiFation& According to some analysts, the contingent em$loyment arrangement .as not beneficial to contingent em$loyees& Gnder the terms of the contract, they .ere not eligible for health, retirement, or o<ertime benefits& *iscrimination against contingent em$loyees at the .or,$lace .as re$orted in many organiFations& 9he increasing number of contingent em$loyees in an organiFation .as found to ha<e a negati<e effect on the morale of regular em$loyees& 9heir $resence made the com$any s regular em$loyees a$$rehensi<e about their (ob security& In many cases regular em$loyees .ere afraid to as, for a raise or other benefits as they feared they might lose their (obs& 9hough contingent em$loyment seemed to ha<e emerged as one of the solutions to the ills of do.nsiFing, it attracted criticism similar to those that do.nsiFing did& As a result, issues regarding em$loyee .elfare and the $light of em$loyees, .ho .ere sub(ect to constant uncertainty and insecurity regarding their future, remained unaddressed& 'i<en these circumstances, the best o$tion for com$anies seemed to be to learn from those organiFations that had been com$arati<ely successful at do.nsiFing&

LESSONS FROM THE 'DO2NSI3ING BEST PRACTICES' COMPANIES


In the late 1993s, the GS go<ernment conducted a study on the do.nsiFing $ractices of firms !including ma(or com$anies in the country#& 9he study $ro<ided many interesting insights into the $ractice and the associated $roblems& It .as found that the formulation and communication of a $ro$er $lanning and do.nsiFing strategy, the su$$ort of senior leaders, incenti<e and com$ensation $lanning and effecti<e monitoring systems .ere the ,ey factors for successful do.nsiFing& In many organiFations .here do.nsiFing .as successfully im$lemented and yielded $ositi<e results, it .as found that senior leaders had been acti<ely in<ol<ed in the do.nsiFing $rocess& 9hough the do.nsiFing methods used <aried from organiFation to organiFation, the acti<e in<ol<ement of senior em$loyees hel$ed achie<e do.nsiFing goals and ob(ecti<es .ith little loss in /uality or /uantity of ser<ice& 9he $resence and accessibility of senior leaders had a $ositi<e im$act on em$loyees - those .ho .ere do.nsiFed as .ell as the sur<i<ors& According to a best $ractice com$any source, I@anagers at all le<els need to be held accountable for - and need to be committed to - managing their sur$lus em$loyees in a humane, ob(ecti<e, and a$$ro$riate manner& Bhile A- is $ercei<ed to ha<e $ro<ided outstanding ser<ice, it is the managers beha<ior that .ill ha<e the most im$act&I In many com$anies, consistent and committed leadershi$ hel$ed em$loyees o<ercome organiFational change caused by do.nsiFing& A- managers in these com$anies $artici$ated acti<ely in the o<erall do.nsiFing e8ercise& 9hey de<elo$ed a em$loyee $lan for do.nsiFing, .hich co<ered issues such as attrition management and .or,force distribution in the organiFation& 9he $lan also included the identification of s,ills needed by em$loyees to ta,e ne. res$onsibilities and the de<elo$ment of training and res,illing $rograms

17
for em$loyees& Since it may be necessary to ac/uire other s,ills in the future, the $lan also addressed the issue of recruitment $lanning& Communication .as found to be a $rimary success factor of effecti<e do.nsiFing $rograms& According to a sur<ey conducted in ma(or GS com$anies, 59; of the res$ondents re<ealed that they mostly used letters and memorandums from senior managers to communicate information regarding restructuring or do.nsiFing to em$loyees& Ao.e<er, only 29; of the res$ondents agreed that this ty$e of communication .as effecti<e& 9he sur<ey re$ort suggested that face-to-face communication !such as briefings by managers and small grou$ meetings# .as a more a$$ro$riate techni/ue for dealing .ith a sub(ect as traumatic !to em$loyees# as do.nsiFing& According to best $ractice com$anies, em$loyees e8$ected senior leaders to communicate o$enly and honestly about the circumstances the com$any .as facing !.hich led to do.nsiFing#& 9hese com$anies also achie<ed a $ro$er balance bet.een formal and informal forms of communication& A fe. common methods of communication ado$ted by these com$anies included small meetings, face to face interaction, one-on-one discussion, brea,fast gatherings, all staff meetings, <ideo conferencing and informal em$loyee dialogue sessions, use of ne.sletters, <ideos, tele$hone hotlines, fa8, memoranda, e-mail and bulletin boardsL and brochures and guides to educate em$loyees about the do.nsiFing $rocess, em$loyee rights and ti$s for sur<i<ing the situation& @any organiFations encouraged em$loyees to <oice their ideas, concerns or suggestions regarding the do.nsiFing $rocess& According to many best $ractice organiFations, em$loyee in$uts contributed considerably to the success of their do.nsiFing acti<ities as they fre/uently ga<e <aluable ideas regarding the restructuring, increase in $roduction, and assistance re/uired by em$loyees during do.nsiFing& Ad<ance $lanning for do.nsiFing also contributed to the success of a do.nsiFing e8ercise& @any successful organiFations $lanned in ad<ance for the do.nsiFing e8ercise, clearly defining e<ery as$ect of the $rocess& )est $ractice com$anies in<ol<ed em$loyee union re$resentati<es in $lanning& 9hese com$anies felt it .as necessary to in<ol<e labor re$resentati<es in the $lanning $rocess to $re<ent and resol<e conflicts during do.nsiFing& According to a sur<ey re$ort, information that .as not re/uired by com$anies for their normal dayto-day o$erations, became critical .hen do.nsiFing& 9his information had to be ac/uired from internal as .ell as e8ternal sources !the A- de$artment .as res$onsible for $ro<iding it#& ?rom e8ternal sources, do.nsiFing com$anies needed to gather information regarding successful do.nsiFing $rocesses of other organiFations and <arious o$$ortunities a<ailable for em$loyees outside the organiFation& And from internal sources, such com$anies need to gather demogra$hic data !such as ran,, $ay grade, years of ser<ice, age, gender and retirement eligibility# on the entire .or,force& In addition, they re/uired information regarding number of em$loyees that .ere normally e8$ected to resign or be terminated, the number of em$loyees eligible for early retirement, and the im$act of do.nsiFing on .omen, minorities, disabled em$loyees and old em$loyees& 9he best $ractice organiFations gathered information useful for effecti<e do.nsiFing from all $ossible sources& Some organiFations de<elo$ed an in<entory of em$loyee s,ills to hel$ management ta,e informed decisions during do.nsiFing, restructuring or staffing& @any best $ractice organiFations de<elo$ed A- information systems that sa<ed management s time during do.nsiFing or ma(or restructuring by gi<ing ready access to em$loyee information& 9he ma(or ste$s in the do.nsiFing $rocess included ado$ting an a$$ro$riate method of do.nsiFing, training managers about their role in do.nsiFing, offering career transition assistance to do.nsiFed em$loyees, and $ro<iding su$$ort to sur<i<ors& 9he <arious techni/ues of do.nsiFing ado$ted by organiFations included attrition, <oluntary retirement, lea<e .ithout $ay or in<oluntary se$aration !layoffs#& According to many organiFations, a successful do.nsiFing $rocess re/uired the simultaneous use of different do.nsiFing techni/ues& @any com$anies offered assistance to do.nsiFed em$loyees and sur<i<ors, to hel$ them co$e .ith their situation& Some techni/ues considered by organiFations in lieu of do.nsiFing included o<ertime restrictions,

18
union contract changes, cuts in $ay, furloughs, shortened .or,.ee,s, and (ob sharing& All these a$$roaches .ere a $art of the shared $ain a$$roach of em$loyees, .ho $referred to share the $ain of their co-.or,ers rather than see them be laid-off& 9raining $ro<ided to managers to hel$ them $lay their role effecti<ely in the do.nsiFing $rocess mainly included formal classroom training and .ritten guidance !on issues that managers .ere e8$ected to deal .ith, .hen do.nsiFing#& 9he $rimary focus of these training sessions .as on dealing .ith <iolence in the .or,$lace during do.nsiFing& According to best $ractice com$anies, $eriodic re<ie. of the im$lementation $rocess and immediate identification and rectification of any de<iations from the $lan minimiFed the ad<erse effects of the do.nsiFing $rocess& In some organiFations, the $rogress .as re<ie.ed /uarterly and .as $ublished in order to hel$ e<ery manager monitor reductions by different categories& 9hese categories could be de$artment, occu$ational grou$ !clerical, administrati<e, secretarial, general labor#, reason !early retirement, lea<e .ithout $ay, attrition#, em$loyment e/uity grou$ !.omen, minorities, disabled class# and region& Senior leaders .ere $ro<ided .ith ,ey indicators !such as the effect of do.nsiFing on the organiFational culture# for their res$ecti<e di<isions& Some organiFations trac,ed the $rogress and achie<ement of e<ery di<ision se$arately and em$hasiFed the a$$lication of a different strategy for e<ery de$artment as reaction of em$loyees to do.nsiFing <aried considerably from de$artment to de$artment& 9hough the abo<e measures hel$ed minimiFe the negati<e effects of do.nsiFing, industry obser<ers ac,no.ledged the fact that the emotional trauma of the concerned $eo$le could ne<er be eliminated& 9he least the com$anies could do .as to do.nsiFe in a manner that did not in(ure the dignity of the discharged em$loyees or lo.er the morale of the sur<i<ors& QUESTIONS FOR DISCUSSION 1& E8$lain the conce$t of do.nsiFing and describe the <arious do.nsiFing techni/ues& Critically e<aluate the reasons for the increasing use of do.nsiFing during the late 23th century and the early 21st century& Also discuss the $ositi<e and negati<e effects of do.nsiFing on organiFations as .ell as em$loyees !do.nsiFed and remaining#& 2& Bhy did contingent em$loyment and fle8ible .or, arrangements become <ery $o$ular during the early 2333sM *iscuss& E<aluate these conce$ts as alternati<es to do.nsiFing in the conte8t of organiFational and em$loyee .elfare& :& As $art of an organiFation s A- team res$onsible for carrying it through a do.nsiFing e8ercise, discuss the measures you .ould ado$t to ensure the e8ercise s success& 'i<en the uncertainty in the (ob mar,et, .hat do you thin, em$loyees should do to sur<i<e the trauma caused by do.nsiFing and $re$are themsel<es for itM ADDITIONAL READING & REFERENCES 1& @a,ing Sense of Cor$orate *o.nsiFing, ...&csaf&com, A$ril 199=& 2& *o.nsiFing and Em$loyee Attitudes, ...&ncs$earson&com, Se$tember 1994& :& *o.nsiFing Strategies Gsed in Selected OrganiFations, ...&c:i&osd&mil, 1994& 6& 9he Bages of *o.nsiFing, ...&mo(ones&com, January 199=& 4& +irschener Elisabeth, Chemical E Engineering De.s, ...&chemcenter&org, October 199=& =& Aic,o, 9homas, *o.nsiFing and OrganiFational Culture, ...&$am(i&com, 1995& 5& P&Jen,ins Carri, *o.nsiFing or *umbsiFing, htt$HCCad<ance&byu&eduCbym, 1995& 7& "&"ester @artha and @& Aollender "auren, Em$loyment "a. REA, ...&lo.enstein&com, ?ebruary 1995& 9& Aein +enneth, ?ood for the Cor$orate Soul, ...&martinrutte&com, @ay 1995& 13& 'E +no.s to -oll Bith the Changes, ...&houstonchronicle&com, June 1997& 11& Jones Shannon, Job Cuts G$ 4:; Since 1995, ...&.s.s&org, October 1997& 12& 'rey )arry, )oeing Announcements )rings GS Job Cuts to 433,333 in 1997, ...&.s.s&org, *ecember 1997& 1:& Gn,indest Cuts of All - And Dot Al.ays a Payoff in the "ayoff, ...&managementfirst&com, 1997& 16& 'rice Corey and Junnar,ar Sandee$, Silicon %alleyH Still a )oomto.nM De.s&com&com, January 1999& 14& Shareholders Press A9E9 on Bage 'a$, ...&ufenet&org, @ay 1999& 1=& )a,er Bayne, Ao. to Sur<ice *o.nsiFing, ...&huma8&net, 2333&

19
15& *uffy 9om, *o.nsiFing .ith *ignity, ...&n.fusion&com, 2331& 17& 'lobal Slo.do.n )ites I&9& 'aints, ...&asiafeatures&com, July 2331& 19& )o.es )arbara, *o.nsiFing *ignity, ...&.inni$egfree$ress2&com, October 2331& 23& ?reeFe E8ecuti<e Pay *uring Periods of *o.nsiFing, ...&res$onsible.ealth&org, ?ebruary 2332& 21& "ayoff and Outsourcing G$date, ...&erie&net, @arch 2332& 22& S,aer @ar,, Em$loyee @indset Is *ifferent 9oday, ...&achrne.s&com, @arch 2332& 2:& 'E to "ayoff 1,333, ...&.s$a&com, July 2332& 26& *iCarlo "isa, GS Airlines on Course .ith "oan 'uarantee, ...&forbes&com, July 2332& 24& @&Song +yung, )oeing 9ells =33 @ore of "ayoffs 9oday, htt$HCCseattletimes&n.source&com, August 2332& 2=& 'omeF Armando, 9he G$s and *o.ns of *o.nsiFing, ...&as,men&com, Se$tember 2332& 25& Carma,er Jaguar to Cut 633 Jobs, htt$HCCstory&ne.s&yahoo&com, Se$tember 2332& 27& 9elecom 'iant Sheds Scots Jobs, htt$HCCne.s&bbc&co&u,, Se$tember 2332& 29& *resdner to Cut :,333 Jobs, htt$HCCne.s&bbc&co&u,, Se$tember 2332& :3& "eicester John, Alactel to Cut 13,333 @ore Jobs, htt$HCCstory&ne.s&yahoo&com, Se$tember 2332& :1& Doguchi >u,i, Bith Sales *o.n, Ciena Cuts Another -ound of Bor,ers, ...&.ashington$ost&com, Se$tember 2332& :2& ...&geocities&com ::& htt$HCCgo<info&library&unt&edu :6& ...&greyloc,associates&com :4& ...&.hatis&com :=& ...&shrm&org :5& ...&cio&com :7& ...&shrm&org :9& ...&forbes&com 63& ...&orst&edu 61& ...&humanresources&about&com 62& ...&business2&com 6:& ...&business.ee,&com 66& ...&business-minds&com 64& ...&themanagementor&com 6=& ...&b$cinc&com 65& htt$HCCmembers&aol&com 67& ...&doleta&go< 69& ...&msnbc&com

T0$ I'"!&' C&## C$'/$) J18)'$4


()he call center business appears to be oin the dot-com "ay "ith a lot o* bi names pumpin in dou h& +ltimately, only the *ittest "ill survive&-A u!bai bas"d call c"nt"r a#"nt, in 2001.

CALL CENTERS FARE BADLY


In the beginning of 1999, the tele.or,ing industry had been hailed as Sthe o$$ortunityT for Indian cor$orates in the ne. millennium& In late 2333, a DASSCO@011 study forecast that by 2337, the Indian I9 enabled ser<ices business021 .as set to reach great heights&

20
Doted @assachusetts Institute of 9echnology !@I9# scholar, @ichael *ertouFos remar,ed that India could boost its '*P by a trillion dollars through the I9enabled ser<ices sector& Call center !an integral $art of I9-enabled ser<ices# re<enues .ere $ro(ected to gro. from -s 26 bn in 2333 to -s 233 bn by 2313& *uring 2333-31, o<er a hundred call centers .ere established in India ranging from 4333 s/& ft& to 133,333 s/& ft& in area in<ol<ing in<estments of o<er -s 12 bn& Ao.e<er, by early 2331, things seemed to ha<e ta,en a totally different turn& 9he reality of the Indian call center e8$erience .as manifested in ro.s after ro.s of cubicles de<oid of $ersonnel in the call centers& 9here (ust .as no business coming in& In centers .hich did retain the em$loyees, they .ere seen sitting idle, .aiting endlessly for the calls to come& Estimates indicated that the industry .as saddled .ith idle ca$acity .orth almost Q 54-133 mn& O.ners of a substantial number of such centers .ere on the loo,out for buyers& It .as sur$rising that call centers .ere ha<ing $roblems in recruiting suitable entry-le<el agents e<en .ith attracti<e salaries being offered& 9he human resource e8odus added to the industryTs misery& 'i<en the large number of unem$loyed young $eo$le in the country, the attrition rate of o<er 43; !in some cases# .as rather sur$rising& 9he industry, .hich .as su$$osed to generate substantial em$loyment for the country, .as literally do.n in the dum$s - much to the chagrin of industry e8$erts, the 'o<ernment, the media and abo<e all, the $layers in<ol<ed& 9he future $ros$ects of the call center business seemed to be rather blea, indeed&

CALL CENTER BASICS


In 2331, the global call center industry .as .orth Q 733 mn s$read across around 133,333 units& It .as e8$ected to touch the :33,333 le<el by 2332 em$loying a$$ro8imately 17 mn $eo$le& )roadly s$ea,ing, a call center .as a facility handling large <olumes of inbound and outbound tele$hone calls, manned by Sagents,T !the $eo$le .or,ing at the center#& In certain setu$s, the caller and the call center shared costs, .hile in certain other cases, the clients bore the callTs cost& 9he call center could be situated any.here in the .orld, irres$ecti<e of the client com$anyTs customer base& Call centers date bac, to the 1953s, .hen the tra<elChos$itality industry in the GS began to centraliFe their reser<ation centers& Bith the rise of catalog sho$$ing and outbound telemar,eting, call centers became necessary for many industries& Each industry had its o.n .ay of o$erating these centers, .ith its o.n standards for /uality, and its o.n $referred technologies& 9he total number of $eo$le .ho .or,ed at the center at any gi<en $oint of time .ere referred to as Sseats&T A center could range from a small 4-13 seat set-u$ to a huge set-u$ .ith 433-2,333 seats& 9he calls could be for customer ser<ice, sales, mar,eting or technical su$$ort in areas such as airlineChotel reser<ations, ban,ing or regarding telemar,eting, mar,et research, etc& ?or instance, .hile a ?@C' com$any could use the call centers for better customer relationshi$ management, for a biotechnology com$any, the tas, could be of <erifying genetic databases& !-efer 9able I#& Call centers began as huge establishments managing large <olumes of communications and traffic& 9hese centers .ere generally set u$ as large rooms, .ith .or,stations, interacti<e <oice res$onse systems, an EPA)P0:1, headsets hoo,ed into a large telecom s.itch and one or more su$er<isor stations& !-efer 9able II#& 9he center .as either an inde$endent entity, or .as lin,ed .ith other centers or to a cor$orate data net.or,, including mainframes, microcom$uters and "ADs061 &

T0$ I'"!&' C&## C$'/$) J18)'$4


<<P)$%!185

21
TABLE I BENEFITS OF A CALL-CENTER

Enhances the customer base and business $ros$ects Offers an economical means of reaching di<erse and .idely distributed customer grou$ ?ine-tunes offerings to s$ecific customer grou$s by s$ecialiFed and focussed assistance Allo.s customers easy access to e8$erts ?acilitates business round the cloc, and in any geogra$hical region Allo.s a com$any to reduce the o<erheads of bric, and mortar branches

$ource% Compiled *rom various sources&

TABLE II CALL CENTER CLASSIFICATION



%oice call center .ith $hones and com$uters& E-mail call center .ith leased lines and com$uters& Beb-based call centers using internet chat facilities .ith customers& -egional call centers handling calls from local clients& 'lobal call centers handling calls from across the .orld&

$ource% Compiled *rom various sources& Call centers could either be Sca$ti<eCin-houseT or in form of an Soutsourced bureau&T Ca$ti<e call centers .ere ty$ically used by <arious segments li,e insurance, in<estments and securities, retail ban,ing, other financial ser<ices, telecommunications, technology, utilities, manufacturing, tra<el and tourism, trans$ort, entertainment, healthcare and education etc& Outsourcing bureaus .ere outfits .ith $rior e8$erience in running call centers& 9hese hel$ed the ne. $layers in dealing .ith com$le8 labor issues, assisted in using latest technologies, hel$ed in lo.ering the o$erating e8$enses and financial ris,s& Outsourced bureau o$erators .ere utiliFed by com$anies at <arious stages <iF& setting u$ of the center, internal infrastructure re<am$s, e8cess traffic situations etc&

INDIAN CALL CENTERS = MYTHS AND REALITIES


9here .ere many reasons .hy India .as considered an attracti<e destination to set u$ call centers& 9he boom in the Indian information technology sector in the mid 1993s led to the countryTs I9 strengths being recogniFed all o<er the .orld& @oreo<er, India had the largest English-s$ea,ing $o$ulation after the GS and had a <ast .or,force of educated, reasonably tech-sa<<y $ersonnel& In a call center, man$o.er ty$ically accounted for 44-=3; of the total costs in the GS and Euro$ean mar,ets - in India, the man$o.er cost .as a$$ro8imately one-tenth of this& Bhile $er agent cost in GS .or,ed out to a$$ro8imately Q 63,333, in India it .as only Q 4,333& 9his .as cited to be the biggest ad<antage India could offer to the @DCs& A$art from these, the 'o<ernmentTs $ro call center industry a$$roach and a <irtual 12-hour time Fone difference .ith the GS added to IndiaTs ad<antages& 9here .ere a host of $layers in the Indian call center industry& A$art from the $ioneers )ritish Air.ays, 'E and S.iss Air, A"", )P", 'odre( Soa$s, 'lobal 9ele-Systems, Bi$ro, ICICI )an,ing

22
Cor$oration, American E8$ress, )an, of America, Citiban,, A)D A@-O, 'lobal 9rust, *eutsche )an,, Airtel, and )harati )9 .ere the other ma(or $layers in the call-center business& After the $ro(ections of the DASSCO@-@c+insey re$ort .ere made $ublic, many $eo$le began thin,ing of entering the call center business& !-efer 9able III#& *uring this rush to ma,e money from the call center S.a<e,T DASSCO@ recei<ed /ueries from many $eo$le .ith s$are cash and s$ace, including lorry-fleet o$erators, garment e8$orters, leather merchants, tyre distributors and $lantation o.ners among others&

TABLE III THE INDIAN CALL-CENTER MILESTONES


M!" +,,05 'E, S.iss Air, )ritish Air.ays set u$ ca$ti<e call center units for their global needs&

?ollo.ing increasing interest in the I9-enabled ser<ices sector, DASSCO@ held the first I9-enabled ser<ices meet& M&4-,, O<er =33 $artici$ant firms $lan to set u$ medical transcri$tion outfits and call centers& D$>-,, M&4-00 A DASSCO@-@c+insey re$ort says that remote ser<ices could generate Q 17 billion of annual re<enues by 2337& %enture Ca$italists rush in& @a,e huge in<estments in call centers& @ore than 1,333 $artici$ants floc, to the DASSCO@ meet to hear about ne. o$$ortunities in remote ser<ices& 9hough the medical transcri$tion business is not flourishing, call centers seen as a big o$$ortunity&

S$6-00

DASSCO@ re$ort, indicates that a center could be set u$ Q8&)/$) .ith Q 1 million& 'old rush begins& E<eryone, from $lantation ? 2000 o.ners to lorry-fleet o$erators, .anted to set u$ centers& @ost of the call centers are .aiting for customers& De. <entures still coming u$H ca$acity of bet.een 24 seats and 13,333 seats $er com$any& Small o$erators disco<er that Q8&)/$) the business is a blac, hole .here in<estments (ust +* 200+ disa$$ear& 9hey loo, for buyers, strategic $artnershi$s and (oint <entures& )ro,ers and middlemen ma,e an entry to fi8 such deals&

INDIAN CALL CENTERS = MYTHS AND REALITIES >1'/"...


Ao.e<er, most of these $eo$le entered the field, .ithout ha<ing any idea as to .hat the business .as all about& 9heir ,no.ledge regarding the technology in<ol<ed, the mar,eting as$ects, client ser<icing issues etc .as <ery $oor& 9hey assumed that by offering chea$er rates, they .ould be able to attract clients easily& 9hey did not realiFe that more than easy access to ca$ital and real estate, the field re/uired e8$erience and a sound business bac,ground& Once they decided to enter the field, they found that most of the ca$ital e8$enditure !in form of building u$ the infrastructure041 # occurred e<en before the first client .as bagged& 9hese $layers seemed to ha<e neglected the fact that most successful call centers .ere /uite large and had either some e8$erience in the form of $romoters ha<ing .or,ed abroad in similar <entures or $re<ious e8$erience .ith such <entures or .ere subsidiaries of foreign com$anies& 9he real trouble started .hen these com$anies began soliciting clients& As call centers .ere a ne. line of business in India, the lac, of trac, record forced the clients to go for much detailed and $rolonged studies of the Indian $artners& @any GS clients insisted on a strict ins$ection of the facilities offered, such as .or,-areas, cafeterias and e<en the restrooms& 9he

23
clients e8$ected to be sho.n detailed Ser<ice "e<el Agreements !S"As#0=1 , .hich a ma(ority of the Indian firms could not manage& Gnder these circumstances, no GS com$any .as .illing to ris, gi<ing business to amateurs at the cost of losing their customers& )ecause of the inade/uate in<estments in technology, lac, of $rocesses to scale the business051 and the lac, of management ca$abilities, most of the Indian $layers .ere unable to get international customers& E<en for those .ho did manage to ro$e in some clients, the business .as limited& As if these $roblems .ere not enough, the $layers hit another roadbloc, - this time in form of the high labor turno<er $roblem& Agent $erformance .as the deciding factor in the success of any call center& Com$anies had recogniFed agents as one of the most im$ortant and influential $oints of contact bet.een the business and the customer& Ao.e<er, it .as this <ery set of $eo$le .hom the Indian call centers .ere finding e8tremely difficult to recruit and more im$ortantly, retain& In 2333, the a<erage attrition rate in the industry .as 6364;, .ith about 13-14; of the staff /uitting .ithin the first t.o months itself& E<en though attrition rates .ere <ery high in this industry .orld.ide, the same trend .as not e8$ected to emerge in India, as the unem$loyment le<els .ere much higher& 9he reasons .ere not <ery hard to understand& In a eight-and-a-half hour shift, the agents had to attend calls for se<enand-a-half hours&

INDIAN CALL CENTERS = MYTHS AND REALITIES >1'/"...


9he .or, .as highly stressful and monotonous .ith fre/uent night shifts& A ty$ical call center agent could be described as being So<er.or,ed, under$aid, stressed-out and thoroughly bored&T 9he agents .ere fre/uently re$orted to de<elo$ an identity crisis because of the Sdual $ersonalityT they had to ado$t& 9hey had to ta,e on Euro$eanCGS names or abbre<iate their o.n names and ac/uire foreign accents in order to $ose as Slocals&T 9he odd timings too, a toll on their health .ith many agents com$laining of their biological cloc,s being disturbed& !Es$ecially the ones in night shifts#& Job security .as another ma(or $roblem, .ith agents being fired fre/uently for not being able to adhere to the strict accuracy standards& !Dot more than one mista,e $er 133 com$uter lines&# 9he industry did not offer any creati<e .or, or gro.th o$$ortunities to ,ee$ the .or,ers moti<ated& 9he sco$e for gro.th .as <ery limited& ?or instance, in a 62=-seat center, there .ere 633 agents, 23 team leaders, four ser<ice deli<ery leaders, one head of de$artment and one head of business& 9hus, going u$ the hierarchy .as almost im$ossible for the agents& Analysts remar,ed that the fault .as mainly in the recruitment, training, and career $rogression $olicies of the call centers& OrganiFations that first set u$ call centers in India .ere able to $ic, and choose the best talent a<ailable& 9he entry norms established at this $oint .ere - a ma8imum age limit of 24 years, a minimum /ualification of a uni<ersity degree, English medium school basic education and a $reference to candidates belonging to .esterniFed and .ell-off u$$er middle class families& 9he com$anies hence did not ha<e to s$end too much time and effort in training the ne. recruits on the t.o im$ortant as$ects of a good le<el of s$o,en and .ritten English and a good e8$osure to .estern culture and traditions& Ao.e<er, com$anies soon realiFed that $eo$le .ith such bac,grounds generally had much higher as$irations in life& Bhile they .ere initially e8cited to .or, in the e8cellent .or,ing en<ironment of a multinational com$any for a fe. months, they .ere not .illing to ma,e a career in the call center industry& 9hey generally got fed u$ and left .ithin a fe. months .hen the e8citement .aned& A consistently high attrition rate affected not only a centerTs $rofits but also customer ser<ice and

24
satisfaction& 9his .as because a ne. agent normally too, a fe. months before becoming as $roficient as an e8$erienced one& 9his meant that o$$ortunities for $ro<iding higher le<els of customer ser<ice .ere lost on account of high staff turno<er

FUTURE PROSPECTS
9he Indian call center ma(ors .ere trying to handle the labor e8odus through <arious measures& ?oremost amongst these .as the mo<e to em$loy $eo$le from social and academic bac,grounds different from the norms set earlier& >oung $eo$le $assing out of English medium high schools and uni<ersities and house.i<es and bac,-to-.or, mothers loo,ing for suitable o$$ortunities .ere identified as t.o of the biggest $ossible recruitment $ools for the industry& Such students .ith a good basic le<el of English could be trained easily to im$ro<e their accents, $ronunciation, grammar, s$elling and diction& 9hey could be trained to become familiar .ith .estern culture and traditions& 9he house.i<es and bac,to-.or, mothersT $ool could also be de<elo$ed into e8cellent resources& 9his had been successfully tried out in the GS and Euro$ean mar,ets, .here call centers em$loyed a large number of house.i<es and bac,-to-.or, mothers& Another solution being thought about .as to recruit $eo$le from non-metros, as $eo$le from these $laces .ere deemed to be more li,ely to stay .ith the organiFation, though being more difficult to recruit and e8$ensi<e to train& E<en as the $eo$le and infrastructure $roblems .ere being tac,led, a host of other issues had cro$$ed u$, $osing threats for the Indian call centers& 9he $romise of chea$, English s$ea,ing and technically a.are labor from India .as suddenly not as lucrati<e in the international mar,ets& A sur<ey of ?ortune 1,333 com$anies on their outsourcing concerns sho.ed that cost-reduction .as not the most im$ortant criterion for selecting an outsourcing $artner& 9his did not augur .ell for a country ban,ing on its cost com$etiti<eness& Also, China .as fast emerging as a ma(or threat to India, as it had embar,ed on a massi<e $lan to train $eo$le in English to o<ercome its handica$ in the language& In ?ebruary 2331, Diels +(elleru$, editor and $ublisher of SCall Center @anagers ?orumT came out strongly against India being $romoted as an ideal $lace to set u$ call centers& Ae saidH J9he English s$o,en by Indians is a <ery hea<y dialect U in fact, in face to face con<ersations, I found it <ery difficult to understand .hat .as said& Ao. .ill this $lay out o<er the tele$hone .ith $eo$le much less educated that my con<ersation $artnersM 9he non-e8istent customer ser<ice culture in India .ill ma,e training of re$s mandatory and difficult, since such a lu8ury as ser<ice is not $art of e<eryday life in India& 9he infrastructure is bad, no, ma,e that anti/uatedH 9he attem$ts by a ma(or GS cor$oration to set u$ a satellite lin, has so far been e8$ensi<e and not <ery successful& Electricity infrastructure is going from bad to .orse U in fact during my stay at a 4 star hotel and at the cor$orate AR of a big @DC, .e had on a<erage 5 blac,outs a day .here the generators .ould ,ic, in after 2-: seconds& 9he tele$hony system is analog and inade/uate& It too, on a<erage three attem$ts (ust to get a line of out my hotel& 9he telecom mar,et is not deregulated, and international calls are <ery e8$ensi<e& 9he business culture and the mi8 of 'o<ernment inter<ention .ill be a cultural shoc, for Bestern business $eo$le .ith no $re<ious e8$erience& Add to this a lac, of a call center industry and <ery fe. $eo$le .ith call center e8$erience .hich ma,es it <ery hard to recruit call center managers .ith a $ro<en trac, record&K *es$ite the mounting criticisms and .orries, ho$e still e8isted for the Indian call center industry& Analysts remar,ed that the call center business .as in the midst of a transition, .herein only the fundamentally strong $layers .ould remain in the fray after an ine<itable Ssha,eout&T Gnli,e other industries, the sha,eout in this industry .as not only because of an o<er su$$ly of call center $ro<iders, but also because of the /uality of su$$ly offered& In s$ite of the do.nturn, the call center business .as considered to hold a lot of $otential by many cor$orates& Bith the GS economy facing a slo.do.n, the need for GS com$anies to outsource .as e8$ected to be e<en higher& 9he -eliance grou$ .as $lanning to o$en call centers in 13 cities across the country& Other com$anies including S$ectramind and 'lobal 9elesystems $lanned to either enter or enhance their $resence in

25
the business& Bhether the dream of call centers contributing to substantial economic gro.th for India .ould turn into reality .as something only time .ould re<eal&

QUESTIONS FOR DISCUSSION


1& Pre$are a note on the functioning of a call center and comment on its necessity and <iability in the Indian conte8t& 2& India had certain inherent ad<antages because of .hich, it had been identified as the $referred destination on a global basis for outsourcing I9 ser<ices& Ao.e<er, these <ery ad<antages .ere $ro<ing to be its dra.bac,s in the early 21st century& Critically e8amine the abo<e statement gi<ing reasons to su$$ort your stand& :& Bhat .ere the $roblems being faced on the human resources front by the call centersM Ao. .ere the $layers $lanning to address themM

E@HIBIT I CALL CENTER TERMINOLOGY


V A8/1 &/!> C&## D!5/)!A8/!1' BACDC: 9he AC* $rocesses all inbound tele$hone calls on a first come, first ser<ed basis& 9he system ans.ers each call immediately and, if need be, holds it in a /ueue till the time an agent is a<ailable& Bhen an agent becomes free, heCshe ser<ices the first caller in the /ueue& A system can be configured to offer different ,inds of treatment to different callers& ?or e8am$le, $eo$le calling long distance can be gi<en $riority handling& Or calls from customers $lacing orders can be ta,en before than those see,ing technical su$$ort& )y $ro<iding se/uencing and uniform distribution of incoming calls among multi$le agents in a call center, AC*s offer timeClabor sa<ings and enhance $roducti<ity& V I'/$)&>/!%$ V1!>$ R$561'5$ BIVRC: I%- a$$lications su$$ort the automated retrie<al of stored data& 9hese usually too, the form of $re-stored messages saying SPress 1 for this or Press 2 for that&T I%- a$$lications range from basic in/uiry to the most so$histicated s$eech recognition a$$lications& V C1 68/$) T$#$601'4 BCTIC: C9I is one of the most common features of call center en<ironments& 9hey can either be a sim$le screen $o$-u$ .indo., a so$histicated call control algorithm that can search for the last agent that s$o,e to the caller, or a $redicti<e dialing solution that doubles the efficiency of outbound calling& Bith a sim$le clic, of a mouse, a call center agent can /uic,ly mo<e bet.een a customer $rofile, $roduct information, customer history, order entry, fulfillment re/uest, tem$late co<er letters and /uote entry, among other fields& V 2$A I'/$()&/!1': 9he integration of Beb technology in call centers offers $ersonaliFed, time and cost effecti<e customer ser<ice& OrganiFations can either ha<e a call bac, button on their Beb $age .hereby a call is automatically made to the customer or ha<e a seamless addition of <oice o<er IP to the .eb a$$lication& V R$61)/!'( S45/$ 5: *ifferent re$orting a$$lications are used to o$timiFe the use of different communications $latforms& *e$ending u$on the firmTs s$ecifications, either sim$le $ro$rietary tools could be used or ad<anced tools that blend information from multi$le communications and information systems $latforms can be ado$ted& V 21)79#1: M&'&($ $'/ T11#5: Coordinating tele$hony a$$lications .ith information systems a$$lications, .or,flo. management tools assist call center su$er<isors to scri$t and manage em$loyee acti<ity& ?or e8am$le, selecting the best agent for handling $articular ty$es of calls& $ource % IC.R

26
ADDITIONAL READINGS & REFERENCES
1& @u,er(ea *&D& E *ha.an -adha, 9ele.or,ing - 9he hottest business o$$ortunity for India, )usiness Borld, January 5, 1999& 2& Chandrashe,har S& E "ahiri Jaidee$, Connecting to customers through call centers, )usiness 9oday, June 22, 1999& :& Jayaram Anu$, Can I hel$ you sirM, )usiness 9oday, Do<ember 29, 1999& 6& Car<er John, Staff turno<er U friend or foeM, ...&callcentres&com, ?ebruary 17, 2333& 4& +umar -ahul, ?inding the -ight @i8, Com$uter 9oday, Do<ember 1, 2333& =& -a(a.at +& >atish E +ul,arni Sangeeta, Do-fuss gus, Economic 9imes, *ecember 1, 2333& 5& +(elleru$ Diels& @yth E -eality about Contact Centers in India, ...&callcentres&com, ?ebruary 23, 2331& 7& Agnihotri Peeyush, Ao. can I hel$ you, sirM, 9ribune India, ?ebruary 12, 2331& 9& Singh Shelley E Srini<as Alam, Baiting for the call, )usiness Borld, @ay 27, 2331& 13& Sarma Gma E -ama<at @ona, Call centers attract but disa$$oint, 9he Economic 9imes& 11& I&9 Enabled Ser<ices - 9he Indian Scenario, ...&tele.or,ingindia&com 12& Call CentersH Dot-so dreamy affair, ...&indiatimes&com& 1:& Call centers, ...&tele.or,ingindia&com& 16& 9he De<er Ending Search, ...&<oicendata&com&

I'"!&' A!)#!'$5 HR P)1A#$

()here could scarcely be a more undisciplined bunch o* "or#ers than I/0s 11,000 employees&- Busin"ss India, $anuary 2%, 1999.

FLYING LO2
Indian Airlines !IA# U the name of IndiaTs national carrier con(ured u$ an image of a mono$oly gone berser, .ith the absolute $o.er it had o<er the mar,et& Continual losses o<er the years, fre/uent human resource $roblems and gross mismanagement .ere (ust some of the fe. $roblems $lagued the com$any& Bides$read media co<erage regarding the fre/uent stri,es by IA $ilots not only reflected the adamant attitude of the $ilots, but also resulted in increased $ublic resentment to.ards the airline& IATs recurring human resource $roblems .ere attributed to its lac, of $ro$er man$o.er $lanning and underutiliFation of e8isting man$o.er& 9he recruitment and creation of $osts in IA .as done .ithout $ro$er scientific analysis of the man$o.er re/uirements of the organiFation& IATs em$loyee unions .ere rather infamous for resorting to industrial action on the slightest $rete8t and their arm-t.isting tactics to get their demands acce$ted by the management& *uring the 1993s, the 'o<ernment too, <arious ste$s to turn around IA and initiated tal,s for its disin<estment& Amidst strong o$$osition by the em$loyees, the disin<estment $lans dragged on endlessly .ell into mid 2331&

27
9he IA story sho.s ho. $oor management, es$ecially in the human resources area, could s$ell doom e<en for a -s 63 bn mono$oly&

BACKGROUND NOTE
IA .as formed in @ay 194: .ith the nationaliFation of the airlines industry through the Air Cor$orations Act& Indian Airlines Cor$oration and Air India International .ere established and the assets of the then e8isting nine airline com$anies .ere transferred to these t.o entities& Bhile Air India $ro<ided international air ser<ices, IA and its subsidiary, Alliance Air, $ro<ided domestic air ser<ices& In 1993, %ayudoot, a lo.-ca$acity and short-haul domestic airline .ith huge long-term liabilities, .as merged .ith IA& IATs net.or, ranged from +u.ait in the .est to Singa$ore in the east, co<ering 54 destinations !49 .ithin India, 1= abroad#& Its international net.or, co<ered +u.ait, Oman, GAE, Ratar and )ahrain in Best AsiaL 9hailand, Singa$ore and @alaysia in South East AsiaL and Pa,istan, De$al, )angladesh, @yanmar, Sri "an,a and @aldi<es in the South Asian subcontinent& )et.een themsel<es, IA and Alliance Air carried o<er 5&4 million $assengers annually& In 1999, the com$any had a fleet strength of 44 aircraft - 11 Airbus A:33s, :3 Airbus A:23s, 11 )oeing )5:5s and : *orniers *3227& In 1996, the Air Cor$oration Act .as re$ealed and air trans$ort .as thro.n o$en to $ri<ate $layers& @any big cor$orate houses entered the fray and IA sa. a mass e8odus of its $ilots to $ri<ate airlines& 9o counter increasing com$etition IA launched a ne. image building ad<ertisement cam$aign& It also im$ro<ed its ser<ices by strictly adhering to flight schedules and $ro<iding better in-flight and ground ser<ices& It also launched se<eral other ne. aircraft, .ith a ne., younger, and more dynamic in flight cre.& 9hese initiati<es .ere soon re.arded in form of 15; increase in $assenger re<enues during the year 1996& Ao.e<er, IA could not sustain these im$ro<ements& Com$etitors li,e Sahara and Jet Air.ays !Jet# $ro<ided better ser<ices and net.or,& Gnable to match the $erformance of these airlines IA faced se<ere criticism for its inefficiency and e8cessi<e e8$enditure human resources& Staff cost increased by an alarming -s 4&9 bn during 1996-97& 9hese costs .ere res$onsible to a great e8tent for the com$anyTs fre/uent losses& )y 1999 the losses touched -s 5&4 bn& In the ne8t fe. years, $ri<ate $layers such as East Best, DEPC, and *amania had to close sho$ due to huge losses& Jet .as the only $layer that .as able to sustain itself& IATs mar,et share, ho.e<er continued to dro$& In 1999, .hile IATs mar,et share .as 65;, the share of $ri<ate airlines reached 4:;& Gnnecessary interference by the @inistry of Ci<il A<iation .as a ma(or cause of concern for IA& 9his interference ranged from deciding on the cre.Ts /uality to ma(or technical decisions in .hich the @inistry did not e<en ha<e the necessary e8$ertise& IA had to o$erate flights in the Dorth-East at highly subsidiFed fares to fulfill its social ob(ecti<es of connecting these regions .ith the rest of the country& 9hese flights contributed to the IATs losses o<er the years& As the carrierTs balance sheet .as hea<ily s,e.ed to.ards debt .ith an e/uity base of -s 1&34 bn in 1999 as against long term loans of -s 27 bn, hea<y interest outflo.s of -s 1&99 bn further increased the losses& IA could blame many of its $roblems on com$etiti<e $ressures or $olitical interferenceL but it could not deny res$onsibility for its human resource $roblems& A re$ort by the Com$troller and Auditor 'eneral of India stated, J@an$o.er $lanning in any organiFation should de$end on the $eriodic and realistic assessment of the man$o.er needs, need-based recruitment, o$timum utiliFation of the recruited $ersonnel and abolition of sur$lus and redundant $osts& Identification of the /ualifications a$$ro$riate to all the $osts is a basic re/uirement of efficient human resource management& IA .as found grossly deficient in all these as$ects&K

DFIGHTERE PILOTSF
IATs eight unions .ere notorious for their defiant attitude and their use of unscru$ulous methods to force the management to agree to all their demands& Stri,es, go-slo. agitations and .age negotiations .ere common&

28
?or each stri,e there .as a different reason, but e<ery stri,e it .as about $ressuriFing IA for more money& ?rom Do<ember 1979 to June 1992, there .ere 1: agitations by different unions& *uring *ecember 1992-January 199:, there .as a 6=-day stri,e by the $ilots and yet another one in Do<ember 1996& 9he ca<alier attitude of the IA $ilots .as $articularly e<ident in the agitation in A$ril 1994& 9he $ilots began the agitation demanding higher allo.ances for flying in international sectors& 9his demand .as turned do.n& 9hey then refused to fly .ith $eo$le re-em$loyed on a contract basis& 9hereafter they .ent on a stri,e, saying that the cabin cre. earned higher .ages than them and that they .ould not fly until this issue .as addressed& *ue to adamant beha<iour of $ilots many of the cabin cre. and the airhostesses had to be offloaded at the last moment from aircrafts& In 199=, there .as another agitation, .ith many $ilots re$orting sic, at the same time& @edical e8aminers, .ho .ere sent to chec, these $ilots, found that most of these .ere false claims& Some of the $ilots .ere com$letely fitL others someho. managed to $roduce medical certificates to corroborate their claims& In January 1995, there .as another stri,e by the $ilots, this time as,ing for increased foreign allo.ances, fi8ed flying hours, free meals and .age $arity .ith Alliance Air& 9hough the stri,e .as called off .ithin a .ee,, it again raised /uestions regarding IATs <ulnerability& A$ril 2333 sa. another go-slo. agitation by IATs aircraft engineers .ho .ere demanding $ay re<ision and a change in the career $rogression $attern011& 9he strategies ado$ted by IA to o<ercome these $roblems .ere se<erely criticiFed by analysts o<er the years& Analysts noted that the $eo$le heading the airline .ere more interested in ma,ing $eace .ith the unions than loo,ing at the com$anyTs long-term benefits& -ussy @ody !@ody#, .ho (oined IA as chairman in Do<ember 1996, made efforts to a$$ease the unions by $ro$osing to bring their salaries on $ar .ith those of Air India em$loyees& 9his .as strongly o$$osed by the board of directors, in <ie. of the mounting losses& @ody also $ro$osed to increase the age of retirement from 47 to =3 to control the e8odus of $ilots& Ao.e<er, go<ernment re(ected @odyTs $lans021& Bhen Probir Sen !Sen# too, o<er as chairman and managing director, he bought the $ilot emoluments on $ar .ith emoluments other airlines, thereby successfully controlling the e8odus& In 1996, the IA unions o$$osed the re-em$loyment of $ilots .ho had left IA to (oin $ri<ate carriers and the em$loyment of su$erannuated fliers on contract& Sen a<erted a crisis by creating Alliance Air, a subsidiary airline com$any .here the re-em$loyed $eo$le .ere utiliFed& Ae .as also instrumental in effecting substantial .age hi,es for the em$loyees& 9he e8tra financial burden on the airline caused by these measures .as met by resorting to a 13; annual hi,e in fares& !-efer 9able I#

TABLE I IMPACT OF STAFF COST HIKE IN FARE INCREASE BGC


D&/$ 19 9&)$ !'>)$&5$ 24C35C1996 1C13C1994 22C39C199= 14C13C1995 1C13C1997 $ource% I/)/-World /ir )ransport $tatistics Initially, SenTs efforts seemed to ha<e $ositi<e effects .ith an im$ro<ement in aircraft utiliFation figures& IA also managed to cut losses during 199=-95 and re$orted a -s 163 mn $rofit in 1995-97& )ut recessionary trends in the economy and its mounting .age bill $ushed IA bac, into losses by 1999& Sen and the entire board of directors .as sac,ed by the go<ernment& I 6&>/ BGC 1=&22 24 := 1:&66 7&7

29

In the late 1993s, in yet another effort to a$$ease its em$loyees, IA introduced the $roducti<ity-lin,ed scheme& 9he idea of the $roducti<ity lin,ed incenti<e !P"I# scheme .as to $ersuade $ilots to fly more in order to increase aircraft utiliFation& )ut the P"I scheme .as grossly misused by large sections of the em$loyees to earn more cash& ?or instance, the agreement stated that if the engineering de$artment made 27 Airbus A:23s a<ailable for ser<ice e<ery day, P"I .ould be $aid& 9his number .as later reduced to 24 and finally to 2:& 9here .ere also re$orts that flights lea<ing :3 - 64 minutes late .ere sho.n as being on time for P"I $ur$oses& Pilots .ere flying 54 hours a month, .hile they fle. only =: hours& E<entually, the P"I schemes raised an additional annual .age bill of -s 1&7 bn for IA& It .as alleged that IA em$loyees did no .or, during normal office hoursL this .ay they could not .or, o<ertime and earn more money& 9hough e8$erts agreed that IA had to cut its o$eration costs& 9o sur<i<e the airline continued to add to its costs, by $aying more money to its em$loyees& !-efer 9able II#& 9he $ayment of o<ertime allo.ance !O9A# .hich included holiday $ay to staff, increased by 139; during 199:-99& It .as also found that the $ayment of O9A al.ays e8ceeded the budget $ro<isions& )et.een 1991-92 and 1994-9=, the increase in $ay and allo.ances of the e8ecuti<e $ilots .as 762; and that of non-e8ecuti<e $ilots .as 1:6;& E<en the lo.est $aid em$loyee in the airline, either a s.ee$er or a $eon, .as $aid -s 7,333 U 13,333 $er month .ith o<ertime included&

TABLE II INCREASE IN STAFF COSTS


S/&99 >15/ &5 P$) T1/&# 6$)>$'/&($ S/&99 >15/ N1. 19 $ 6#14$$ E99$>/!%$ Y$&) $H6$'"!/8)$ 19 /1/&# B!' R5 A'C $ 6#14$$5 >15/ B!' 9#$$/ 5!;$ B!' R5 A'C 16$)&/!1'&# 'C $H6$'"!/8)$ 199:2&74 96 22172 3&1: 3&1= 3&24 3&:2 3&:5 3&:9 23&54 22&49 2= 29&29 :2&21 :6&:1 14; 19; 24; 2=; 25; 27; 46 47 44 63 63 61

1996- :&56 22=7: 94 !:1&17;#W 1994- 4&51 9= !42&49;# 199=- 5&13 95 !26&:4;# 1995- 7&15 97 !14&3:;# 1997- 7&54 99 !5&12;# 22472 2214: 21993 21922

$ource% I/)/-World /ir )ransport $tatistics 2 3i ures in brac#ets indicate increase over the previous year& 4 56cludes 7 aircra*t rounded *rom 899:-97 to 899;-9< as "ell as 81 aircra*t leased to /irline /llied $ervices =td& *rom 899<-9> to 8998-99& In 1997, IA tried to $ersuade em$loyees to cut do.n on P"I and o<ertime to hel$ the airline .eather a difficult $eriodL ho.e<er there efforts failed& 9hough IA incurred losses during 1994-9= and 199=-95 and made only marginal $rofits during 1995-97 and 1997-99, hea<y $ayments .ere made on account of P"I& A net loss of -s =61&7 mn .as registered during the $eriod 1994-99& P"I $ayments alone amounted to -s =&== bn, during the same $eriod& According to unofficial re$orts, arrears to be $aid to em$loyees on account of P"I touched nearly -s 5 bn by 1999&

30
O<er the years, the number of em$loyees at IA increased steadily& IA had the ma8imum number of em$loyees $er aircraft& !-efer 9able III#& It .as re$orted that the airlineTs monthly .age bill .as as high as of -s =73 mn, .hich doubled in the ne8t three years& 9here .ere 143 em$loyees earning abo<e -s 3&: mn $er annum in 1996-94 and the number increased to 2,139 by 1995-97& 9he )rar committee attributed this abnormal increase in staff costs to inefficient man$o.er $lanning, un$roducti<e de$loyment of man$o.er and un.arranted increase in salaries and .ages of the em$loyees&

TABLE III A COMPARISON OF VARIOUS AIRLINES


Dame of Airlines Singa$ore Airlines 9hai Air.ays International Indian Airlines 'ulf Air Jet Air.ays Dumber of Do& of aircraft in em$loyees fleet 76 5= 41 :3 19 1:,469 26,17= 21,993 4,:37 4,5=1 :,522 A9+m0:1 A9+m $er !in @illion# Em$loyee 16617&:26 13=61=1 =46=&=25 211:&=51 161=&2:4 :64&499 1396&1:2 253=57 :97236 2647:1 9274: 6954= Em$loyees $er aircraft 1=1 :17 6:1 155 2=1 19=

+u.ait Air.ays 22

$ource% I/)/-World /ir )ransport $tatistics Analysts criticiFed the .ay $osts .ere created in IA& In 1999, Si8 ne. $osts of directors .ere created of .hich three .ere created by di<iding functions of e8isting directors& 9hus, in $lace of = directors in de$artmentsT $rior A$ril 1997, there .ere 9 directors by 1999 o<erseeing the same functions& 9here .ere :3 full time directors, .ho in turn had their retinue of $ri<ate secretaries, dri<ers and orderlies& 9he $osts in non-e8ecuti<e cadres .ere to be created after the assessment by the @an$o.er Assessment committee& )ut analysts $ointed that in the case of cabin cre., 63 $osts .ere introduced in the Southern -egion on an ad-hoc basis, $ending the assessment of their re/uirement by the Staff Assessment Committee& Another $roblem .as that no basic educational /ualifications $rescribed for senior e8ecuti<e $osts& E<en a matriculate could become a manager, by ac/uiring the necessary (ob-related /ualifications E e8$erience& Illiterate IA em$loyees dre. salaries that .ere on $ar .ith senior ci<il ser<ants& After su$erannuation, se<eral em$loyees .ere re-em$loyed by the airline in an ad<isory ca$acity& According to re$orts, IA em$loyed 1:2 retired em$loyees as consultants during 1994-9= on contract basis& Bith each stri,eCgo-slo. and subse/uent .age negotiations, IATs financial .oes ,e$t increasing& 9hough at times the airline did $ut its foot do.n, by and large, it al.ays acceded to the demands for .age hi,es and other $er/uisites&

TROUBLED SKIES
?re/uent agitations .as not the only $roblem that IA faced in the area of human resources& 9here .ere issues that had been either neglected or mismanaged& ?or instance, the rates of highly subsidiFed canteen items .ere not re<ised e<en once in three decades and there .as no $olicy on fi8ing rates& %arious allo.ances such as out-of-$oc,et e8$enses, e8$erience allo.ance, simulator allo.ance etc& .ere $aid to those .ho .ere not strictly eligible for these& E8cessi<e e8$enditure .as incurred on benefits gi<en to senior e8ecuti<es such as retention of com$any car, and room air-conditioners e<en after retirement& All these $roblems had a negati<e im$act on di<estment $rocedure& 9his did not augur .ell for any of the $arties in<ol<ed, as $ri<atiFation .as e8$ected to gi<e the IA management an o$$ortunity to ma,e the <enture a

31
commercially <iable one& ?reed from its $olitical and social obligations, the carrier .ould be in a much better $osition to handle its labor $roblems& 9he biggest beneficiaries .ould be $erha$s the $assengers, .ho .ould get better ser<ices from the airline&

QUESTIONS FOR DISCUSSION:


1& AnalyFe the de<elo$ments in the Indian ci<il a<iation industry after the sector .as o$ened u$ for the $ri<ate $layers& E<aluate IATs $erformance& Bhy do you thin, IA failed to retain its mar,et share against com$etitors li,e Jet Air.aysM 2& IATs human resource $roblems can largely be attributed to its $oor human resource management $olicies& *o you agreeM 'i<e reasons to su$$ort your stand&

ADDITIONAL READINGS & REFERENCES:


1& San(ee< Sharma, In Air Poc,et, @arch 25, 1994, )usiness 9oday& 2& -a,hi @aFumdar E An(an @itra, IA, Alliance Air .age dis$arity issue unresol<ed, January 26, 1995, )usiness Standard& :& Sengu$ta Snigdha, Indian Airlines $ilots call off stri,e, January 27, 1995, )usiness Standard& 6& IA a.aits go<t decision on +el,ar committee re$ort, ?ebruary 22, 1995, )usiness Standard& 4& ?lying high, August 12, 1995, )usiness Standard& =& )harga<a An(uli, @inistry finds )rar re$ort on IA recast too hot to handle, January 5, 1997, )usiness Standard 5& Panel see,s further study on air$ort $ri<atisation, A$ril 2=, 1999, )usiness Standard& 7& Crasta Ji<itha, 9he battle for the s,ies, @ay 24, 1999, )usiness Standard 9& "ahiri Jaidee$, Bill E<en *i<estment @a,e Indian Airlines Air.orthyM, July 5, 1999, )usiness 9oday& 13& 'o slo., fly lo., A$ril 25, 2333, Aindustan 9imes& 11& ...&cagindia&org& 12& ...&indiainfoline&com&

S/&/$ B&'7 19 I'"!& - T0$ VRS S/1)4


()hey are propa atin the ?R$ in such a manner that the employees are bein compelled to opt *or the scheme&- &.'.(u)ta, *BI "!)l+y"",s uni+n l"ad"r in -"c"!b"r 2000.

VRS TROUBLES
In ?ebruary 2331, IndiaTs largest $ublic sector ban, !PS)#, the State )an, of India !S)I# faced se<ere o$$osition from its em$loyees o<er a %oluntary -etirement Scheme !%-S#& 9he %-S, .hich .as a$$ro<ed by S)I board in *ecember 2333, .as in res$onse to ?ederation of Indian Chambers of Commerce and IndustryTs !?ICCI#011 re$ort on the ban,ing industry& 9he re$ort stated that the Indian ban,ing industry .as o<erstaffed by :4;& In order to trim the .or,force and reduce staff cost, the 'o<ernment announced that it .ould be reducing its man$o.er& ?ollo.ing this, the Indian )an,s Association !I)A#021 formulated a %-S $ac,age for

32
the PS)s, .hich .as a$$ro<ed by the ?inance ministry& 9hough S)I $romoted the %-S as a S'olden Aandsha,e,T its em$loyee unions $ercei<ed it to be a retrenchment scheme& 9hey said that the %-S .as com$letely unnecessary, and that the real $roblem, .hich $lagued the ban, .ere DPAs0:1 & 9he unions argued that the %-S might force the closure of rural branches due to acute man$o.er shortage& 9his .as e8$ected to affect S)ITs aim to im$ro<e economic conditions by $ro<iding necessary financial assistance to rural areas& 9he unions also alleged that the %-S decision .as ta,en .ithout $ro$er man$o.er $lanning& In ?ebruary 2331, the S)I issued a directi<e altering the eligibility criteria for %-S for the officers by stating that only those officers .ho had crossed the age of 44 .ould be granted %-S& Conse/uently, a$$lications of around 12,333 officers .ere re(ected& 9he officers .ho .ere denied the chance to o$t for the %-S formed an association U S)I%-S o$tee OfficersT Association to o$$ose this S)I directi<e& 9he association claimed that the management .as ado$ting discriminatory $olicies in granting the %-S& 9he a<erage estimated cost $er head for im$lementation of %-S for S)I and its se<en associated ban,s .or,ed out to -s 3&=4 million and -s 3&45 million res$ecti<ely& As a result of the %-S, S)ITs net $rofit decreased from -s 24 billion in 1999-33 to -s 1= billion in 2333-31&

BACKGROUND NOTE
9he S)I .as formed through an Act of Parliament in 1944 by ta,ing o<er the Im$erial )an,& 9he S)I grou$ consisted of se<en associate ban,sH V V V V V V V State State State State State State State )an, )an, )an, )an, )an, )an, )an, of of of of of of of Ayderabad Indore @ysore Patiala Saurashtra 9ra<ancore )i,aner E Jai$ur

9he S)I .as the largest ban, in India in terms of net.or, of branches, re<enues and .or,force& It offered a .ide range of ser<ices for both $ersonal and cor$orate ban,ing& 9he $ersonal ban,ing ser<ices included credit cards, housing loans, consumer loans, and insurance& ?or cor$orate ban,ing, S)I offered infrastructure finance, cash management and loan syndication061 & O<er the years, the ban, became saddled .ith a large .or,force and huge DPAs& According to re$orts, staff costs in 1999-2333 amounted to -s 6&4 billion as against -s 6&1 billion in 1997-99& Increased com$etition from the ne. $ri<ate sector ban,s !DP)s# further added to S)ITs $roblems& 9he DP)s had effecti<ely le<eraged technology to ma,e u$ for their siFe& 9hough S)I had 9,333 branches, a mere 22; of those !19:4 branches# .ere connected through Internet& In contrast all of A*?C041 )an,Ts =1 branches .ere connected& )y 2333, S)ITs net $rofit $er em$loyee .as -s 3&6: million .hile A*?CTs .as -s 3&9= million, and S)ITs DPA le<el .as around 5&17; as against A*?CTs 3&5:; !-efer 9able I#&

TABLE I A COMPARISON BET2EEN SBI & SOME NPB5


)AD+ S)I NPA5INET ADVANCES 5&17; PROFIT PER EMPLOYEE BR5 !' M!##!1'C 3&6:

33
A*?C G9I )AD+ ICICI )AD+ '9) I*)I )AD+ $ource% """&ban#ersindia&com Analysts remar,ed that the <ery factors that .ere once hailed as the strengths of S)I - reach, customer base and e8$erience - had become its $roblems& 9echnological tools li,e A9@s and the Internet had changed ban,ing dynamics& A large $ortion of the bac,-office staff had become redundant after the com$uteriFation of ban,s& 9o $rotect its business and remain $rofitable, S)I realiFed that it .ould ha<e to reduce its cost of o$erations and increase its re<enues from fee-based ser<ices& 9he %-S im$lementation .as a $art of an o<er all cost cutting initiati<e& 9he %-S $ac,age offered =3 daysT salary for e<ery year of ser<ice or the salary to be dra.n by the em$loyee for the remaining $eriod of ser<ice, .hiche<er .as less& Bhile 43; of the $ayment .as to be $aid immediately, the rest could be $aid in cash or bonds& An em$loyee could a<ail the $ension or $ro<ident fund as $er the o$tion e8ercised by the em$loyee& 9he $ac,age .as offered to the $ermanent staff .ho had $ut in 14 years of ser<ice or .ere 63 years old as of @arch :1, 2333& 3&55; 6&51; 1&4:; 3&75; 1&94; 3&9= 3&=9 3&57 1&2 1&14

THE PROTESTS
9he S)I .as shoc,ed to see the un$recedented outcry against the %-S from its em$loyees& 9he unions claimed that the mo<e .ould lead to acute shortage of man$o.er in the ban, and that the ban,Ts decision .as ta,en in haste .ith no $ro$er man$o.er $lanning underta,en& 9hey added that the %-S .ould not be feasible as there .as an acute shortage of officers !estimated at about 13333# in the rural and semi-urban areas .here the branches .ere not yet com$uteriFed& @oreo<er, the unions alleged that the management .as com$elling em$loyees to o$t for the %-S& 9hey said that the threat of bringing do.n the retirement age from =3 years to 47 years .as $utting a lot of $ressure on senior ban, officials to o$t for the scheme& In *ecember 2333, S)I had formed a (oint <enture .ith the ?rench insurance com$any Cardiff, for entering the life insurance business& 9he unions /uestioned the logic behind di<ersifying the business and cutting do.n the staff strength& 9hey argued that this mo<e .ould significantly increase .or,force burden and, conse/uently, ad<ersely affect customer ser<ice& In 2333, S)I had underta,en a large-scale clientele membershi$ dri<e in some states to attract more customers& 9he unions o$ined that the %-S could $ro<e to be counter$roducti<e as the increased business might not be handled $ro$erly& Ao.e<er, des$ite all the $rotests, S)I recei<ed around :4,333 a$$lications for the %-S& Analysts $ointed out that many ban, em$loyees o$ted for the %-S due to the better em$loyment $ros$ects .ith the DP)s& S)I had not antici$ated such a huge res$onse to the scheme& Bhile the %-S .as mainly aimed at reducing the clerical staff and sub-staff, the ma8imum number of o$tees turned out to be from the officer cadre& 9he clerical staff .as reluctant to go for the %-S due to the lo. em$loyment o$$ortunities for them in the DP)s& According to re$orts, the number of a$$lications from officers stood at 19,294, .hich meant that o<er :: $er cent of the total officers in the ban, had sought %-S& ?ollo.ing huge res$onse to the %-S from officer cadre, S)I issued a circular stating that the management .ould relie<e only those officer cadre a$$licants .ho had crossed the age of 44 years& 9he ban, also issued a circular barring treasury managers, fore8 dealers and a host of other s$ecialiFed $ersonnel, from see,ing %-S& Em$loyees .ho had not ser<ed rural terms .ere also barred from o$ting for the scheme& 9he %-S .as also not o$en to em$loyees .ho .ere doctorates, @)ATs, Chartered Accountants, Cost E Bor,s accountants, $ostgraduates in com$uter a$$lications& In another circular, S)I mentioned that any brea, in ser<ice !i&e& lea<es a<ailed on a loss of $ay

34
basis# .ould not be ta,en .hile calculating the ser<ice $eriod& 9he ban, also restricted the loan facilities to the $ersonnel .ho had o$ted for the %-S& If an em$loyee .ished to continue a housing loan after acce$ting %-S, he .as as,ed to $ay interest at the mar,et rate& After these restrictions .ere introduced, only 1:&6; of the officers .ere left eligible for %-S instead of the earlier ::;& 9he conditions laid do.n by the management faced strong criticism from the officers .ho had o$ted for the %-S, but .ho could not meet the $rescribed criteria& 9hey alleged that the ban, .as $racticing discrimination in im$lementation of the scheme and that no other ban,s had im$lemented such $olicies and denied the o$$ortunity of %-S to officers .ho .ere .illing to a<ail the scheme& @edia re$orts also called S)ITs decision to restrict the %-S as arbitrary, discriminatory and belying the <oluntary character of the scheme& Gnions argued that if the ban, .as so $articular that only 13; of its staff lea<e under the %-S, it could ha<e closed the scheme immediately after the re/uired number of a$$lications .ere recei<ed& 9he unions also argued that :4,333 a$$lications !16; of the total .or,force# could not be considered high .hen com$ared to the res$onse recei<ed by other $ublic sector ban,s such as Syndicate )an, !22;# and Pun(ab E Sind )an, !19;#, .here all the a$$lications that .ere recei<ed .ere also acce$ted for %-S& 9he officers .ho .ere denied the %-S formed an action grou$ in @arch 2331& 9hey claimed that S)I had <iolated the guidelines of the 'o<ernment and the Indian )an,s Association& According to the members of the grou$, any shortfall in the number of officers could easily be met by $romoting suitable cler,s& 9hey also cited the e8am$le of Syndicate )an,, .hich $romoted about 1,333 clerical staff to officer le<el& 9he grou$ filed cases before Aigh Courts in <arious $arts of the country, challenging S)ITs decisions& A delegation of %-S-denied officers e<en met the ?inance @inister and also submitted a memorandum to the S)I management&

THE POST VRS DAYS


According to re$orts, S)ITs total staff strength .as e8$ected to come do.n to around 2,33,333 by @arch 2331 from the $re-%-S le<el of 2,::,333 !-efer 9able III#& Bith an a<erage of 4333 em$loyees retiring each year, analysts regarded %-S as an un.ise mo<e& )y June 2331, S)I had relie<ed o<er 21,333 em$loyees through the %-S& It .as re$orted that another 7,333 em$loyees .ere to be relie<ed after they attained the retirement age by the end of 2331& Analysts felt that this .ould lead to a tremendous increase in the .or,load on the e8isting .or,force& According to industry .atchers, by 2313, the entire S)I staff recruited bet.een mid 19=3 and 1973 .ould retire& As a result, S)I .ould not ha<e sufficient man$o.er to manage o<er 9333 of its branches& Another ma(or hurdle .as the 'o<ernmentTs $ro$osal to scra$ the )an,ing Ser<ice -ecruitment )oard !)S-)#0=1 as the ban, lac,ed e8$ertise in recruitment $rocedures&

TABLE II CHANGE IN SBIE5 STAFF STRENGTH


J+-0J-0+ J+-0J-00 G >0&'($ Officers Clerical Subordinate 9otal $ource% """&indiain*oline&com In the $ost-%-S scenario, S)I $lanned to merge 663 loss-ma,ing branches and announced rede$loy additional administrati<e man$o.er !resulting from the merger of loss-ma,ing branches# to frontline ban,ing (obs& S)I also $lanned to reduce its regional offices from 13 to 1 or 2 in each circle& In August 2331, it .as re$orted that a single officer had to ta,e charge of : or 6 branches as the daily concurrent audit got affected& 42,447 13:,99: 4:,529 213,273 49,656 114,626 47,4:4 2::,6:: -11&=:; -9&93; -7&21; -9&92;

35
*e$artments li,e internal audit, concurrent audit, monitoring, ins$ection of borro.als had hardly any staff, according to re$orts& It .as re$orted that em$loyees .or,ing in branches that had a high .or,load .ent on .or,-to-rule agitation, blaming the %-S for their $roblems& Analysts felt that S)I .ould ha<e to ta,e serious ste$s to reorient its A-* $olicy to restore em$loyee confidence and retain its talented $ersonnel& S)I had many strong organiFational strengths and an e8cellent training system, but due to .ea, A- $olicies, it had lost its e8$erts to its com$etitors& 9he em$loyees of almost all the ne. generation $ri<ate sector ban,s .ere former em$loyees of S)I& 9he ban,Ts .ell-defined $romotion $olicy .as systematically flouted by the framers themsel<es and, as a result, em$loyees .ith good trac, records .ere fre/uently sidelined& @any analysts felt that S)I .as not able to realiFe the critical im$ortance of recogniFing inherent merit and re.arding the $erformers& 9he abo<e factors .ere cited as the ma(or reasons for the success of %-S in the officer cadres, .ho .ere re$orted to be demoraliFed and de-moti<ated& 9he arbitrariness and insensiti<ity at the cor$orate le<el had dealt a se<ere blo. to the em$loyees of the organiFation& Bhat remained to be seen .as .hether S)I .ould be able to reorganiFe its A-* $olicy and retain its talented $ersonnel&

QUESTIONS FOR DISCCUSION


1& 9he results of the S)I %-S .ere not in line .ith the managementTs e8$ectations& Comment on the abo<e statement and discuss the effects of the %-S on S)I& 2& In most of the %-S im$lementation e8ercises in Indian PSGs, the largest number of a$$licants ha<e been from the officer cadre& Bas S)I .rong in not antici$ating this for its %-SM Also comment .hether S)I .as (ustified in altering the eligibility criteria for the officer cadre to restrict their outflo.& :& 9he outcome of the S)I %-S has highlighted the need for $ro$er man$o.er $lanning and A-* $olicies in Indian $ublic sector ban,s& *iscuss the <arious ste$s to be ta,en by the S)I in the $ost %-S scenarioM

ADDITIONAL READINGS & REFERENCES


1& @andal +ohinoor E @u,her(ee Ar$an, %oluntary retirement scheme by Se$tember, June 2:, 2333, Indian E8$ress& 2& -ay Chaudhuri Sumanta, State )an,Ts %-S li,ely to lea<e $ension fund dee$ in the red, Do<ember 21, 2333, ?inancial E8$ress& :& S)I %-S targets to shed o<er 24,333 staff, *ecember 27, 2333, Indian E8$ress 6& Sahad P&%, S)I em$loyees $rotest o<er %-S, *ecember 27, 2333, India 9oday 4& S)I unions to see, re<ie. of %-S, *ecember :1, 2333, Economic 9imes& =& -ay Chaudhuri Sumanta, S)I staff .ants %-S $eriod e8tended, January :, 2331, Indian E8$ress& 5& -ay Chaudhuri Sumanta, S)I bars treasury managers, fore8 dealers from %-S, January 9, 2331, ?inancial E8$ress& 7& S)I may amend criteria for %-S, January 2:, 2331, Indian E8$ress& 9& )an,esh.ar S Suresh, S)I needs to reorient its A-* $olicy to counter %-S fallout, January 24, 2331, ?inancial E8$ress& 13& -ay Chaudhuri Sumanta, %-S to cost S)I -s 2,633 crore if all a$$lications are acce$ted, January :1, 2331, Indian E8$ress& 11& :2,333 em$loyees a$$ly for S)ITs %-S, ?ebruary 1, 2331, Indian E8$ress& 12& S)I to re(ect 13,333 %-S a$$lications, ?ebruary :, 2331, Aindustan 9imes&

36
1:& S)I do.n$laying %-S numbers U Gnions, ?ebruary 4, 2331, Indian E8$ress& 16& -ay Chaudhuri Sumanta, S)I brass gets circular mania o<er %-S, ?ebruary 7, 2331, e8$ressindia&com 14& S)I officers allege discrimination in %-S rules, ?ebruary 19, 2331, ?inancial E8$ress& 1=& Officer o$tees of %-S criticiFe S)I mo<e, ?ebruary 23, 2331, )usiness "ine& 15& S)I %-S o$tees may go to court, ?ebruary 27, 2331, )usiness "ine& 17& %-S U denied S)I officers $lan action, @arch 23, 2331, )usiness "ine& 19& Action $lan initiated by S)I officers denied %-S, @arch 23, 2331, Economic 9imes& 23& After %-S (ubilation, S)I faces su$erannuation ,ic,, @arch 25, 2331, Economic 9imes& 21& +umar -ishi, S)IH -e(ected %-S o$tees may mo<e court, A$ril 2:, 2331, Aindu )usiness "ine& 22& +umar Aimendra, -e$orterTs Doteboo,, @ay 6, 2331, )usiness Bee,& 2:& S)I aims to hi,e ad<ances by -s 17,333 crore, June 21, 2331, Aindustan 9imes& 26& Shetty @ayur, 9he big ban, theory, July 17, 2331, Economic 9imes& 24& Shu,la Dimish, S)I re<am$ to see loss-ma,ing branches merged, July 23, 2331, Economic 9imes& 2=& 'os.ami Dandini, "ife after %-SH DationaliFed ban,s facing shortage of staff, August 17, 2331, Economic 9imes& 25& ...&ban,netindia&com 27& ...&indiainfoline&com 29& ...&ban,ersindia&com :3& ...&e/uitymaster&com

N$/5>&6$'5 21)7 C8#/8)$


(It too# .icroso*t and Oracle 88 years to reach the si@e Aetscape reached in : years, both in terms o* revenues and the number o* employees& Which is Bust cosmically *ast ro"th&arc Andr""ss"n, .+-/+und"r, 0"tsca)".

(AetscapeCs rela6ed "or# environment drives up productivity and creativity& Because there arenCt layers o* mana ement and policies to "or# throu h, Aetscape can turn out products in a month&- 1atric2 O,Har", ana#"r 3Int"rnal Hu!an R"s+urc"s 4"b *it"5, 0"tsca)".

INTRODUCTION
On Do<ember 26, 1997, America Online011 !AO"# announced the ac/uisition of Detsca$e Communications !Detsca$e#, a leading Internet bro.ser com$any, for Q13 billion in an all-stoc,

37
transaction& Bith this ac/uisition, AO" got control o<er Detsca$eTs three different businesses U Detcenter $ortal, Detsca$e bro.ser soft.are and a )2) e-commerce soft.are de<elo$ment di<ision& According to the terms of the deal, Detsca$eTs shareholders recei<ed a 3&64 share of AO"Ts common stoc, for each share they o.ned& 9he stoc, mar,ets reacted $ositi<ely and AO"Ts share<alue rose by 4; (ust after the announcement& Once shareholders and regulatory authorities a$$ro<ed the deal, Detsca$eTs CEO James )ar,sdale !)ar,sdale#021 .as su$$osed to (oin AO"Ts board& @any analysts felt that this ac/uisition .ould hel$ AO" get an edge o<er @icrosoft, the soft.are mar,et leader, in the Beb bro.ser mar,et& Ste<e Case, !Case# Chairman and CEO of AO", remar,ed, J)y ac/uiring Detsca$e, .e .ill be able to both broaden and dee$en our relationshi$s .ith business $artners .ho need additional le<el of infrastructure su$$ort, and $ro<ide more <alue and con<enience for the Internet consumers&K Ao.e<er, a certain section of analysts doubted .hether AO"Ts management .ould acce$t Detsca$eTs casual and inde$endent culture& @oreo<er, they .ere .orried that this deal may lead to a reduction in Detsca$eTs .or,force, the ,ey strength of the com$any& A former Detsca$e em$loyee commented, JPeo$le at Detsca$e .ere ner<ous about the im$lications of AO" buying us&K Allaying these fears, in an address to Detsca$e em$loyees, Case said, J@aybe you (oined the com$any because it .as a cool com$any& Be are not changing any of that& Be .ant to run this as an inde$endent culture&K In s$ite of assurances by AO" CEO, it .as re$orted that $eo$le at Detsca$e .ere as,ed to change the .ay they .or,ed& In July 1999, Detsca$e em$loyees .ere as,ed to lea<e if they did not li,e the ne. management& )y late 1999, most of the ,ey em$loyees, .ho had been associated .ith Detsca$e for many years, had left& )ar,sdale left to set u$ his o.n <enture ca$ital firm, ta,ing along .ith him former C?O Peter Currie& @arc Andreessen !Andreessen# stayed .ith AO" as Chief 9echnology Officer till Se$tember 1999, .hen he left to start his o.n com$any, "oud cloud& @i,e Aomer, .ho ran the Detcenter $ortal, left the com$any .hile he .as on a sabbatical&

BACKGROUND NOTE
Detsca$e .as co-founded by Jim Clar, !Clar,# and Andreessen& Clar, .as a Stanford Gni<ersity $rofessor turned entre$reneur0:1& Andreessen .as an undergraduate from the Gni<ersity of Illinois, .or,ing .ith the Dational Center for Su$ercom$uting A$$lications061& In 199:, .ith a fello. student, Andreessen de<elo$ed the code for a gra$hical Beb bro.ser and named it @osaic& In A$ril 1996, Clar, and Andreessen founded a com$any, .hich .as named as Electric @edia !See E8hibit I#& 9he name .as changed to @osaic Communications in @ay 1996& In Do<ember 1996, @osaic Communications .as renamed Detsca$e Communications& In *ecember 1996, Detsca$e introduced Da<igator, its first commercial <ersion of its bro.ser041 & )y @arch 1994, si8 million co$ies of Da<igator .ere in use around the .orld& 9his .as .ithout any ad<ertising, and .ith no sales through retail outlets& Detsca$e allo.ed users to do.nload the soft.are from the Internet& )y mid 1994, Da<igator accounted for more than 54; of the bro.ser mar,et .hile @osaic share .as reduced to (ust 4;& In the same month, Detsca$e launched Da<igator 1&3& *uring ?ebruary-@arch 1994, Detsca$e launched Da<igator 1&1& 9his ne. <ersion could be run on Bindo.s D90=1 and @acintosh Po.er PC051& Bithin three months, the beta <ersion071 of Da<igator 1&2 for Bindo.s 94 .as launched& At the same time, Detsca$e announced its $lans to launch the commercial <ersion of Da<igator 1&2 in the ne8t August 1994& )y launching ne. <ersions of bro.sers /uic,ly, Detsca$e set ne. $roducti<ity

38
standards in the .eb bro.ser mar,et& Dumerous Detsca$e ser<ers .ere also launched .ithin a short $eriod of time& Detsca$e Communications Ser<er, De.s Ser<er, and Commerce Ser<er .ere launched .ithin a year& In total, .ithin the first 14 months of its ince$tion, Detsca$e rolled out 11 ne. $roducts& Bithin a year of its ince$tion, Detsca$e made an Initial Public Offering !IPO#, .hich .as .ell recei<ed by the in<esting $ublic& In 1995, Detsca$e broadened its $roduct $ortfolio by de<elo$ing Internet content ser<ices& In June 1995, Detsca$e launched its Communicator091 and in August rolled out Detcaster0131& In August 1995, Detsca$e also announced its $lans to strengthen its $resence in the bro.ser mar,et by forming 133 industry $artnershi$s& In Se$tember 1995, Detsca$e transformed its cor$orate .ebsite into Detcenter .ebsite U a site featuring ne.s and chat grou$ ser<ices& *uring 1997, Detsca$e faced increasing com$etition from @icrosoft in the bro.ser mar,et& Detsca$e therefore entered ne. businesses li,e enter$rise and e-commerce soft.are de<elo$ment& )y the fourth /uarter of 1997, the enter$rise and e-commerce soft.are business accounted for 54; of Detsca$eTs earnings& In Do<ember 1997, Detsca$e .as ac/uired by AO", the .orldTs largest online ser<ices $ro<ider& Analysts remar,ed that Detsca$eTs ability to res$ond /uic,ly to mar,et re/uirements .as one of the main reasons for its success& 9he ability to introduce ne. <ersions of $roducts in a <ery short s$an of time had made the com$any stand a$art from thousands of startu$ dotcom com$anies that .ere set u$ during that $eriod& Analysts said that Detsca$eTs culture, .hich $romoted inno<ation and e8$erimentation, enabled it to ada$t /uic,ly to changing mar,et conditions& 9hey also said that the com$anyTs enduring $rinci$le SDetsca$e 9imeT !See E8hibit II# had enabled it to ma,e so many $roduct inno<ations <ery /uic,ly&

NETSCAPEES CULTURE
Detsca$e $romoted a casual, fle8ible and inde$endent culture& Em$loyees .ere not bound by rigid schedules and $olicies and .ere free to come and go as they $leased& 9hey .ere e<en allo.ed to .or, from home& 9he com$any $romoted an en<ironment of e/uality U e<eryone .as encouraged to contribute his o$inions& 9his .as also e<ident in the com$anyTs cubicle $olicy& E<eryone including CEO )ar,sdale, .or,ed in a cubicle& Inde$endence and handsoff management0111 .ere im$ortant as$ects of Detsca$eTs culture& 9here .as no dress code at Detsca$e, so em$loyees, .ere free to .ear .hate<er they .anted& )ar,sdale laid do.n only one condition, J>ou must come to .or, dressed&K 9he com$any $romoted e8$erimentation and did not re/uire em$loyees to see, anyoneTs a$$ro<al for trying out ne. ideas& ?or e8am$le, Patric, OTAare0121, .ho managed Detsca$eTs internal human resources .ebsite, .as allo.ed to ma,e changes to any $age on the site, .ithout anyoneTs a$$ro<al& Detsca$eTs management re$osed a high degree of trust in its em$loyees, .hich translated into em$o.erment and lac, of bureaucracy& )eal01:1, a senior em$loyee said, J@ost organiFations lose em$loyees because they donTt gi<e them enough o$$ortunities to try ne. things, ta,e ris,s and ma,e mista,es& Peo$le stay here because they ha<e s$ace to o$erate&K -ealiFing that some e8$eriments do fail, Detsca$e did not $unish em$loyees for ideas that did not .or, out& Ao.e<er, to maintain disci$line at .or,, em$loyees .ere made accountable for their decisions& 9hey .ere also e8$ected to gi<e sound (ustifications for their actions& Job rotation .as another im$ortant feature of Detsca$eTs culture& )y doing so, the com$any hel$ed its em$loyees learn about ne. roles and ne. $ro(ects in the com$any& ?or e8am$le, 9im +aiser, a soft.are engineer, .or,ed on four different $ro(ects in his first year of em$loyment& 9he com$any belie<ed in letting its staff ta,e u$ ne. (obs U .hether it .as a ne. $ro(ect in the same de$artment or a ne. $ro(ect in another de$artment& @oreo<er, related e8$erience .as not a re/uirement for (ob rotation& Detsca$e $layed a $roacti<e role in identifying ne. $ositions for its em$loyees inside the com$any&

39

Em$loyees .ere offered a .ide range of training o$tions and an annual tuition reimbursement of GS Q=,333& 9his o$$ortunity to e8$and their s,ills on the (ob .as <alued by all em$loyees& 9he com$any also hel$ed em$loyees learn about the functioning of other de$artments& 9here .ere /uarterly Sall-handsT meetings in .hich senior managers of different de$artments ga<e $resentations on their strategies& 9hese efforts created a sense of community among em$loyees& An em$loyee remar,ed, J9hey really try to ,ee$ us informed so .e feel li,e .e are in<ol<ed .ith the .hole com$any&K

THE SETBACK
After the ac/uisition, AO" $lanned to integrate Detsca$eTs .eb-bro.ser $roducts and Detcenter $ortal site .ith its Interacti<e Ser<ices 'rou$0151& 9he com$any created a Detsca$e Enter$rise 'rou$ in alliance .ith Sun @icrosystems0171 to de<elo$ soft.are $roducts ranging from basic .eb ser<ers and messaging $roducts to e-commerce a$$lications& Ao.e<er, o<erla$$ing technologies and organiFational red ta$e slo.ed do.n the $rocess of integration& Bithin a year of the ac/uisition, Detsca$e bro.serTs mar,etshare fell from 5:; to :=;& Andreessen, .ho had (oined AO" as chief technology officer, resigned only after si8 months on the (ob& Ais de$arture triggered a mass e8odus of soft.are engineering talent from Detsca$e& Soon after, engineers from Detsca$e (oined Silicon %alley start-u$s li,e Acce$t&com, 9ellme Det.or,s, A$ogee %enture 'rou$ and I9IPS& ?ormer Detsca$e <ice $resident of technology @i,e @cCue and $roduct manager Angus *a<is founded 9ellme Det.or,s& 9hey brought .ith them John 'iannandrea& As chief technologist and $rinci$al engineer of the bro.ser grou$, John 'iannandrea .as in<ol<ed .ith e<ery Da<igator release from the first beta of 1&3 in 1996 to the launch of 6&4 <ersion in Oct& 1997& -amanathan 'uha, one of Detsca$eTs most senior engineers, left a Q6 million salary at AO" to (oin E$inions&com& Ae .as soon (oined by "ou @ontulli and Ale,sander 9otic, t.o of Detsca$eTs si8 founding engineers& Other Detsca$e em$loyees hel$ed start -es$onsys& Some em$loyees (oined Acce$t&com and others AuctionBatch& S$ar, P- .as staffed almost entirely by former Detsca$e P- em$loyees&

@ar,et .atchers .ere sur$rised and .orried about this e8odus of Detsca$e em$loyees& Some of them felt that the mass e8odus might ha<e been caused by monetary considerations& @ost of the em$loyees at Detsca$e had stoc, o$tions& Once the ac/uisition .as announced, the <alue of those o$tions rose significantly& *a<id >offie, a Aar<ard )usiness School $rofessor said, JBhen AO"Ts stoc, .ent u$, the stoc, of most of the creati<e $eo$le .as .orth a &&& fortune&K @ost of them encashed their o$tions and left the com$any& )ut some analysts belie<ed that there .ere other serious reasons for the e8odus& Detsca$e em$loyees al.ays $ercei<ed themsel<es as an aggressi<e team of re<olutionaries .ho could change the .orld& )efore resigning from AO", Jamie Oa.ins,i, the 23th $erson hired at Desca$e, said, JBhen .e started this com$any, .e .ere out to change the .orld& Be .ere the ones .ho actually did it& Bhen you see G-"s on grocery bags, on billboards, on the sides of truc,s, at the end of mo<ie credits (ust after the studio logos U that .as us, .e did that& Be $ut the Internet in the hands of normal $eo$le& Be ,ic,-started a ne. communications medium& Be changed the .orld&K Another e8-em$loyee said, JBe really belie<ed in the <ision and had a great feeling about our com$any&K )ut the merger .ith AO" reduced them to a small $art of a big com$any, .ith slo.-mo<ing culture&

40

E@HIBIT I NETSCAPE = CHRONOLOGY OF EVENTS


DATE 1-@ar-96 A$r-96 @ay-96 Do<-96 *ec-96 Aug-94 *ec-94 11-@ar-9= 12-@ar-9= @ay-9= Oct-9= Oct-9= 11-Jun-95 Aug-95 EVENT Jim Clar, and @arc Andreessen begin tal,s on forming a ne. com$any 9he com$any !first named Electric @edia# is founded by Clar, and Andreessen& Electric @edia changes its name to @osaic Communications @osaic Communications changes its name to Detsca$e Communications Detsca$e Da<igator, Detsca$e Commerce, and Communications Ser<ers shi$& Detsca$e s IPO is one of the hottest stoc,-mar,et debuts e<er& Detsca$e and Sun @icrosystems announce Ja<a Scri$t& America Online agrees to include Detsca$e in e<ery co$y of its Internet-access soft.are& AO" stri,es a deal .ith @icrosoft, gi<ing Internet E8$lorer the co<eted s$ot as the ser<ice $ro<ider s bro.ser& Detsca$e announces Detsca$e Da<igator :&3& Detsca$e announces its ser<er $roduct, SuiteS$ot :&3& Detsca$e becomes enter$rise-soft.are $ur<eyor, rolling out intranet- and Internet-ser<er soft.are $ac,ages& Detsca$e releases Communicator Detsca$e releases Detcaster, $ush-media soft.are

Detsca$e announces an initiati<e to retain its bro.ser share by forming 133 industry $artnershi$s& Its ne. $artners agree to $ac,age the Da<igator bro.ser -- unbundled from the 17-Aug-95 Communicator suite -- .ith their $roducts& 9he streamlined Da<igator 6&3 includes Detcaster, basic email, and calendar soft.are& :-Se$-95 22-Jan-97 2:-?eb-97 :1-@ar-97 13-A$r-97 It un<eils the Detcenter Beb site, transforming the cor$orate Detsca$e&com into a site featuring ne.s, soft.are, and chat grou$s& It offers Communicator 4&3 s source code o<er the Det free& @oFilla&org launched& A dedicated internal team and the .ebsite guide the o$en source code to de<elo$ers& Detsca$e releases $rogramming source code for its Communicator soft.are& @oFilla&org $osts the first <ersion of its source code, modified by outside de<elo$ers&

9he GS Justice *e$artment and 23 state attorney generals file an 17-@ay-97 antitrust case accusing @icrosoft of abusing its mar,et $o.er to th.art com$etition, including Detsca$e 29-Jun-97 Detsca$e debuts Detcenter 2&3&

41
According to a study by a mar,et researcher, Detsca$e cedes bro.ser-share lead to @icrosoft s Internet E8$lorer& Detsca$e releases Communicator 6&4, the latest <ersion of its bro.ser soft.are& It features Smart )ro.sing, -oaming Access, and -ealDet.or,s -ealPlayer 4&3& AO" is in<ol<ed in negotiations for buying Detsca$e in an all-s

27-Se$-97

19-Oct-97 22-Do<-97

E@HIBIT II NETSCAPE TIME


Detsca$e 9ime .as Detsca$eTs most enduring $rinci$le& It .as about the s$eed, at .hich the em$loyees .or,ed and deli<ered ne. $roducts& It concerned the mind-set of em$loyees than the business model of the com$any& Detsca$e 9ime had si8 core $rinci$lesH 9he first $rinci$le .as Sfast enough ne<er is&T E<er since its ince$tion, Detsca$e maintained a lightening s$eed in .hate<er it did& Analysts felt that the com$any could mo<e /uic,ly because it ,ne. .hat it .anted& It hired $rogrammers from the best schools and from com$anies li,e Oracle, Silicon 'ra$hics etc& 9he com$any .anted them to get used to Detsca$eTs code-.riting culture& S9he $aranoid $redatorT .as the second $rinci$le& Detsca$e ,ne. that e<en a $redator could become a $rey& 9he com$anyTs management belie<ed that their role .as to instill urgency at all le<els& 9hey al.ays $otrayed Detsca$e as a startu$ .hich had to com$ete .ith industry giants li,e @icrosoft and Oracle& 9he third $rinci$le .as Sall .or,, all the time&T Detsca$eTs em$loyees seemed to be habituated to non-sto$ .or,& ?or e8am$le, to launch the com$anyTs first $roduct, em$loyees .or,ed round-the-cloc, for eight months& E<en at 1 am, there .ere em$loyees to gi<e ideas, tal, code, or discuss a $roblem& Jim Sha, 'eneral @anager, .or,ed for 11 hours a day at the office, .ent home for dinner and then came bac, to office and .or,ed till late night& SJust enough managementT .as the fourth $rinci$le& Detsca$e seemed to consciously undermanage& Deither Clar, nor Andreessen $layed ma(or roles in the management& Andreessen said, JIf you o<er manage soft.are, the result is $aralysis&K Another $rinci$le of Detsca$e 9ime .as doing things Sfour times faster&T Detsca$e described Detsca$e 9ime as Jturning out ne. $roduct releases four times faster than the com$etition&K In less than nine months, Detsca$e launched three <ersions of its bro.ser as .ell as ser<ers& 9he last and most im$ortant as$ect of Detsca$e 9ime .as SBeb s/uared&T Detsca$e $laced Beb at the heart of its

42
o$erations& Andreessen belie<ed that J.orse is better,K and released usable soft.are /uic,ly, .ithout .aiting for $erfection& Ae belie<ed in using the Beb to access the source of $erfection& 9he com$any did not use any retail outlets or resellers& Interested users could do.nload an Se<aluation co$yT from the Internet& A fully su$$orted <ersion of the soft.are .as later sent to interested users& 9his hel$ed increase the com$anyTs interaction .ith the customers& 9heir feedbac, .as utiliFed to design the ne8t <ersion&

E@HIBIT III BENEFITS FOR NETSCAPE EMPLOYEES


M$"!>&# B$'$9!/5 9he $lan o$tions include the Gnited AealthCare Choice Plan, Choice Plus, E8clusi<e Pro<ider O$tion !EPO#, Point-of-Ser<ice !POS#, Preferred Pro<ider O$tion !PPO# and +aiser A@O !a<ailable in California#& D$'/&# B$'$9!/5 9he *ental Plan $ays 133; of co<ered e8$enses for $re<entati<e care such as $eriodic cleanings .ith no deductible& After an annual GS Q133 deductible, the $lan .ill $ay 73; of co<ered e8$enses for basic restorati<e care, 43; for ma(or care and 43; for orthodontia& F#$H!A#$ S6$'"!'( A>>18'/5 S$ending accounts can offer significant ta8 sa<ings& Em$loyees can de$osit u$ to Q4,333 of $re-ta8 $ay into a Aealth Care ?SA and u$ to Q4,333 of $re-ta8 $ay in a *e$endent Care ?SA& 9hey recei<e reimbursements .hen they incur eligible e8$enses& V!5!1' C&)$ 9he <ision $lan $ro<ides reimbursement for ser<ices such as annual e8ams, frames and lenses& Em$loyees out-of-$oc,et cost can be as lo. as GS Q23 if you use a $artici$ating $ro<ider& 9here is also co<erage for contact lenses& L!9$ I'58)&'>$ Detsca$e $ro<ides em$loyees .ith basic life insurance as .ell as accidental death and dismemberment insurance at no cost to the em$loyee& Each em$loyee is co<ered at t.o times annual salary u$ to a ma8imum of Q433,333& Em$loyees can also buy additional em$loyee and de$endent life insurance at discounted rates& I'>1 $ P)1/$>/!1' Income $rotection includes disability, sic, lea<e and .or,ers com$ensation& If an em$loyee becomes disabled and is unable to .or,, he .ill be co<ered by a salary continuation $lan co<ering you at 53;-133; of your $ay for u$ to 173 days& After 173 days of total disability, the em$loyee may be eligible for benefits under Detsca$e s "ong 9erm *isability Plan& D!5&A!#!/4 B$'$9!/5 9he "ong 9erm *isability Plan assures of a continuing income in the e<ent of an em$loyee is unable to .or, due to a co<ered accident or illness& 9he $lan $ays u$ to =3; of $re-disability salary, reduced by any benefits to recei<e from sources such as Social Security or Bor,ers Com$ensation& B85!'$55 T)&%$# A>>!"$'/ I'58)&'>$ Detsca$e $ro<ides an additional three times your annual earnings in accidental

43
death benefits u$ to Q933,3333 to em$loyees .hile tra<eling on com$any business !e8cluding e<ery day tra<el to and from .or,#& V&>&/!1' ?ull-time em$loyees earn u$ to ten days of <acation during their first year of ser<ice, increasing to fifteen days after three years of ser<ice, and t.enty days after si8 years of ser<ice& !Part-time em$loyees accrue one-half that of a fulltime em$loyee#& P&!" H1#!"&45 Detsca$e obser<es nine scheduled com$any-designated holidays and u$ to t.o em$loyee-designated $ersonal holidays $er year& ?0+B7C R$/!)$ $'/ S&%!'(5 P#&' 9he 631!,# -etirement Sa<ings Plan $ro<ides em$loyees an o$$ortunity to sa<e for retirement on a ta8-deferred basis& Bith $ayroll deductions, em$loyees can direct u$ to 14; of their $reta8 earnings !7; for em$loyees earning Q73,333 in 2333# into the sa<ings $lan& 9he Plan offers 1= in<estment alternati<es through ?idelity In<estments and includes loan, rollo<er, and hardshi$ o$tions& Em$loyees ha<e on-line access to their accounts&

E@HIBIT III BENEFITS FOR NETSCAPE EMPLOYEES >1'/"...


E 6#14$$ S/1>7 P8)>0&5$ P#&' BESPPC 9he Em$loyee Stoc, Purchase Plan $ro<ides em$loyees .ith the o$$ortunity to $urchase shares of AO" common stoc, at discounted $rices through $ayroll deductions& Sub(ect to I-S guidelines, you may in<est u$ to 14; of your com$ensation through after-ta8 $ayroll deductions& Em$loyees may only enroll in the Plan t.ice a year, on s$ecified offering $eriod dates& T8!/!1' A55!5/&'>$ P)1()& Detsca$e is committed to the short and long-term $rofessional de<elo$ment of its em$loyees& As $art of this commitment, Detsca$e offers a 9uition Assistance Program to aid those em$loyees .ho are $ursuing (ob-related degrees or $artici$ating in $rofessional de<elo$ment courses& H4&// L$(&# Detsca$e offers a grou$ legal $rogram through Ayatt "egal Plan on a <oluntary basis through $ayroll deduction& 9his $lan gi<es you and your de$endents easy access to $rofessional legal re$resentation at an affordable $rice& E 6#14$$ S$)%!>$5 L!9$@21)7 P)1()& 5 Detsca$e has de<elo$ed a <ariety of $rograms to assist em$loyees .ith a broadrange of .or,-life issues& 9he health and .elfare of our em$loyees is of tremendous im$ortance to us& 9he $rogram has been designed to assist em$loyees in balancing some of the res$onsibilities of e<eryday life& E 6#14$$ A55!5/&'>$ P)1()& BEAPC A team of $rofessional master le<el counselors and e8$erienced registered nurses are a<ailable 26 hours a day at a toll-free number& 9he EAP can hel$ you and your family .ith medical, .or,, family, financial, legal, and $ersonal issues that can im$act your life and health& C1'>!$)($ S$)%!>$ "esConcierges $uts a team of ser<ice $rofessionals at your fingerti$s to meet any need that .ill ma,e your life easier& 9he "esConcierges team can sa<e you time and energy through ser<ices to su$$ort your .or, and home res$onsibilities& O'5!/$ S$)%!>$5

44
Ser<ices onsite such as a florist, massages, dental care, $hoto $rocessing, dry cleaning, oil changes and moreN C#8AN$/ Programs that hel$ you ma8imiFe your health and fitness through a <ariety of $rograms ranging from fitness .or,out and recreational s$orts to e8hilarating outings& S$orts and recreational acti<ities that include bas,etball, <olleyball, inline s,ating, golf, soccer, softball, roc, climbing and much, much moreN Acti<ities <ary by location& !?itness centers are also a<ailable at some Detsca$e site locations#& C0!#" & E#"$) C&)$ R$9$))&# S$)%!>$ Assists em$loyees .ith finding de$endent care resources .ith information from "ifeCare&com& C)$"!/ U'!1'5 &'" B&'7!'( Select from a <ariety of different em$loyer-s$onsored credit unions for lo. rates on loans and C*s& Some Detsca$e locations ha<e onsite A9@s for em$loyee ban,ing con<enience& $ource% """&netscape&com

E@HIBIT IV NETSCAPE CONSOLIDATED STATEMENT OF OPERATIONS


B!' USK /0185&'"5C R$%$'8$5 Product Ser<ice T1/&# C15/ 19 R$%$'8$5: Cost of Pdt -e< Cost of Ser -e< T1/&# 'ross Profit O6$)&/!'( EH6$'5$5 -E* Sales E @,tg& 'en E Admn 616= 5543 ::79 2=761 7:7=: 11::= :3971 433 -23:: --243 -=133 --129927 12:2:7 43:4= -4767 2:333 -62514 --12333 4377 6:=59 146464 252113 21:336 17= 265 6:: :534 9155 24:3 :=96: 1:126 432:2 :1445 71579 25:1: 93515 1173:3 :::5 731 61:7 55679 29117: :7:943 2=1645 5797 44111 169931 17=:42 74:75 :6=296 4::741 665739 +,,? +,,L +,,M +,,N +,,- BO>/ J+C

11535 433=5

5:=73 29=225 6423=2 :29559

Pro$erty rights agmt and related 2675 charges Purchased in-$rocess -E* @ergers related charges -estructuring charges 'ood.ill AmortiFation T1/&# O$erating Income !"oss# Interest Income Interest E8$ense Det Income !"oss# $ource% """&sec& ov -----

13:375 --

15552 76:79 2545:9 476:29 :9=364 -163=5 -13539 23677 241 -16 6797 -:36 --19415 -1:22=5 -==2== --=75: --

-1:7:3 -==1:

-11469= -41615

45
ADDITIONAL READINGS AND REFERENCES
1& )irchard )ill, Aire 'reat Peo$le ?ast, ...&fastcom$any&com, Do<ember 1994& 2& Steinert 9om, Can >ou Bor, at Detsca$e 9imeM, ...&fastcom$any&com, Do<ember 1994& :& )ro.n Janelle, Start-G$-Cum-'oliath Bor,s Aard to 'et Ael$, ...&.ired&com, August 22, 1995& 6& Detsca$e through the Ages, ...&.ired&com, Do<ember 2:, 1997& 4& +atF Jon, 9he Detsca$e 9ragedy, ...&slashdot&org, Do<ember 2:, 1997& =& 9suruo,a *oug, America Online must $ro<e that East Can @eet Best, ...&loyaltyfactor&com, Do<ember 24, 1997& 5& 'ee,s %s Suits, ...&nua&ie, Do<ember :3, 1997& 7& +ornblum Janet, Can Aol And Detsca$e @a,e It Bor,M, CDE9 De.s&com, Do<ember :3, 1997& 9& Schneider Polly, Inside Detsca$e, 9he -enaissance Com$any, ...&cnn&com, January 4, 1999& 13& Oaret Elliot, 9he -ise and ?all of Detsca$e, ...&msnbc&com, @arch 7, 1999& 11& S.artF Jon, AO"-Detsca$eH One >ear "ater, ...&forbes&com, *ecember 1, 1999&

J10'51' & J10'51''5 H$&#/0 &'" 2$##'$55 P)1()&


()op mana ement is reco ni@in physical *itness as a prudent investment in the health, vi or, morale and lon evity o* the men and "omen "ho are any company0s most valuable asset&- -r. Richard '"ll"r, 67-1r"sid"nt +/ th" Ass+ciati+n /+r 8itn"ss in Busin"ss011 (We believe our Health D Wellness Pro ram can continue to achieve lon -term health improvements in our employee population&- -r. 8i2ry Isaac, -ir"ct+r, $+hns+n 9 $+hns+n, Occu)ati+nal 1r+ducti:ity021 "dicin", H"alth 9

INTRODUCTION
In 1997, the American College of Occu$ational and En<ironmental @edicine conferred Johnson E Johnson !JEJ#0:1 the Cor$orate Aealth Achie<ement A.ard !CAAA#061 & JEJ .as one of the four national .inners041 selected for ha<ing the healthiest em$loyees and .or,$lace en<ironment in the GS& 9he a.ard .as decided on the basis of four $arameters0=1 U Aealthy Peo$le, Aealthy En<ironment, Aealthy Com$any and O<erall @anagement !-efer E8hibit I#& 9hese $arameters .ere considered crucial for de<elo$ing and de$loying a com$rehensi<e cor$orate health $rogram& In 2333, the De. Jersey Psychological Association $resented JEJ .ith the Psychologically Aealthy Bor,$lace A.ard for its commitment to .or,$lace .ellbeing and de<elo$ing a $sychologically healthy .or, en<ironment for its em$loyees& According to analysts, these $restigious a.ards .ere gi<en to JEJ in recognition for its continuous efforts to create a healthy .or, en<ironment& 9he com$any not only offered em$loyee assistance $rograms and benefits $ac,ages but also introduced se<eral family-friendly $olicies and offered e8cellent $rofessional de<elo$ment o$$ortunities to its em$loyees& All this .as done under the Aealth and Bellness Program !ABP# that the com$any introduced in 1994& 9he $rogram benefited both JEJ and its em$loyees& 9he com$any sa<ed Q7&4 million $er annum in the form of reduced em$loyee medical claims and administrati<e sa<ings& @oreo<er, .ithin t.o years of im$lementing ABP, JEJ .itnessed a decline of 14; in em$loyee absenteeism rate& Peter Soderberg, President, JEJ e8$lained the rationale behind im$lementing the $rogram051 , JOur research time and time again confirms the benefits of healthier, fitter em$loyees& 9hey ha<e fe.er and lo.er long-term medical claims, they are absent less, their disability costs are

46
lo.er and their $ercei<ed $ersonal $roducti<ity and (obClife satisfaction le<els are higher&K -on O& 'oetFel !'oetFel#, %ice-President, Consulting and A$$lied -esearch, @E*S9A9 'rou$071 added, J9hereTs a gro.ing body of data indicating that cor$orate .ellness $rograms lo.er medical costs for em$loyees&K091

BACKGROUND NOTE
9he GS industry s$ent a$$ro8imately Q233 bn $er annum on em$loyee health insurance claims, onsite accidents, burn-out and absenteeism, lo.er $roducti<ity and decreased em$loyee morale due to health $roblems& @oreo<er, according to the estimates of @ercer0131 , the GS industry e8$enditure on the medical and disability bills of em$loyees .as rising significantly& In 1997, com$anies had $aid an estimated Q6333 $er annum $er em$loyee as healthcare costs, and that rose to Q4,1=2 in 2331 and around Q4,533 in 2332& A$art from other health related $roblems !-efer 9able I#, stress at .or,$lace .as considered to be one of the main reasons for this high e8$enditure& Bor, stress led to $roblems li,e ner<ousness, tension, an8iety, loss of $atience, inefficiency in .or, and e<en chronic diseases li,e cardiac arrest and hy$ertension& As a result of these health $roblems, absenteeism increased and $roducti<ity of em$loyees declined&

TABLE I ANNUAL AVERAGE COST PER EMPLOYEE DUE TO VARIOUS HEALTH PROBLEMS
N&/8)$ 19 H$&#/0 P)1A#$ Aeart disease @ental health $roblems Aigh blood $ressure *iabetes "o. bac, $ain A''8&# &%$)&($ >15/ 6$) $ 6#14$$ Q2:= Q159 Q1=3 Q136 Q93

Aeart attac,sCAcute myocardial Q=9 bloc,ages )i-$olar disordersC@aniac de$ression *e$ression $ource% """&ne"s&cornell&edu In 1995, the Bhirl$ool ?oundation0111 , the Bor,ing @other magaFine0121 and the Bor, and ?amily De.sbrief01:1 carried out a sur<ey in the GS, .hich in<ol<ed about 143 e8ecuti<es& 9he sur<ey disco<ered a close connection bet.een em$loyee .ellness $rograms0161 !.hich included fle8i .or, o$tions, em$loyee care, em$loyee assistance $rograms# .ith 1= ,ey result areas including enhanced efficiency, lo. absenteeism, lo. turno<er, high em$loyee satisfaction, high morale and reduced health-care costs of em$loyees& 9his signified that a com$any .hich had a good health and .ellness $rogram had to offer less in terms of monetary assistance to its em$loyees& Elaborating the benefits of these $rograms, *B Edington0141, Professor at the Gni<ersity of @ichigan said01=1 , JBellness $rograms in general, and fitness $rograms in $articular may be the only em$loyee benefits .hich $ay money bac,& Bhen more $eo$le come to .or,, you donTt need to $ay o<ertime or tem$orary hel$L .hen $eo$le stay at the (ob longer, training costs go do.nL lo.er health care claims cost you less if youTre self-insured and health care insurers as .ell as some com$anies are already beginning to create $remiums based on fitness le<els&K Q=2 Q26

47

P0!#!65 I'"!& - L&A1) P)1A#$

5 &/ S&#/ L&7$

()hey EunionsF should reali@e that they are Bust one o* the sta#eholders in the company and have to accept the tyranny o* the mar#et place&; an+har -a:id, -ir"ct+r, 1IL in 1996.

SELLING BLUES
9he 1=th day of @arch 1999 brought .ith it a shoc, for the management of Phili$s India "imited !PI"#& A (udgement of the +ol,ata011 Aigh Court restrained the com$any from gi<ing effect to the resolution it had $assed in the e8traordinary general meeting !E'@# held in *ecember 1997& 9he resolution .as to see, the shareholdersT $ermission to sell the color tele<ision !C9%# factory to +itchen A$$liances "imited, a subsidiary of %ideocon& 9he (udgement came after a long dra.n, bitter battle bet.een the com$any and its t.o unions Phili$s Em$loyees Gnion !PEG# and the Pieco Bor,ersT Gnion !PBG# o<er the factoryTs sale& PEG $resident +iron @ehta said, J9he com$anyTs to$ management should no. see reason& Ours is a good factory and the sale $rice agreed u$on should be reasonable& ?urther ho. come some other com$any is .illing to ta,e o<er and ho$es to run the com$any $rofitably .hen our o.n management has thro.n its hands u$ after in<esting -s&53 crores on the $lant&K Phili$s sources on the other hand refused to acce$t defeat& 9he com$any immediately re<ealed its $lans to ta,e further legal action and com$lete the sale at any cost&

SOURING TIES
PI"Ts o$erations dates bac, to 19:3, .hen Phili$s Electricals Co& !India# "td&, a subsidiary of Aolland based Phili$s D% .as established& 9he com$anyTs name .as changed to Phili$s India P<t& "td& in Se$tember 194= and it .as con<erted into a $ublic limited com$any in October 1945& After being initially in<ol<ed only in trading, PI" set u$ manufacturing facilities in se<eral $roduct lines& PI" commenced lam$ manufacturing in 19:7 in +ol,ata and follo.ed it u$ by establishing a radio manufacturing factory in 1967& An electronics com$onents unit .as set u$ in "oni, near Pune, in 1949& In 19=:, the +al.a factory in @aharashtra began to $roduce electronics measuring e/ui$ment& 9he com$any subse/uently started manufacturing telecommunication e/ui$ment in +ol,ata& In the .a,e of the booming consumer goods mar,et in 1992, PI" decided to moderniFe its Salt "a,e factory located in +ol,ata& ?ollo.ing this, the $lantTs out$ut .as to increase from a mere 63333 to 2&57 la,h C9%s in three years& 9he com$any e<en e8$ected to .in the Phili$s Borld.ide A.ard for /uality and become the source of Phili$s E8$orts in Asia& PI" .anted to concentrate its audio and <ideo manufacturing bases of $roducts to different geogra$hic regions& In line .ith this decision, the com$any relocated its audio $roduct line to Pune& In s$ite of the mo<e that resulted in the dis$lacement of =33 .or,ers, there .ere no signs of discord largely due to the unionsT in<ol<ement in the o<erall $rocess& )y 199=, PI"Ts ca$acity e8$ansion $lans had fallen .ay behind the targeted le<el& 9he unions realiFed that the management might not be able to com$lete the tas, and that their (obs might be in danger& PI" on the other hand claimed that it had been forced to go slo. because of the slo.do.n in the C9% mar,et& Ao.e<er, the uncon<inced .or,ers raised <oices against the management and as,ed for a hi,e in .age as .ell& PI" claimed that the .or,ers .ere already o<er$aid and under $roducti<e& 9he em$loyees retaliated by saying that said that they continued to .or, in s$ite of the irregular hi,e in .ages& 9hese differences resulted in a 23-month long battle o<er the .age hi,e issueL the go-slo. tactics of the .or,ers and the declining $roduction resulted in

48
huge losses for the com$any& In @ay 1997, PI" announced its decision to sto$ o$erations at Salt "a,e and $roduction .as halted in June 1997& At that $oint, PBG members agreed to the -s 1157 .age hi,e offered by the management& 9his .as a climbdo.n from its earlier stance .hen the union, along .ith the PEG demanded a hi,e of -s 2333 $er .or,er and other fringe benefits& PEG, ho.e<er, refused to budge from its $osition and re(ected the offer& After a series of negotiations, the unions and the management came to a reasonable agreement on the issue of the .age structure&

SELLING TROUBLES
In the mid-1993s, Phili$s decided to follo. Phili$s D%Ts .orld.ide strategy of ha<ing a common manufacturing and integrated technology to reduce costs& 9he com$any $lanned to set u$ an integrated consumer electronics facility ha<ing common manufacturing technology as .ell as su$$liers base& *irector -amachandran stated that the com$any had $lans to de$end on outsourcing rather than ha<ing its o.n manufacturing base in the future& 9he com$any selected Pune as its manufacturing base and decided to get the Salt "a,e factory off its hands& In tune .ith this decision, the em$loyees .ere a$$raised and se<erance $ac,ages .ere declared& Out of 543 .or,ers in the Salt "a,e di<ision, :91 .or,ers o$ted for %-S& PI" then a$$ointed Aong +ong and Shanghai )an,ing Cor$oration !AS)C# to scout for buyers for the factory& %ideocon .as one of the com$anies a$$roached& 9hough initially %ideocon seemed to be interested, it e8$ressed reser<ations about buying an o<er staffed and under utiliFed $lant&9o ma,e it an attracti<e buy, PI" reduced the .or,force and modernised the unit, s$ending -s 5&1 crore in the $rocess& In Se$tember 1997, %ideocon agreed to buy the factory through its nominee, +itchen A$$liances India "td& 9he total <alue of the $lant .as ascertained to be -s 27 crore and %ideocon agreed to $ay -s 9 crore in addition to ta,ing u$ the liability of -s 21 crore& %ideocon agreed to ta,e o<er the $lant along .ith the em$loyees as a going concern along .ith the liabilities of %-S, $ro<ident fund etc& 9he factory .as to continue as a manufacturing center securing a fair <alue to its shareholders and em$loyees& In *ecember 1997, a resolution .as $assed at PI"Ts annual general meeting !A'@# .ith a 41; <ote in fa<or of the sale& @ost of the fa<orable <otes came from Phili$s D% .ho held a ma(or sta,e in the com$any& 9he grou$ of ?I shareholders com$rising "IC, 'IC and G9I initially o$$osed the offer of sale stating that the terms of the deal .ere not clearly stated to them& 9hey as,ed for certain amendments to the resolutions, .hich .ere re(ected by PI"& Commenting on the ?Is o$$osing the resolution, com$any sources said, Jit is only that the institutions did not ha<e enough time on their hands to study our $ro$osal in detail, and hence they ha<e not been able to ma,e an informed decision&K *efending the com$anyTs decision not to carry out the amendments as demanded by the financial institutions, -amachandran said that this .as not logical as the meeting .as con<ened to ta,e the a$$ro<al of the shareholders, and the financial institutions .ere among the shareholders of the com$any& ?ollo.ing this, the ?Is demanded a <ote on the sale resolution at an E'@& After negotiations and clarifications, they e<entually <oted in fa<or of the resolution& 9he .or,ers .ere sur$rised and angry at the decision& +iron @ehta said, J9he managementTs decision to sell the factory is a ma(or <olte face considering its efforts at $romoting it and then adding ca$acity e<ery year&K S&D&-oychoudhary of the Inde$endent Em$loyees ?ederation in Calcutta said, J9he sale .ill not $rofit the com$any in any .ay& As a manufacturing unit, the C9% factory is absolutely state-of-the-art .ith enough ca$acity&

49
SELLING TROUBLES >1'/"...
It is close to +ol,ata $ort, ma,ing shi$$ing of com$onents from ?ar Eastern countries easier& It consistently gets ISO 9333 certification and has s,illed labor& Also, PI"Ts ma(or mar,et is in the eastern region&K 9he unions challenged PI"Ts $lan of selling the C9% unit at Ssuch a lo. $rice of -s 9 croreT as against a <aluation of -s :3 crore made by *alal Consultants inde$endent <aluers& PI" officials said that the sale $rice .as arri<ed at after considering the liabilities that %ideocon .ould ha<e along .ith the :=3 .or,ers of the $lant& 9his included the gratuity and lea<e encashment liabilities of .or,ers .ho .ould be absorbed under the same ser<ice agreements& 9he management contended that a %-S offer at the C9% unit .ould ha<e cost the com$any -s 21 crore& -efuting this, senior members of the union said, J9here is no .ay that a %-S at the C9% unit can set Phili$s by more than -s 9&2 crore&K 9hey e8$lained that PI" officials, by their o.n admission, ha<e said that around 233 of the :=3 .or,ers at the C9% unit are less than 63 years of age and a similar number ha<e less than 13 years .or, e8$erience& 9he unions also claimed that they .rote to the ?Is about their ob(ection& 9he .or,ers then a$$roached the *hoots of %ideocon re/uesting them to .ithdra. from the deal as they .ere un.illing to ha<e %ideocon as their em$loyer& %ideocon refused to change its decision& 9he .or,ers then filed a $etition in the +ol,ata Aigh Court challenging PI"Ts decision to sell the factory to %ideocon& 9he unions a$$roached the com$any .ith an offer of -s 13 crore in an attem$t to outbid %ideocon& 9hey claimed that they could $ay the amount from their $ro<ident funds, coo$erati<e sa<ings and $ersonal sa<ings& )ut PI" re(ected this offer claiming that it .as legally bound to sell to %ideocon and if the offer fell through, then the unionTs offer .ould be considered along .ith other interested $arties& PI" said that it .ould not let the .or,ers use the Phili$s brand and that the .or,ers could not sell the C9%s .ithout it& @oreo<er the .or,ers .ere ta,ing a great ris, by using their sa<ings to buy out the $lant& Countering this, the .or,ers said that they did not trust %ideocon to be a good em$loyer and that it might not be able to $ay their .ages& 9hey follo.ed it u$ .ith $roofs of %ideocon s failure to ma,e $ayments in time during the course of its transactions .ith Phili$s& In <ie. of the re(ection of its offer by the management, the union stated in its letter that one of its ob(ection to the sale .as that the ob(ects clause in the memorandum of association of +itchen A$$liances did not contain any reference to $roduction of C9%s& 9his ma,es it incom$etent to enter into the deal& 9he union also $ointed out that the deal .hich .as signed by -amachandran should ha<e been signed by at least t.o res$onsible officials of the com$any& As regards their financial ca$ability to buy out the firm, the union firmly maintained that it had contacts .ith re$uted and ca$able businessmen .ho .ere .illing to hel$ them& In the last .ee, of *ecember 1997, em$loyees of PI" s$o,e to se<eral domestic and multinational C9% ma,ers for a (oint <enture to run the Salt "a,e unit& +iron @ehta said, JBe can al.ays enter into an agreement .ith a third $arty& It can be a $artnershi$ firm or a (oint <enture& All o$tions are o$en& Be ha<e already started dialogues .ith a number of domestic and multinational 9% $roducers&K It .as added that the union had also tal,ed to se<eral former PI" directors and em$loyees .ho they felt could run the $lant and .ere .illing to lend a hel$ing hand& Clarifying the $oint that the em$loyees did not intend to ta,eo<er the $lant, @ehta said, JIf Phili$s India .ants to run the unit again, then .e .ill certainly .ithdra. the $ro$osal& *o not thin, that .e are intending to ta,e o<er the $lant&K

50
In @arch 1999, the +ol,ata Aigh Court $assed an order restraining any further deals on the sale of the factory& Justice S&+&Sinha held that the transfer $rice .as too lo. and PI" had to <ie. it from a more $ractical $ers$ecti<e& 9he unrelenting PI" filed a $etition in the *i<ision bench challenging the trial courtTs decision& 9he com$any further said that the matter .as beyond the trial courtTs (urisdiction and its interference .as un.arranted, as the $rice had been a negotiated one& 9he *i<ision bench ho.e<er did not $ass any interim order and PI" mo<ed to the Su$reme Court& PI" and %ideocon decided to e8tend their agreement by si8 months to accommodate the court orders and the .or,erTs agitation&

JUDGEMENT DAY
In *ecember 2333, the Su$reme Court finally $assed (udgement on the contro<ersial Phili$s case& It .as in fa<our of the PI"& 9he (udgement dismissed the re<ie. $etition filed by the .or,ers as a last ditch effort& 9he (udge said that though the .or,ers can demand for their rights, they had no say in any of the $olicy decisions of the com$any, if their interests .ere not ad<ersely affected& ?ollo.ing the transfer of o.nershi$, the em$loyment of all .or,men of the factory .as ta,en o<er by +itchen A$$liances .ith immediate effect& Accordingly, the ser<ices of the .or,men .ere to be treated as continuous and not interru$ted by the transfer of o.nershi$& 9he terms and conditions of em$loyment too .ere not changed& +itchen A$$liances started functioning from @arch 2331& 9his factory had been designated by %ideocon as a ma(or centre to meet the re/uirements of the eastern region mar,et and e8$ort to East Asia countries& 9he Su$reme Court decision seemed to be a ty$ical case of SallTs .ell that ends .ell&T Asho, Dambissan, 'eneral Counsel, PI", said, J9he decision ta,en by the Su$reme Court reiterates the $osition .hich Phili$s has maintained all along that the transaction .ill be to the benefit of Phili$sT shareholders&K Ao. far the Salt "a,e .or,ers agreed .ith this .ould $erha$s remain unans.ered&

QUESTIONS FOR DISCUSSION:


1& SChanges ta,ing $lace in PI" made .or,ers feel insecure about their (obs&T *o you agree .ith this statementM 'i<e reasons to su$$ort your ans.er& 2& Aighlight the reasons behind PI"Ts decision to sell the Salt "a,e factory& Critically comment on PI"Ts arguments regarding not acce$ting the unionTs offer to buy the factory& :& Comment on the reasons behind the Salt "a,e .or,ers resisting the factoryTs sale& Could the com$any ha<e a<oided thisM